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Is It Time For Your CEO To Go? (Part 3)

Posted on Saturday, Apr 4th 2009

By guest author Tony Scott of ChampionScott Partners

Prior CEO Experience – Does It Really Matter In A Downturn?

Entrepreneurs often ask me if prior CEO experience really matters as much as investors and boards generally seem to believe, and if it is really so important if things are slow.

The answer is a qualified yes.

Having someone who has been in the CEO chair before, particularly someone who has been through both good times and bad, is an advantage. If a CEO has been through a downturn as part of the executive team of a company, they’ll realize that you can’t ignore the reality of the overall economy, no matter how fantastic your new, new thing might be. If they were in the CEO seat during a downturn, even better – it means they know that very hard decisions have to be made at times to insure the company’s survival.

As an entrepreneur who has started several companies myself, I know how hard it is for a founder to let go of the dream and see reality. Even harder is to break bad news to your co-workers, who most likely joined the company because you painted a great picture of a bright future for them.

That’s a very big emotional burden for an entrepreneur to carry: the need to be the constant cheerleader for the company, and at the same time be the messenger of bad news and rational decision maker on who should stay, and who should go. That isn’t to say that that experienced CEOs don’t carry an emotional burden and care for their team. If they don’t, they’ll never get people to follow them – at least not for long. But the advantage of having lived through a downturn previously is that a CEO knows that triage is going to be necessary to survive. Any CEO worth the title never likes to cut programs or people, but those who have been through a downturn and survived have had the experience of knowing when and how to cut.

A downturn doesn’t necessarily mean that everything should be automatically cut to the bone. This is where the experience of managing through a downturn is critical. Most experienced CEOs will tell you that a downturn can be a great time to gain market awareness if you are doing something new. If you have a product or service that saves money, a downturn can be a great time to be aggressive with your marketing and sales activities.

But no matter what, every penny must be made to count in a downturn, and the CEO has to be able to balance the needs of delivering revenues today for survival, with investments in new products and services that will be the future of the company. That balancing act is hard to do. It’s also one that is more of an art than science, and improves with experience.

So why is my “Yes, CEO experience matters in a downturn” a qualified yes?

The qualified part of my answer is that many non-founders – regardless of role in the company – are less likely to have the passion to do whatever it takes to make sure the company survives. It’s easier for “professional managers” to cut and run if the going gets tough – particularly if they’ve already enjoyed financial success. Not all experienced CEOs have the morals of mercenaries, but plenty do.
If a founder is going to turn over the reigns to an experienced CEO, the most important thing they can do is continue to be the heart, soul and conscience of the company. That doesn’t mean second-guessing every decision the CEO makes, or encouraging the team to go around the CEO to bring their grievances to the founder. That’s a recipe for disaster. Ultimately either the founder or the new CEO will end up being forced out of the company if the board is doing its fiduciary duty.
What can a founder who has never been a CEO do to prevent this situation?

First of all, try to bring on strong advisors – either as a consultant, board director or executive chairman to help you manage the company through both growth and difficult times. Let your investors and board know that you don’t have all the answers, and that you want to make sure you’ve brought on the best team of lieutenants to support you in all functional areas, and the best team of advisors to help you navigate the company. Your board should like this. Board directors generally hate confrontation, and they really shouldn’t be meddling in the day-to-day management of a company, so you’ll stand out for helping take that potential headache away from them.

Secondly, if you really are overwhelmed, let your board know it, and work with them to bring in a CEO that you can work with and learn from. If you are part of the solution, you won’t be viewed as a problem. One of the biggest worries boards have is whether or not a founder/CEO will be flexible and work with them if a change is needed in the CEO seat. Take the initiative and you’ll be a hero to them, and to your team.

If a new CEO is to be brought on, be involved in the search process. Be viewed as a positive cheerleader for the company, but open and honest with all finalists. Believe me, if you start saying things to candidates that aren’t exactly in synch with reality, the word will get back to your board, and your credibility will be shot. Don’t ever do anything that could tag you as possibly trying to sabotage the search. If that happens, the board is going to be thinking about how they can get you out of the company as soon as the new CEO is on board, because they’ll believe that conflict between you and any new CEO will be inevitable.

Once a new CEO is selected, make sure you let him or her know that you are there to help, but that you don’t want to get in the way of their decision making process. It will be hard, but you have to let the CEO know that there are no sacred cows that can’t be slaughtered – including yourself. Let the CEO know that you aren’t going to encourage or tolerate people trying to back-channel around the CEO to you on issues – and stick to that promise. That will help you gain the trust of your new CEO.

The number one worry of most CEOs coming in to a formerly founder-run company is whether or not the founder will work with them or against them. Make sure you are seen as someone who is constructive and wants to do the best thing for the company at all times. Your example will be the one everyone else in the company will watch – and your actions will be put under a microscope and analyzed by everyone.

If you show in any way that you aren’t 100% behind the new CEO, the team will follow your lead, and that has been the beginning of the death spiral for many companies. If the board is experienced, they’ll see it happening, and will do what it takes to stop it. It will mean that either you or the new CEO will have to go.

Do you want to bet your reputation – and the company you worked so hard to build – your baby – on that?

This segment is part 3 in the series : Is It Time For Your CEO To Go?
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