By Guest Author Tony Scott
Over the past twenty-plus years I’ve been working with and advising start-ups, I have often been asked by boards to have “a talk” with entrepreneurs about “potentially” bringing in new leadership. Yes, even experienced boards often run from confrontation with entrepreneurs, because building consensus is typically how boards work – not direct confrontation. So, it’s often easier to use an outsider to be the messenger to bring that bad news, in case the messenger gets shot!
I start the discussion by asking what the entrepreneur’s motivations were for beginning their business. Sometimes an entrepreneur will talk about how cool the technology is that they have developed; or how a product or service is going to change the world, make life better; or how they wanted just beat the pants off incumbents who had become fat, dumb and happy.
Those are all admirable motivations and goals, but a key question usually remains to be answered: “What motivates you personally? If you had to choose, do you want to be rich, or do you want to be the king?”
Often my question is met with dumbfounded silence. Usually I’m asked what I mean by the question – often to buy time while the entrepreneur can try to figure out what answer they should give – the real answer, or the one they think I (and their board) want to hear.
Most entrepreneurs know exactly what I’m asking of them. If they are smart and self-aware at all, they’ve probably asked the question of themselves, or at least know that some variation on the question is going to come up one day, particularly if they have outside investors.
Quite a few will respond by saying, “Why can’t I be both?” and cite examples such as Steve Jobs, Bill Gates, Larry Ellison, or a few others.
Of course those entrepreneurs have been wildly successful – but they are also extraordinarily rare cases. The reality is that very few entrepreneurs have the personality and skills to take a company through multiple stages of development. The kind of personality needed in a leader in a very early stage of a start-up – an incredible devotion to creating the best new product or service – likely won’t work very well when a company is at the stage where it needs to focus on ramping sales in a repeatable fashion. When a company gets to that stage, it’s not about building the better mousetrap, or continuously spending most of your resources on development, it’s about building a sales and marketing capability, and being able to make tough tradeoffs in terms of where you spend your money to get the most bang for the buck in the marketplace.
Almost every company reaches a critical inflection point in their development when the founder’s personality and skills are no longer the absolute best choice to run the company. And, just like a classic bell curve, as the company moves further and further along, the founder’s skill sets typically become less and less relevant, and in fact can turn to an active negative for the company.
That’s often when boards finally ask the question: “Does the founder/CEO have enough juice to take us to the next level?” But, by the time the question comes up, it is usually already past optimal time to make a change. Typically the question is raised when the founder has made some serious mistakes, and it is no longer possible for the board to ignore the founder/CEO’s lack of experience in areas the company may desperately need.
Of course founders usually have visionary ideas and lots of passion around their ideas. Board members, and particularly investor board members, love passion in a founder/CEO. No investor would invest in a company where the founder was only “wishy-washy” about their vision – and no one in their right mind would put in the effort that is required to make a start-up even modestly successful if they weren’t true believers in the vision. But at a certain point, vision and passion aren’t enough – and in fact, can be detrimental to rational evaluation of alternatives and impede hard decision-making.
If you have venture capitalists on your board, they have to be completely dispassionate at a certain point. A start-up is no place for a CEO to learn on the job, and venture capitalists shouldn’t have someone learn through trial and lots of errors how to be a CEO on their investors’ dimes. VCs have a fiduciary duty to the entities that gave them money to invest. No matter how much they may like an entrepreneur, they have a legal and moral obligation to make sure that they have the best possible CEO in place to lead a company in which they have invested to minimize risk and maximize the potential for success.
Since no venture investor is likely to invest in an entrepreneur they fundamentally don’t like, that conversation is just as hard to come to for a venture capitalist delivering the news as it is for the founder hearing it. That’s one reason we frequently see sub-optimal management structures such as “co-presidents” or “COOs” in early-stage companies. The investors and independent board members are trying to placate or soft-pedal the hard news that leadership with a different set of experiences and personality are needed – to someone they genuinely like.
Savvy board members and investors realize that one of the most valuable skills experienced CEOs have is pattern recognition: the ability to see things that will turn into problems quickly because they’ve had a similar experience before. It may not be exactly the same situation, but an experienced CEO is much more likely than a novice to not only recognize potential problems, but also have a good idea of how to fix them before they turn into disasters. There’s a lot to be said for passion and “smarts”, but experience can trump passionate inexperience – particularly in tough times.
So, back to the question for the entrepreneur – “Do you want to be rich, or be the king?”
If an entrepreneur has attached all their ego and sense of self-worth to the definition of being the CEO of the company, regardless of whether or not they may be the best person to bet on to achieve success, then they want to be the “king” (or queen, as the case may be). Someone who strongly believes that they always should be the CEO can be dangerous, because they may not be able to face reality in difficult times about what needs to be done to insure the company’s survival. Doing what’s right for the success of the company may mean abdicating the throne. If the transition is done well and a great new leader is chosen, there will be a greater chance for riches for all involved.
Think of a start-up in the same way you would think of a patient in surgery – a very complex mechanism that is living and breathing, with all sorts of unknowns that can happen during the operation. No one would suggest that an aspiring heart surgeon be given the task to perform open heart surgery without having studied under the guidance of experienced surgeons for years. Even when they do take on their first surgery as lead surgeon, there will be other experienced doctors, anesthesiologists and nurses on the team and observing, all to give the patient the best possible chance for survival.
Why should a start-up be any different?