What is a CEO vs owner? Everything small business owners need to know

As a business owner, have you ever wondered if you should appoint yourself CEO? What are the key differences between being the owner and serving as the CEO? This article will break it down for you.

As your business grows, bringing on a dedicated CEO can provide immense value. But first, you need to understand the responsibilities and authority these two roles have.

Let‘s compare owners vs CEOs, look at their responsibilities, and see when it makes sense to hire executive leadership.

Defining owners and CEOs

First, let‘s clearly define these two key roles:

Owner – The person or group that has legal rights to a company. An owner invests their own capital in the business and reaps the profits.

CEO – The highest ranking executive in a company. CEOs are hired by a company‘s board of directors to oversee day-to-day operations and major corporate decisions.

According to Gallup, 33% of small businesses in the US are sole proprietorships with a single owner. And most of these owner-operated businesses do not have dedicated CEOs.

But as a business grows, owners have to decide whether to appoint themselves CEO or hire someone new to fill that role.

3 key differences between owners and CEOs

While owners and CEOs work closely together, there are some distinct differences between the roles:

1. Owners provide capital, CEOs manage operations

As the owner, you likely invested your own money or took out loans to start the business. So you rightfully reap the profits and have a major financial stake.

The CEO is appointed by the board specifically to manage ongoing operations. They don‘t have an ownership stake.

2. CEOs report to the board, owners oversee the board

CEOs must report to and take direction from the board of directors. The board can dismiss underperforming CEOs.

As the owner, you likely appoint board members and evaluate their performance. The board acts as your proxy to oversee the CEO.

3. Owners focus on returns, CEOs drive growth strategy

Naturally as the owner, you care deeply about profitability and ensuring you get a return on your investment.

The CEO is laser focused on growth, operations, and strategic decisions to drive the business forward. Revenue growth is a key metric for judging their performance.

These core differences shape the typical relationship between owners and CEOs. But in small companies, the lines often blur.

Responsibilities: Who does what?

Now let‘s explore the key responsibilities of owners vs CEOs:

Owner responsibilities

• Providing investment capital
• Appointing board members
• Evaluating company budget and performance
• Setting policies around dividends and profit allocation
• Approving major capital expenditures
• Shaping high-level strategy as part of the board

CEO responsibilities

• Overseeing company operations and departments
• Making major corporate decisions
• Managing policies and objectives
• Appointing/dismissing executives
• Driving company strategy and growth
• Reporting to the board on budget, risks, and performance

While owners provide the investment, CEOs focus on optimizing operations and strategy. But there is certainly overlap, especially in small businesses.

According to the Small Business Association, 99.9% of businesses in the US are considered small, with less than 500 employees. Most of these small companies do not separate the owner and CEO roles.

Who has more power?

This is a complex question. On paper, the shareholders or owners have final say over the corporation. After all, they elect the board of directors who appoint the CEO.

But in practice, CEOs often wield more day-to-day power over decisions, strategy, and operations. While the board gives high-level direction, the CEO manages execution.

The board does evaluate the CEO‘s performance closely. If growth stalls or earnings drop, the board will likely dismiss the CEO.

For small businesses with a single or small group of owners, they typically control both the board and CEO role. This gives owners tremendous power until they decide to step back from daily management.

When should small business owners hire a CEO?

If you currently manage your small business day-to-day while also being the sole owner, when does it make sense to hire or appoint a CEO?

There is no set threshold, but signs your company could benefit from a dedicated CEO include:

• Over 50 employees – The workload may have become too much for an owner-operator

• Rapid growth – Quick expansion often requires expertise to scale successfully

• Need for new skills – Do you lack critical skills like marketing, HR, finance? A seasoned CEO can fill gaps.

• Limited strategic thinking – Growth may stall if you‘re trapped managing daily fires

Bringing on a CEO allows small business owners to step back and focus on investment priorities, not day-to-day operations.

What title can owners use other than CEO?

Let‘s say you‘ve appointed a CEO to manage your growing company, but you still want a title that conveys your active role. What are some good options other than CEO?

• Founder
• President
• Managing Director
• Principal
• Chairman of the Board
• General Manager

Picking a title that works for your personality and company culture is key. You want to communicate you are still very involved, just not in day-to-day management.

According to one survey of Inc 5000 companies, Founder was the most popular title among owners who hired CEOs. But choose whatever resonates for your situation.

The CEO reporting structure

CEOs report directly to the board of directors, typically led by the Chairman of the Board. While owners do not directly manage CEOs, they elect the board, who in turn hire and oversee the CEO.

So while CEOs run the overall business and operations, the board ensures they act in the owners‘ best financial interests. Regular reports on budget, performance, risks, and strategy allows the board to take action if needed, including dismissing the CEO.

Who can fire a CEO?

Boards of directors most commonly fire CEOs due to poor performance, misconduct, fraud, or poor leadership. In small businesses where owners manage the board themselves, they have direct power to dismiss the CEO as they see fit.

High profile CEO dismissals often make news, like WeWork removing founder Adam Neumann as CEO in 2019 after public scrutiny into the company‘s governance and culture.

But even well-performing CEOs who have simply lost support from board members or key investors are often pushed out. Uber co-founder Travis Kalanick faced this type of ouster in 2017.

So while CEOs wield power over day-to-day decisions, owners and boards ultimately decide their employment as they monitor company performance closely.

The bottom line

As your business grows from startup to established company, hiring or appointing a CEO can free you up as the owner to focus on your best contributions instead of getting bogged down in operations.

Look for signs like surpassing 50+ employees, needing strategic leadership or certain skill sets, and lacking time for high-level thinking. This likely signals it‘s time to hand over the reins to an experienced CEO.

Just be sure you have a board and structured process in place to appoint, incentivize, and if needed, dismiss the CEO. This ensures you maintain alignment with company goals and your stakeholder interests as the owner.