Bringing in an external managing director is one of the biggest decisions a founder will make. Adrian Lawrence FCA explains why so many first MD appointments struggle, and what to settle before the search begins.
By Adrian Lawrence FCA
London is full of businesses that have grown past the point their founder can run alone. They started in a spare room or a shared office, built a loyal customer base, and now employ dozens of people across sales, operations and finance. Growth has brought complexity, and the founder is spending more time managing than building.
For many, the answer is to appoint a managing director from outside the business. Done well, it frees the founder to focus on what they do best and gives the company the leadership it needs for its next stage. Done badly, it can unsettle staff, confuse customers and end with the founder back in charge within a year, often having lost money and momentum along the way.
The difference rarely comes down to the candidate alone. It usually comes down to what the founder and the board decided, or failed to decide, before the search started.
Be clear about why you are hiring
Founders bring in a managing director for very different reasons, and each points to a different kind of person.
- To scale. The business has a proven model and needs someone who has taken a company from, say, 50 to 200 people, with the systems and management layers that requires.
- To professionalise. The business has grown informally and now needs proper reporting, governance and accountability, often ahead of investment or a sale.
- To turn things around. Performance has stalled, and the business needs a fresh perspective and harder decisions than the founder is able or willing to make.
- To plan an exit. The founder wants to step back over a few years, and needs someone who can run the business independently and make it attractive to buyers.
A managing director who thrives in a turnaround may be the wrong choice for steady scaling, and someone brilliant at building process may struggle in a business that still depends on speed and instinct. Name the reason first, then look for people who have done exactly that.
Decide what the founder will actually let go
The most common reason first MD appointments fail is not a lack of talent. It is a founder who hires a managing director but cannot step back from the decisions that come with the title.
Before the search begins, a founder should be honest with themselves and the board. Which decisions will the MD own outright? Which will be shared, and which stay with the founder? Who do the senior team report to from day one? Who speaks for the business to its biggest customers, lenders and investors?
Writing these down matters. Experienced managing directors will ask, and the strongest candidates will walk away from a role where authority is unclear. A clear split of responsibilities, agreed in advance, protects both the founder and the new MD.
Agree the founder’s new role
Founders often focus on what the MD will do and give little thought to their own job afterwards. That leaves a gap that is quickly filled by old habits.
Some founders move to chair the board. Others take a defined role in product, sales or client relationships. Some step away almost entirely. Each works, but only if it is agreed and communicated. Staff will watch closely to see who really makes decisions, and mixed signals in the first few months can undermine a new MD before they have had a chance to settle in.
Think about the board around the MD
A managing director in an owner-managed business often has no formal board to report to beyond the founder. That can leave both of them without anyone to challenge or support them.
Many businesses use this moment to strengthen their governance: appointing a non-executive director or independent chair, introducing regular board meetings with proper papers, and agreeing a short list of measures the MD will be judged on. It gives the new MD a clear framework and gives the founder confidence without needing to be involved day to day.
Look for the right experience, not the biggest CV
London has a deep pool of senior leaders, and it is tempting to be impressed by candidates from large, well-known organisations. Big-company experience can be valuable, but running a division with a large support team is very different from running an owner-managed business where the MD may also be the person who signs off the payroll and handles a difficult customer.
The most useful evidence is a track record in a similar setting: a business of comparable size, ownership and stage. Ask candidates to talk through specific situations, such as how they took over from a founder, built a management team or prepared a business for investment, and listen for what they actually did rather than what their team did.
Consider interim and part-time options
Not every business is ready for a full-time permanent managing director. An interim MD can steady a business through a difficult period or run it while the founder decides on the long-term structure. A part-time or fractional MD, working a few days a week, can bring senior leadership to a smaller company that cannot yet justify a full executive salary.
These options can also reduce risk. They let a founder experience working with an MD and learn what the permanent role really needs to look like, before making a long-term commitment.
Run a proper search
The best candidates for a first external MD role are rarely applying for jobs. They are running businesses already and will move only for an opportunity that is clearly explained and genuinely theirs to lead.
That is why a specialist managing director search usually starts with the founder rather than the job advert: understanding why the business is hiring, what the founder will hand over, and what success should look like after the first year. Only then does it make sense to map the market, approach candidates directly and test them against that brief.
A decision worth getting right
Appointing a first managing director is a sign that a business has come a long way. It can be the step that takes a company to its next stage, or it can be an expensive detour.
Founders who are clear about why they are hiring, honest about what they will let go, and thoughtful about their own role afterwards give their new MD, and their business, the best chance of success.
