Tom as a great series on the “Nerd CEO” which helps entrepreneurs learn and grow into the role of the CEO. (Please read them all!) Unfortunately, a lot of founders of venture funded startups never get the chance to keep that role for long.
One of the, actually, probably THE most contentious points in the VC - entrepreneur relationship is the inevitable decision by the board to hire a CEO to replace the founder. (Or hire a VP to replace the founder). Lots have been written about this topic from the perspective of the VC or the entrepreneur. When the founder refuses or is reluctant to hire a more experienced professional CEO, VC’s derisively calls it “FOUNDERITIS.” I myself have had the same “affliction.” Obviously I believe that not enough founders are given the benefit of the doubt to grow into the role of a public company CEO. VC’s, on the other hand, are simply playing the percentages. The likelihood of an investment panning out with a professional CEO is higher than with a founder-CEO. As a result, not really in the business to gamble but to minimize risk (anti-venture capitalists?), VC’s rather play the safer bet. Given that in most cases this is inevitable, I thought I share some tidbits on how to “hire your boss.” Some founders, such as Jerry Yang, Larry Page, and many other seemed to have made an enviable transition from being founder-CEO’s to other executive positions while remaining actively involved. While there are many factors, the choice of the CEO is one of the main driving forces.
I’m certain VC’s will disagree with more than a few of my points, but my goal is not to simply maximize investment return but also to ensure entrepreneurs are not un-ceremonially marginalized. Having went through this and other similar processes a few times, here is few things I wished I looked for but did not. (the beauty of hindsight!)
1. Hire a CEO with a functional “expertise” beyond management. Candidates with only “general management” training tends to manage via numbers, processes, and developing “strategies.” They tend to be really good at playing politics & setting directions but not very good at getting their hands dirty and solving problems (critical skills at startups). Be aware of candidates that had never excels at a specific task (marketing, sales, product management, engineering etc) before running a P&L. In most cases I would stay away from executives that spent their WHOLE career in business development, M&A, or strategy department of large corporations.
2. Older the better. Obviously they cannot be so old they don’t have the energy or enthusiasm for the technology or the industry, but those people rarely are interested in startups in the first place. What is important is that older executives care as much about fame and fortune as leaving a legacy. For them, that legacy includes leaving behind his/her learnings and experiences to the next generation of executives. As a result, entrepreneurs are more likely to find a CEO that is willing and eager to mentor them and help them grow into critical functional roles in the company (and even take over as CEO again).
3. Richer the better. Similar to the last point. If they are already rich, their motivation will not be driven by financial gains. VC’s are driven by the bottom line of their equity stake; you don’t want the CEO to be driven by the bottom line of their equity stake too. All too often what’s good for the CEO’s pocket books is not good for the company. (ENRON anyone?). Again, being rich/successful means that he/she has nothing left to prove personally and will be more likely to mentor and work with the existing management team. The CEO’s drive must come from the opportunity to change the world and make a difference and not solely from monetary gains.
4. Ask to talk to middle managers & engineers. It is a good sign that during the hiring process the candidate asks to talk to middle managers and engineers. It shows that he/she is not afraid to gather information himself, to learn the things he doesn’t understand, and is not intimidated by technology. You don’t want the ivory tower type CEO’s.
5. Understand hiring more/better people is not a cure-all. This is the most important point, if the CEO doesn’t seem to get this point, run the other direction as fast as you can. Most VC uses “hiring” as a tool to solve problems. Over budget? High burn rate? Hire a CFO. Low adoption rate? Hire a VP of Marketing. Low product quality? Hire a CTO. This is fine for VC’s to do but really bad for CEO’s to adopt the same attitude. The CEO needs to be able to get his hands dirty (2nd time I said this!), discover problems, and create solutions. Only when people are incapable of executing to that solution should hiring people be a viable path. Otherwise, you are going to end up with company with 80% senior executives and 20% execution employees. For a startup that has yet to scale, this is a very bad cost structure – ensuring that if the strategy you are pursuing do not pan out, a re-start will be inevitable. CEO that are not smart enough to understand or too lazy to try will use hiring people as a crutch. Next time in an interview process a candidate mentions that he “knows this guy who knows this woman who would be perfect for taking your marketing strategy to the next level,” don’t bother with him. Hire that woman to be the CEO instead.
6. Original thought rather than regurgitate. Senior executive get presentations spoon fed to them from industry analysts, Wall Street pundits, and startups looking for partnerships. Simply by regurgitating these memes he will seem very smart and wise to your company and its competitive environment. Don’t be fooled. You want some one that can absorb AND also synthesize. Ideally he shows contrarian thinking on product, partnership, business model strategy. Even better if he has an original thesis and is not afraid to cite sources which helped him create that thesis. (give credit where the credit is due!)
7. Ask to talk to potential customers. One of the main jobs of the CEO is to work with customers. He/she cannot be afraid of the selling process and getting pushed around by customers. The CEO should be the tag-team partner of the VP of sales. Asking to talk to potential customers also shows his or her humility . . . that we all eventually report to someone, the customer ultimately.
8. Registers as a user. You want someone that cares enough to learn EVERYTHING about your company before diving in. Asking for a demo is not enough. There is no more important attribute than the product for a technology based startup. As a result, the willingness to learn more about the product shows curiosity, detail orientation, and customer focus.
9. Stands up to the VC. Nothing worst than a CEO that represents the board rather than the company. Employees will feel alienated and loses a sense of direction and vision when the CEO doesn’t represent the voice and motivations of the employees.
10. Have kids. Nothing like having kids to help people re-enforce their sense of morality, integrity, and justice. (Gotta practice what you preach!) Having kids also help people become more patient. CEO’s needs to understand that leadership is as much about command/control as about teaching skills and cultivating talent.
