When we work with early stage startups, much of where a VC firm can add value is helping build out a strong management team — one that comprises of experts or industry veterans who can scale the company.
Typically, an early stage company has two to three people in the management team. Do these people have what it takes to get the company to the next level? Do they want to?
Alan Ying wrote the following piece in his monthly Inc column “Growth Factor”, outlining the four qualities great CEOs must have.
Can Founders Be Great CEOs?
I have many “deja vu” moments when working with startups. As a VC I rub my forehead a lot dealing with founder transitions, fundraising, strategic pivots, etc. In those moments I have flashbacks to wrestling those same problems from the other side as the founder/CEO of an investor-backed startup.
The most difficult situation is always the founder transition – “can a founder be a great CEO?” The short answer is yes. The long answer is that it’s more a question of “want” versus “can.” We’ll get to that later – for now, let’s review the four qualities that great CEOs must have.
1. Competency. CEOs must be competent at four activities: managing “up” (ie working with the board/investors), managing “out” (ie being the company face to the market/customers), managing “down” (ie leading the troops), and managing “forward” (ie devising strategy).
Managing up, out, and down are about consistent, credible, and regular communication. Any personal style – except being an obnoxious jerk – will work. Some CEOs may jump up on tables and pump fists while others quote poetry – as long as the communication is there, it’ll work.
Managing forward – strategy – is melding vision with pragmatism to achieve business results. That can be learned over time, but usually not on-the-job as CEO. Founders are great at vision, but pragmatism takes equal parts focus and compromise, and that’s much less common.
2. Self-awareness. No matter how one-of-the-guys you are, the CEO is inevitably enclosed in a “bubble of agreement.” You’re not just the boss, you’re the founder – people naturally defer.
To counteract this I always reminded my team that “people who agree with me are a lot cheaper – you get paid more to disagree with me, so I want to hear what I don’t want to hear.” This works… if you follow through and act on the feedback. There’s nothing more demoralizing to A-player executives than disagreeing with the founder… and getting ignored repeatedly.
Self-awareness is also knowing your own natural dispositions and fitting them to the duties of CEO. For example, I am over-the-top passionate and gregarious – I dialed that back during management discussions to foster idea exchange. Eventually, I took myself out of the equation and had the team meet without me. That’s when they bonded and the business took off.
3. Perspective. This is where experience comes into play – perspective is the ability to assess situations in an appropriate context. The good news is you don’t have to actually experience every situation in order to have perspective, but you need to be able to seek out and learn from others’ experiences.
I remember one of my hot buttons as a newly minted CEO was providing only generic soda in the company fridge – I wanted to send a message that we were a frugal company. Seriously… that was an issue for me. Fortunately I had a great COO who told me I was an idiot, and to let the office manager handle the sodas.
Entrepreneur/CEOs often stumble over pet issues – their passion or ego or whatever causes them to overweight their own judgement, ie “this is my product, I experienced the problem we’re solving, I started this company, etc.” See how Reed Hastings handled Netflix during last year’s Qwikster debacle to appreciate the importance of perspective.
4. Decision-making. Dwight Eisenhower said that the chief executive only gets the hard decisions – all the easy ones are made by those below him. Decision-making is the most important skill for CEOs, and is also the least learn-able. Founders are often poorly prepared, based on experience, and poorly equipped, based on personality, for CEO decisions.
Consider this: you’ve finally got your startup off the ground, landing lots of customers who love the flagship product, revenue is growing by leaps and bounds. Soon, the mediocre players start copying your product design, marketing style, even making outlandishly false product claims.
You blow this off for a while, but then you start losing deals – customers are actually LISTENING to the lies! Even your sales VP is begging you to build a product to compete against the vaporware.
Do you divert your resources to address a competitor’s desperation, even though you know it’s wrong? You started this company with your idea and you were RIGHT, but now, competitors aren’t playing fair, the market’s got it wrong, and it’s threatening your baby.
That is the situation, down in the dirt, where sharp elbows fly, where decision-making matters most. You can’t flip flop, you can’t wait, you can’t be inconsistent. This is the crucible where CEOs combine competency, self-awareness, and perspective into good decisions.
Typical founder attributes of persistent contrarianism, stubbornness, unwavering belief in themselves – the very things that make them entrepreneurs – inhibit the best decision-making in these circumstances.
So we’ve covered what makes a great CEO. For entrepreneurs, though, that should be beside the point.
Here’s the take-home message: if you’re the founder, you don’t need to be the CEO. Being the CEO is most often slogging around with messy, hard, and un-fun stuff. Being the founder, the visionary, the passionate idea guy – that’s fun. Don’t let the headlines and your ego push you into needing to be the CEO when you don’t really want to.
The statistics are clear that most entrepreneurs do not make great CEOs that can scale businesses. But the answer is also just as clear that they can become that CEO by mastering the above qualities. The real question isn’t whether you can – it’s whether you really want to.