Why Founding CEO's Fail Redux

A friend asked me to repost this old piece about Founding CEO's. I am obliging because I have made the acquaintance of a slew of new young CEO's...and I am a sucker for flattery.
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They start out with a great idea. They don’t sleep. They invest everything they have in the idea. They have no other life. They build the idea into a great opportunity. They entice investors to fund the idea. They invite their most trusted friends to join them. They cultivate customers. They share the potential of the idea. They nurture the idea into a budding brand. They start to generate revenue based on their idea. They can see the break-even moment. They know how they will invest the profits in new ideas. They can smell the IPO or the world dominance of their idea.

And then one afternoon, after an executive session of their Board, they are told that it is time to bring in “experienced, professional management.”

And suddenly the “Founder and CEO” has only “Founder” on their business card.

And they wonder WTF?

They did so much so right…what could they possibly have done wrong?

It is hard to ride the wave of success if you are a Founding CEO. Not many do so. And those that do stay upright have a lot of help.

Those that end up in the surf of superfluous staff positions, in their own companies, usually have wiped-out based on one or more of the following reasons. Easy to avoid…but hard to see when you are trying to ride the wave.

 

1. Not hiring well enough. Hiring their sister in-law, college roommate and two favorite lab partners is fine at the very beginning, but not upgrading the team is a fatal flaw. It is a serious red flag to investors that the Founding CEO has limitations if they cannot or will not attract real talent to the enterprise.

2. Not trusting those they hire. Bringing in the much-needed talent and then not using it is another red flag. If a Founding CEO is still making every decision and never schedules their team present to the Board, watch out. The Board will figure out that the Founder CEO has security issues or control needs that will eventually be a gate-to-growth.

3. Not expanding their skills beyond pitching their idea. It was their primary skill set for so long that it is hard to determine when it has become obsolete. But, if the only thing the Founder CEO can do is pitch their initial idea it is another gate. It may take a while for the Board to realize that the Founder CEO is a one-note-samba, but they will.
 

4. Not managing the basics. Compared to the heady first phase of a company, it can be boring in the second stage of growth when on a day-to-day basis you have to show up and manage cash, stick to product schedules, understand costs, hire and train people, find customers, serve customers and communicate with the Board. But it must be done. A Founder CEO who does not master these basics will not hold on to the CEO part of their title for long.

5. Not stretching their comfort zone. Don’t confuse culture with comfort. Founder CEO’s who define the culture of their company, as the method by which they are most comfortable doing business, will fail to build a sustainable model. Comfort and success have very little in common. If the Founding CEO is not outside of their comfort-zone every day they are not competing for their own job.

6. Not outsourcing. Thinking you can do it all, invent it better than everyone else and subscribing to the “not invented here” mentality, is hubris that wastes money and time. Building partnerships is one of the most commonly requested skills in the specifications for the “experienced, professional management” that replaces Founding CEO’s.

7. Not managing the BOD. If you do not talk to them, they will talk about you. And they will talk about you without all the facts. The investors can intimidate founding CEO’s. Being intimidated is a serious mistake. You are accountable to the BOD, but you have to ask as much of your BOD as they ask of you. No board meeting should end without the CEO placing that quarter’s demands on the BOD. And a good CEO follows up all quarter, working with the BOD members and encouraging them to invest more than money. A good relationship with the BOD offers many currencies to a company. A good BOD can offer introductions, talent, partnerships, competitive insight, financial modeling, operational advice etc. And a good CEO takes advantage of the offerings and builds the BOD’s investment in time, attention and loyalty. It is hard to vote to fire a guy who regularly solicits and follows your advice.

 

All of these are avoidable pit-falls and it is easy to see who is going to wipe out and end up a Founder without portfolio in their own company.

It is the Founder who never asks for help.

Once a Leader.....

When I was in high school there was a boy in class who was a natural born leader.  Dave Fares was one of those teenage kids who was fun and mischievious and cool, but also seemed to have a bit of an older soul.  You remember those kids, the ones that seemed to already know that something bigger was waiting for them, but enjoyed the present for what it was.  So Dave was a class officer....he was king of this dance and that event and generally always ended up as a role model for young leadership.

