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Tuesday, June 09, 2009

Start up CEO: a dangerous job

Start up CEO: a dangerous job

By Paul McLellan

Why do so few startup CEOs last the distance? The Bill Gates, Michale Dell and Scott McNealys who take their companies all the way from the early days as a tiny startup all the way up to enormous multi-division companies are very exceptional. I think that it is obvious that running a little engineering organization developing a technical product requires very different skills from running a large company. Engineering skills dominate in the first; people and strategic management skills dominate in the second. A CEO has to grow a lot along with the organization to be successful at each stage of the company’s growth.

What is less obvious is that the skills getting a company going are very different from running it once the engineering phase is drawing to a close, or in some case just getting started. I’ve read various statistics, but something like 75-80% of startup CEOs are replaced before their company gets acquired (or merges, or goes public etc).

Getting a company started, and raising the first money to fund it, requires a level of focus and obsession that is abnormal. The “doing whatever it takes” attitude is necessary in those very early days, but it tends to leave a trail of turds to be sorted out later. Further, some people like this have difficulty making the transition to being a team-player once the key hires have been made. Nothing will alienate high-performers more than trying micromanage them, or treating them without integrity, or generally not regarding them as close to equals. A startup is more like a jazz-band than a military organization. It is interesting that the highest performing small-scale parts of the military, Navy SEALs or the British SAS, abandon a lot of the military trappings (SAS officers famously are often called by their first names).

I’ve been in several startups where I’ve come in later, well after founding, and had to sort out problems that are left over from getting the company founded. Complete inequities in salary or, especially, stock seem to be the natural debris of getting people out of their current organization and into startups. But not getting them into the company is probably a worse problem.

There are no hard divisions between different stages in the life-cycle of a startup, but roughly speaking there are four. Getting the company founded along with the other initial founders; getting the engineering development solidly under way with a competent team; getting initial sales and starting to ramp up a channel; growth to a more mature organization with an industry standard breakdown of headcount. There is a fifth (and probably more) stages as it become more and more difficult to manage larger organizations. The largest organization I’ve run had about 600 people, and that is like sailing a supertanker. You think you spin the wheel but nothing happens.

At each of those four stages, the CEO may or may not make the transition. VCs are famously ruthless if they think that the CEO is not the best person to look after their investment. The old CEO, no matter how important he or she was in earlier days, is off to “spend some more time with their family” and a new person is at the helm overnight.

The most dangerous phase for many CEOs is the transition from engineering to starting to ship the product. Founding CEOs are often very technical, effectively the primary architect of the product. Like many engineers, they overestimate the importance of technology and they underestimate the importance of marketing and account management. By their nature as founders, they may be much better at driving over objections than at listening. So they fail at the business side since they are out of their natural comfort-zone and they compound the problem because they won’t listen to people who know what they are doing wrong. This happens so often that VCs see it coming from afar and don’t even wait to see if the CEO can handle it before hitting the eject button. They knew when they founded the company that they would change the CEO. Sometimes they even make it a condition of funding, to make the process less traumatic when it happens.

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