On CEO Hiring

People often ask me when and why a CEO is brought in.

The short answer is: when the person running the company is unable to hire the most talented people to work for him or her, it may be time to hire one of them to run the company.

That’s because startup success comes down to right market, right product, right time and execution. And execution is all about hiring the right people who can execute.

At a more detailed level, there are two distinct cases:

Doing well. The company is doing well, but needs an experienced executive to help it scale. This most often relates to a quickly growing organization, or specifically to sales, especially in a B2B investment, where the chief executive needs to be the chief sales person. This frequently happens when the founder is a technical/product visionary, has been able to scale the company to a certain point, but is not an experienced sales and operational executive.

Put another way, it’s potentially very expensive learning for a sales organization, investors, and revenue if you’re doing on the job training for six and seven figure deals. That’s not to say that the sales process shouldn’t be learned on the job – every  new product that comes to market has to go through the sales learning curve. But actual selling experience, issues of compensation, issues of hiring and scaling sales teams have all been done before and should not be learned on the job. Only the specifics of selling the particular product should be learned in real time.

What about just hiring an incredible VP of Sales? This can certainly work for a while. But eventually two things happen: the company’s need for sales and operational leadership outstrips the product visionary’s ability to fulfill that need; and, the most talented of executives want to run the company and be CEO rather than report to the product visionary.

I would argue that the latter issue is the real crux of all CEO hiring: When you’re unable to hire the most talented people to work for you, that’s the sign that you need to hire one of them to run the company.

Struggling. In the second case, the company is struggling and needs a change. In this case, a new CEO is typically brought in because the company is struggling – it’s had a hard time raising money, competitors have overtaken it, or bad execution has plagued the company and the money has run out.

In this case, the new CEO’s goal may be to sell the company, or more frequently, to pivot the company into a new market or new strategy. This takes a certain kind of very entrepreneurial CEO, one who has the vision and appetite for turning something struggling into something new and exciting, a natural ability to turn lemons into lemonade. This change isn’t just about executing better or scaling up the organization; it’s about implementing a new direction for the company, raising the capital to support that direction, and executing on it.

Conclusion

Bringing in a new CEO is fraught with risk. As venture capitalists are fond of saying, “the body may reject the organ.” That is, bringing in a new CEO is a bit like heart transplant surgery – a lot of things have to go right for the transplant to work. But a CEO hire done right can have enormous positive impact. Just look at Cisco, VERITAS, and Google, to name a few.

Of course, the ideal scenario is to invest in and back a founder all the way from initial investment to IPO. But put simply, the individuals who can be both founding entrepreneur and scale all the way to public company operational executive are rare. Or, a company may have morphed from one market to another (for example, from consumer to business or business to consumer), requiring a vastly different skill set.

A lot of it comes down to whether the founder continues to recruit the very best people to work for him or her. One of the biggest struggles I have experienced personally and have seen other founders go through is the challenge of hiring in people outside their founding team when their founding team itself is unable to scale – a new head of sales, a more experienced VP of marketing, and so on. Entrepreneurs by nature tend to be incredibly loyal, and the challenge is finding a balance between that loyalty to the original team and bringing in executives who can help scale the organization.

Talented people will always be drawn to those who “change the temperature of the room.” It’s when you find that others are changing the temperature more than you are, hard as it may be, it may be time to make one of them CEO.