Dave went on to be an attorney, eventually practicing mediation over litigation in family disputes.  It seemed to me to be the perfect fit for the thoughtful person I remembered.

Recently, thanks to social media, I am back in touch with Dave.  And what he is doing today takes me full circle.  It seems my old friend is now teaching people how to be leaders.  That seems right.

Dave on YouTube

 

Smarter than Me

My former colleague, fellow blogger and great guy, Ed Callahan has proven he is smarter than I by expanding on some facile thoughts I put together.........and coming up with something that might actually be helpful.  I continue to benefit every day from the wicked smaaht Sun Alum.

Follow the link and subscribe to Ed's blog!


Ed Callahan

Junk Food RePost. Because someone out there needs this.

This post is several years old, but I feel the need to re-post as recently I have watched as several start-ups cut their kitchen budgets and then wonder where all the engineers were at lunchtime.  People, people...what are you thinking?  If you are considering cutting a food, coffee, beer, soft drink or potato chip perk at your start up...pause...read this and then............DON'T DO IT!!!

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In an eye-opening survey conducted several months ago by the Boston Consulting Group, a leading business think tank, three out of four top executives from 68 countries said they planned to increase research and development spending this year. Fewer than half of the 940 respondents, however, thought the increases would produce the necessary profit or competitive advantage to justify the expenditures.

Why such a disconnect? Perhaps it’s because they’re spending too much of their money on the wrong things: technology, rather than Twinkies.

My experience tells me that the rapidity with which an enterprise creates value is directly related to how well it stocks the company kitchen. The lower the nutritional value of the food choices, the greater the intellectual property produced.

I have spent time in a variety of industries: software, hardware, compression technology, storage technology, outsourced manufacturing and digital media. What they all have in common is this: They all run on junk food. 

During my career, I have spent hundreds of all-night sessions alongside my entrepreneurial colleagues as we prepared for market launches, product launches, term sheets, due diligence reviews, tape outs, quarterly results, auditors and IPOs. I don’t remember ever ordering in anything nutritious when the heat was on.

When engineers, scientists and technologists have to stay up all night, they don’t reach for No-Doz they reach for Cheetos.

It’s always a sign of decline when a company slows down on junk food purchases.  Many CEOs and CFOs deny the value of the kitchen. It is an easy expense to control or cut when money gets tight. It seems like no big deal. People can bring food in or buy their drinks from a vending machine. They will understand that investors don’t want the company “wasting” its limited resources buying snacks for the staff. 

But the purpose of junk food is not just to give the team a little blood sugar bump at 3:00 pm. When you stop supplying fun food, morale and productivity decline. 

As soon as your supply of Twizzlers and Diet Coke runs out, so do your people. They leave the office to go home or go out to eat. And when people leave, even for a short lunch break, you can lose the rhythm … the hum of execution … to say nothing of that esprit d’corps that comes with foraging for Pop Tarts at 2:00 am or the creativity that accompanies your third Red Bull and fourth bag of Nacho flavored Doritos in an hour. 

I once worked for a start-up computing company that grew to $7 billion in annual revenue during my stint. In the early years we brought in doughnuts every morning. As time went on the doughnut bill got to be pretty outrageous. So we cut back to doughnuts only on Wednesday mornings. Funny thing, our product launches began to stretch out. We were not moving as fast as we once had. 

When I asked the vice president of engineering what had happened, he said, “You cut back the doughnuts! My guys used to get in here by 8:00 am every day to get their favorite doughnut before it was gone. Now they come in around 9:00. I have 600 engineers in this organization and I lost about 600 man hours per day because you stopped the doughnuts!” 

Why should junk food have this effect? Can a doughnut really motivate folks to come to work earlier? Sure. It’s simple: People eat stuff at work they would never be caught dead buying and never allow themselves at home. It is compensation for long hours. And wholesome food really doesn’t cut it. 

