Is it better to list a non academic reference that knows me really well, or an academic reference that is less familiar with my work? During university I had 3 professors I did close work with and that were really familiar with my work. Unfortunately one of them retired and as such is no longer willing to give me a reference letter.

I have been working in my field at a startup, and the CTO of the startup knows my work really well and is willing to write a recommendation letter for me.

Is it better to contact professors that remember who I am but with whom I only took a couple of courses and as such may not be totally familiar with my work ethic/skills, or is it better to list my CTO who doesn't have a PhD.

Edit: Field of study is Computer Science
General Answer

This will in part depend on what type of graduate program you are looking at. 

If this is for professional school (business, law, medicine, etc.), I would think that a letter of recommendation from non-faculty would be relatively common. Such a letter (such as in the case of an MBA program) could actually be favored over a letter from a pure academic. 

Conversely, let's even suppose you are trying to get into a master's program in a purely academic discipline. (For sake of argument, let's say pure maths). You need to have some letters that can speak to your academics and scholastic abilities directly.

However....

If you already have two solid letters from professors who can speak to your academic qualities, a letter from someone in "industry" who can speak to the more non-academic aspects of your profile might add a positive depth to your application that would not be achieved by having three academic references. 

Speaking for myself personally, if I was to receive an application from a student who had two academic references and one reference from a CTO, I would likely be more inclined to look at the application with deeper consideration. The non-academic reference could provide a dimension of insight into the applicant that would not be accomplished with three academic references. 

Long story short, I would much prefer to have a non-academic letter of recommendation that gives a fuller and more complete picture of an applicant than a letter of recommendation from a professor than does not know a student well.



Situation Specific

Based on some inferred information from your profile, it seems that you are likely trying to get into a program in the computer science fields. If you have a quality letter of recommendation from a well credentialed CTO (i.e. not someone who runs a company worth US$200 from their mother's basement), I would by all means include it in your application. Many programs want students who have connections to industry. It helps them make inroads with their alumni network into new employers and new fields of collaboration.