Leadership transition is one of the most critical—and often overlooked—factors that can shape a medtech company’s success. Whether it’s a startup growing past its initial seed stage or a more mature company entering commercial scaling, transitioning leadership effectively is essential to maintaining momentum. However, the process can be fraught with challenges, especially for founder-CEOs who need to pass the baton.

At LSI USA ’24, a panel of seasoned investors, CEOs, and recruiters came together to discuss effective leadership transition in medtech. Led by Joe Mullings of The Mullings Group, the conversation explored best practices for navigating leadership changes, identifying the right talent at the right time, and managing cultural shifts that often accompany these transitions.

The Inevitability of Leadership Transition

Joe Mullings opened the discussion by sharing a compelling statistic: 80% of first-time CEOs will eventually be replaced. This might sound alarming to new CEOs, but as Terri Burke of Epidarex Capital noted, “Leadership transition is not necessarily a bad thing nor does it mean you’re not performing well; it may mean that your company has grown and graduated, necessitating a different skill set.”

Burke emphasized that leadership changes are often driven by a company’s evolving needs. In the early stages, a founder’s technical expertise is invaluable for product development. However, as the company matures, the demands on the CEO shift toward commercial strategy, fundraising, and scaling operations. Not every founder is equipped for these new challenges, and investors are increasingly aware of this.

Identifying When It’s Time for a Leadership Transition

One of the panel’s key takeaways was the importance of recognizing when a leadership transition is necessary. Terri Burke highlighted the signs investors look for, particularly when preparing for Series B or Series C funding rounds:

• Pitches lacking market insight: Technical founders often excel at product details but may struggle to communicate commercial value to investors.
• Stagnating team dynamics: Companies need leaders who can attract and retain top talent, especially during growth phases.

Burke warned that waiting too long to address leadership gaps can hinder fundraising efforts. She explained, “If your team isn’t equipped to scale, investors will notice—and they may pass on your company.”

Handling the Emotional Side of Leadership Transition

Leadership transition isn’t just a logistical or strategic process; it’s deeply emotional, especially for founders who view their company as their “baby.” Zoar Engelman of Deerfield Catalyst acknowledged the psychological toll on founders, noting that “there’s a sense of ownership that can make it hard for founders to let go.”

Engelman encouraged founders to view leadership transition as an opportunity for growth rather than a personal failure. He advised founders to focus on their strengths—such as product development or clinical expertise—and remain involved in the company in a capacity that best suits their skills.

The Role of Boards in Leadership Transition

The panel also explored the role of boards in ensuring a smooth leadership transition. One key takeaway: Boards need to do more than hire a new CEO and walk away.

“Most boards fail to provide adequate support for new CEOs,” Mullings stated. He suggested that boards should implement a structured transition plan, including regular check-ins with the new CEO and providing access to coaching or mentorship.

Terri Burke emphasized the importance of having at least one board member with operational experience. “Boards are great at financial oversight, but startups need practical, day-to-day advice during a leadership transition,” she said.

Engelman shared that Deerfield Catalyst’s approach includes appointing a board member to act as a liaison between the outgoing and incoming CEOs. This “transition coach” helps smooth over potential cultural shifts and ensures continuity.

Maintaining Company Culture Through Leadership Changes

One of the biggest risks during a leadership transition is losing the company culture that made the startup successful in the first place. As Mark Christopherson explained, “Culture is what drives success in early-stage companies. It’s what motivates small teams to achieve big goals.”

However, culture can be fragile. Christopherson warned that introducing a new CEO without addressing cultural concerns can lead to talent attrition. He recommended involving key team members in the hiring process to ensure the new CEO aligns with the company’s values.

Engelman added that companies should communicate openly about the transition to ease anxieties among employees. “A sudden leadership change can feel like the rug is being pulled out from under you. Transparency is key to maintaining trust.”

Building Resilient Teams During Leadership Transitions

The panel agreed that leadership transition doesn’t have to lead to disruption if the right steps are taken:

1. Develop a clear transition plan. Outline what the first 30, 60, and 90 days will look like for the new CEO.
2. Provide ongoing support. Consider hiring a coach or appointing a board member to mentor the new CEO.
3. Maintain open communication. Keep employees informed about the reasons for the transition and what they can expect.
4. Focus on culture. Ensure the new leader understands and respects the existing company culture while bringing their own unique strengths.

As Burke put it, “Leadership transitions aren’t just about finding the right person—they’re about creating an environment where that person can succeed.”

Conclusion: Embracing Leadership Transition as a Growth Opportunity

Leadership transition is often an inevitable part of growing a medtech company, but it doesn’t have to be a crisis. By recognizing when it’s time to make a change, involving key stakeholders in the process, and providing ongoing support, companies can ensure a smooth transition that strengthens the business.

The full recording of the panel can be found in LSI’s resource hub at the link below:

• Transitions of Leadership: Challenges and Considerations in Installing New Management