This post is written from a slightly different perspective as it is spawned by three conversations of about a year ago wherein VCs asked me what I thought about replacing CEOs and what the ideal process might be.
About five years ago, I had a chat with the younger brother of a successful CEO. The older brother was a friend of mine of longstanding and through him I met the younger brother.
The younger brother was in awe of his big brother — All State Basketball First Team kind of awe. We got to talking about his brother, the CEO/Founder, in that capacity. He was, admittedly, very good. Plus, he was a good guy with that aura of a winner that guys like that have.
“I could never do what he does,” said brother younger. “He just knows what to do. He’s a natural.” It was a serious lament, so I told him the following:
1. No CEO/Founder ever knew everything he/she needed to know before they started the company even if it is their fifth company.
Comes now the strange case of Justin Zhu, Chief Executive Officer and co-founder of Iterable (email marketing firm).
Justin complains of the fact that he believes he was replaced as CEO because he microdosed with LSD before a key investors’ meeting during which he says he saw “numbers and images swelling and shrinking on the screen” and that his body felt like it was melting.
Who really knows?
When a startup reaches year three it is no longer crawling in the crawl, walk, run continuum. It has survived the danger zone (imagine Top Gun soundtrack of Danger Zone) in which most companies fail.
If it is typical, it has a well developed product or service — well beyond Minimum Viable Product — and if it is in the commerce space it may have sales of as much as $10,000,000. It is likely profitable and if the growth rate continues, it will be very profitable.
With success comes a new set of problems and many times they are related to staff. Has the staff grown at the same rate as the company? Can the staff you hired when the company was a seed run this larger and more complex enterprise? It happens all the time.
If you are not a CEO, stop reading and move on. CEO Shoptalk is for CEOs only and, of course, you. Because you are special and one day you will also be a CEO, so read on, Alphonse.
The other day I get into a chat with not one, but two CEOs about the same issue I spoke of the other day, Performance Appraisal.
We are discussing the performance of someone who is clearly not a superstar, but is a solid utility infielder meaning they are not going to be promoted any time soon, but they are also not going to be fired.
If you are a CEO, you will have hard conversations with your people, board, investors, shareholders sooner or later. [Love a good cliche in the morning, no?]
The nature of the conversation isn’t really important. What is important is how you prepare for it.
Pro tip: The preparation for a hard conversation will have more impact on the outcome than the actual conversation because it will set the nature of the conversation.
If you are an entrepreneur, founder, CEO, you swim in a sea of risk, alternating amongst the butterfly, the backstroke, the breaststroke, and the crawl. You must do it all.
In the early days, you are a minnow (or a little mullet if you are feeling salty) and the dangerous waters of startup land are populated by voracious, big-toothed sharks, vicious sharks, all of whom want to devour you.
In these early, formative days every risk can eat you (kill you, destroy your company). [Worse, you don’t yet know the nature of risk. You are in that classic posture of not knowing what you don’t know.]
As you exit the size 2 Pampers, the list of things that can kill you begins to thin, but you add to it — you begin to take risk.
You visit risk upon yourself as you sharp elbow your way upward in the food chain. [Soon, you may become a shark.]
The big question is this — Do you understand the nature of the risks you are taking?
I took a few accounting courses in grad school. I once knew my debits versus my credits. Knew all about original issue discounts, goodwill impairment, and other such trivia.
Knew GAAP and FASB. Just showing off now.
I ran businesses for 33 years. I needed to know more about accounting so I hired good accountants, retained good accounting firms, hired a good Chief Financial Officer, got second opinions, and I studied the subject on the mean streets of the business world.
CEOs and founders need to know some accounting — financial accounting, managerial accounting, tax accounting. What I knew saved me a lot of money.
One of my interests is the progression of ratios in a graphical manner — pick a financial ratio and graph it such that you can see the trend at the bat of an eye. That tells me something.