No one goes to the community kitchen to fix themselves a salad and then go back to work. People do not bond over broccoli spears and cottage cheese. When you go to the kitchen at work it’s to find something fat or fun or naughty and a colleague to share it with. Forget fresh fruit; it is the forbidden fruit that cranks up the volume among entrepreneurial enterprises.

Junk food in the kitchen is designed to keep your most important asset at work.

Do I really promote enticing employees to spend too many hours at work and eat junk food to boot? You bet. Junk food is the enabler of an unbalanced lifestyle and an unbalanced lifestyle is crucial to success, especially at start-up companies. 

Maybe we can seek balance and nutrition after the company starts producing $500 million in annual revenues. Until then, pass the Pork Rinds and Beef Jerky (I’m on Atkins).

What Billy Beane Could Teach The Millennial CEO's.

I love the Millennial generation and to my delight I have several clients that are run by millennial founders.  

The companies themselves have little in common, they span several industries (social media, digital records, security, memory preservation), and they are at different stages of development (boot-strap, rapid growth, profitable, headed toward IPO) but there is one thing those "under-32-year-old" founders have in common (other than their 1980's birth dates); and that is their hiring standards:

"We will only hire the best graduates from top-tier schools."

"We will only hire the top 2% of graduates from the top-tier schools."

"We will only hire people with a GPA of 3.9 or better from the top-tier schools."

They each might have invented different business models, but the one thing all millennial CEO's seem to have in common is their demand for quality.  They cite the rumored hiring practices of Google (your GPA is required regardless of when you graduated from college and will disqualify you if it is less than X.XX) or Facebook (hires only top 1% of the top 1% of schools).  They all want the most sought after candidates, they all want pre-certification of the candidate by an academic institution with a reputation for rigor, they all want the highest-achievers, they all want each candidate to share their enterprise's cultural values, they all want every hire to be "perfect."  


They all pride themselves on their ability to see the potential weakness in a candidate...that which would keep the new hire from being perfect.  They often review resumes and interview candidates focused on how to identify the imperfections....heaven forbid someone who is not perfect should slip into the mix.  They hire slowly.  They sometimes do not realize that they are not yet Google or Facebook.

They are mostly in for bitter disappointment and failure.  Most of my fabulous millennial founders do not have the vaguest notion of how to build a team.  They pat themselves on the back, defending their standards, while their technology lags, or their market opportunity slips away, or their revenue stalls.


The myths of how other companies have been built have given the Millennial CEO's permission not to take the risk of hiring outside their comfort zone; the assured and validated "perfect."  And they are not learning that it is often the imperfections in the individuals that make the team great.

As my old friend Voltaire used to say, "Perfect is the Enemy of Great!"  

how-bad-hiring-practices-can-slow-down-a-company

A Millennial State of Mind

I have always pitied anyone who tried too hard to relate to youth, so these results are a bit startling.  I do not really have much in common with Millennials (other than a delight in Lady GaGa), but I strive to understand them.  A few years ago I realized that in the United States we demonize youth.  That seemed like a certain path to unhappiness for me.  How would I be happy in the last third of my life if I had no respect for the kids who were stepping into the shoes I left behind?  So, I try to approach this complex generation (which is defined for me as the first generation in our culture to have clocked more years of their life with the US engaged with overt enemies than any other since the Revolution) with understanding, affection and humor.  Really, they are the future, what other choice is there but to embrace them? 

Duty, loyalty, honor...what veterans can teach high-tech

My friend Neil Seymour is in Kuwait....his story is remarkable, a working class kid who enlisted for the opportunity of education.  Now, with a BA and an MBA under his belt, he did not abandon his commitment, but embraced his duty...and serves with integrity and patience.  He will pay his dues in order to realize his dreams.  He is an example.  And his story should be shared with every young person of privilege before they impatiently demand their next raise, promotion, atta-boy, stock option or vacation. 

http://atccareersunset.blogspot.com/

Merry Christmas, Neil...far away but well loved!