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Actually, you can hire a CEO

Marc Andreessen has written a great series of blog posts about startups.  But, his most recent about How to Hire a Professional CEO is too cute or just wrong.  To save you the trouble of clicking, here is what Marc says about How to Hire a Professional CEO for your startup:

Don't.

If you don't have anyone on your founding team who is capable of being CEO, then sell your company -- now.

I don't agree, although I will concede that it is far better to already have a great CEO than to have to go hire one.

I think that most start-ups are in a more nuanced situation than this.  Here are the most common scenarios:

  1. There is an experienced CEO with the right market experience on the founding team.  You are done and can pass Go and collect your first VC investment check.  Maybe.
  2. There is a strong manager on the founding team who can run things for a while as you get the company off the ground.  For many high-tech startups, this can be someone who ends up being a strong CTO, VP of Engineering, or VP of Marketing.  The risk is that, as an investor, you know you'll have to remove this person from the job of running the company at some point.  Even if the Founder agrees up front, when the moment of truth comes for them to help hire a true CEO, they may resist or, even worse, become obstructionist.
  3. You have a great technical founder but no business person to get things going.  Usually, as a VC, I'd try to match up this great technical founder with a start-up CEO from category 1 above.  If you can't get one of 3 or 4 qualified CEOs to bite on the opportunity, perhaps there is some fatal flaw with the idea or the founder.  Think very, very hard before you go ahead and fund this kind of company without the CEO in place.
  4. Even scarier is the situation where you have a person with the CEO title on the founding team, but you don't think that this person is qualified for the job or should even have a role at the company.  There is no way you should fund this opportunity until you get the right person in the CEO slot.  Anything else is just asking for trouble.

In some of these scenarios, you may need to hire a CEO, either at the beginning of the company's life, or after it has grown and matured a bit.  It is very, very common for start-ups to outgrow the initial management and have to add more experienced management as it progresses.  In these cases, you'll have to hire a 'professional' CEO, as Marc calls it.

I've had some luck finding CEOs through my own network of contacts.  It is definitely worth doing this at the start of a search, but don't delay for too long.  I'd recommend trying up to 4 people from your network that you think would be a good fit.  Beyond that, hire a recruiter.

I've had good success with professional search firms.  I prefer smaller, boutique firms that focus on particular market segments.  The partners at these firms are hungrier and tend to do all the work themselves, rather than delegating it to less experienced associates.  Although the best search firms do a good job on referencing checking and thinking about fit within the organization, I think you have to really do that job yourself.  Make sure you spend hours and hours with the candidate, in both business and social settings.  Make sure you do many, many reference calls (at least 20), including many people not on their formal list. 

I always go out of my way to talk to what I know will be negative (or less positive) references to hear their perspective.  We all have people that we have crossed at some point who won't be glowing in their feedback on us.  They may be biased, but I want to hear what the biased people say.  Find someone who decided not to promote the potential CEO sometime in their career.  Find someone whom the CEO had to fire.  Find the investor who passed on their previous deal because of concerns about the CEO's experience.

You have to have the management team be part of the CEO interview process, but don't let them be obstructionist.  In the end, the Board hires the CEO.  You want the new CEO to fit in with the company.  But, I have seen situations where the existing management, which may be weak, fears the new CEO being brought in because they know that some or all of them will soon be out of a job.  In addition to just hiring the wrong person, this is probably the kind of situation that Marc is wary of.  And, rightfully so.  But, as an investor, you have play the cards you are dealt.  And, sometimes there is some breakage in these management changes.

It's definitely possible to hire an experienced CEO later in a company's life.  It is an element of risk.  But, you also need to match the CEO to the stage of the company.  A boot-strapping start-up won't be able to attract the CEO who can run a $50-100M business.  As you go from one phase to the next, you'll have to make changes.  Proceed with caution.

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