by Tony Scott
Recent studies have indicated that the average number of CEOs at a company from start-up to IPO in Silicon Valley is 3+. This isn’t just a Silicon Valley syndrome – the numbers are similar for early-stage technology companies around the world, and across most venture capitalists’ portfolios.
Why?
It isn’t that early stage technology companies and their boards are somehow incapable of recruiting and retaining top talent. Venture Capitalists consider recruiting talent to their portfolio companies among the highest responsibilities they bear as an investor and board member.
The answer is that companies go through natural stages of development – from start-up to market penetration, to market acceptance and growth, and finally to maturity. Each stage has different business issues that define success or failure, and therefore require different human capital skills to achieve success.
In our experience, the most successful companies in each stage of development often have CEOs that tend to fit certain archetypal personalities which are quite distinct from one stage to the next – albeit with similar characteristics between adjacent stages.
Stage: Start-up
CEO Archetype: The Visionary
At this stage in a company’s development, the key business issues revolve around defining the product. Typically, the team being built is almost 100% focused on research and development, engineering and product development.
The skills needed by a CEO for a company at this stage are creativity, vision, and the passion to attract others to buy into the dream. The CEO’s focus is on defining the market opportunity, product features and functionality.
Stage: Market Penetration
CEO Archetype: The Quarterback
Companies at this stage are facing commercial issues: launching the first product and evangelizing the product in selected markets. The focus of the entire company at this stage is on launching the product, creating early sales wins, and developing partnerships and alliances.
The skills needed by a CEO at this stage are heavily weighted towards business development and sales. The CEO often is the most effective salesperson in the company – and a hands-on approach is critical to creating initial sales wins. The CEO at this stage must still have many of the qualities of a Visionary – particularly when it comes to being a “magnet for talent” to build out the team. Thus, the American football Quarterback as an archetype – a great all-around performer who leads the team by example.
Market Acceptance and Growth
CEO Archetype: The Coach
At this stage in a company’s development, it is no longer a question of whether or not the company will be able to achieve success – the question is how much, and how quickly. The key goals for the CEO are to build sales and services infrastructures, enter new geographies and markets, and manage for rapid growth. The skills needed are experience in professionalizing sales, marketing and services to create repeatable processes, and building a corporate structure to support growth. The company’s growth is now not merely confined to a local geography – the CEO must have a global mindset, and must infuse that throughout the organization. While the CEO is likely to still be involved in critical sales approaches and partnership negotiations, at this stage the CEO’s role must evolve into coaching others, and making sure the best performers are given the opportunity to succeed – or fail – on their own merits.
Maturity
CEO Archetype: The General
Companies that reach this stage of development face the issues of managing for efficiency and profitability, extending or paring product lines, and defending existing positions. The skills needed are professional management – with a focus on managing to maximize the bottom line, and delivering new products and services in a repeatable fashion. CEOs at this stage will ideally have merger and acquisition experience, and strong experience managing global operations. The CEO is likely to have strong “Lieutenants” reporting to them – with the CEO responsible for devising the overall strategy and picking the right Lieutenants to lead divisions or functional groups within the overall company.
When and How to Change CEO’s
The requirements of each stage of development are so different that it is very unusual to find one person who can effectively lead an organization through more than two or three of those stages. It is equally unusual to find one person who truly enjoys the issues related to a very early stage start-up and a much larger, more mature organization. In addition to the skills required being different for each stage, the personality types that are attracted to different stages of company growth are quite distinct. The only individuals that tend to remain passionately involved in a business across all stages of a company’s development are founders – and they typically lack the critical skills necessary to be an effective CEO.
A key tenet in changing CEOs is that sooner is typically better than later – most boards change CEOs too late. The ideal time is often just prior to or just after a company moves from one stage in the lifecycle to another. Of course, a change should be made immediately if the CEO doesn’t show passion for leadership – and unfortunately, this happens frequently. Sometimes their passion wanes because the CEO becomes burned out from the pace and challenge of building a company, and sometimes it is because they are personally motivated by building, rather than managing. In either case, a quick change is critical.
Changing CEOs is difficult under any circumstances, and has the potential to be either massively disruptive, or a motivating shot in the arm. The best way to minimize the potential for disruption to discuss the potential for change with the incumbent CEO, board and management team from the beginning – using a company’s potential lifecycle issues as the basis for those discussions. By applying the lifecycle needs of the company against the human capital skill sets needed to make the company successful at each stage, everyone involved can realize that success is measured by achieving the goals of one or two of the stages – not by tenure. At the start-up stage, it is important to show founders that they can have an important role in the company other than CEO, and that their success is measured not by their own title, but by the success of the organization they created.
How To Work with an Executive Search Firm when Changing CEO’s
Ideally, bring your search firm into your confidence as soon as possible – well before a change must be made. Searches take time – typically 3 to 6 months at the CEO level.
If you have a true partnership relationship with a good search firm, they should be able to help you think not only about when and how to change the CEO, but also whether or not the CEO should be changed. Sometimes CEOs just need the right lieutenants to backstop them with skills they don’t have – with the right team, you may be able to avoid a change. Have the search firm assess the entire management team, not just the CEO.
If change is inevitable, but you want to keep the current CEO in the organization, have the search firm work with the incumbent to help them understand how they can take on a new role in the company. Whenever possible, make the incumbent CEO part of the solution.
Most importantly, get buy-in early-on from the board and executive team that changes likely will be made as the company evolves – this makes changes infinitely easier when they inevitably do happen.