February 19, 2006

Case Study: CEO Secession — So, how did we get here? Who is responsible? How do we fix it?

Filed under: Start-up First Aid — Administrator @ 11:53 pm

I don’t like to give out too much advice on what to do and what not do if you are a start-up, largely because I think there are smarter people out there with better insights than me. However, today, I want to touch on a subject that has been running around in my head for several weeks: CEO Secession.

For the past six months, I’ve been working very closely with a Shanghai based technology start-up. As a result, I believe I’ve built an honest, trusting and open relationship with the CEO (Harvard MBA) and her management team. Typically, I’m wearing my “vc hat” however in this case I’m wearing both my “vc hat” and “team hat” which makes things a bit difficult as the investor inside of me must remain cold and calculating, while the team member inside is pulling for the company.

In this case, we are in the process of closing a second round of financing with a seasoned US/China based VC — one of the outstanding question marks is whether or not the CEO in place is the “right person for the job”? And if the answer is, “no, she is not” then at what point do you replace her?

In some ways (“vc hat”), I think it is wonderful that this question is coming to the forefront early on, rather than 6 or 9 months down the road — the reason being that: (1) the investors are passionate about this investment and are doing their homework, and (2) at least we have time to plan for a contingency strategy rather than going into crisis mode when the shit hit the fan.

However, in the same breath (“team/vc combo hat”), I’m a bit disappointed that this is even an issue so early on — perhaps this isn’t a simply a “CEO issue”, perhaps the issue is more a result of poor market conditions (too early), limited resources (more head count and funding needed), and/or basic early stage hiccups. In which case this is a “structural issue” common in almost every single early stage company I’ve even been involved in. Isn’t this why we (the venture capitalist) is in this game – to add value, to be hands on investors – supporting entrepreneurs is our sweet spot (and if we do it right, we make some nice change to boot).

Putting all my hats away, I’m left resolving the best way to directly address this issue with the CEO so as to not shake her confidence while eradicating any grey area as to what the core issue is: “Can you take the company to the next level and if so, how do you plan on doing this”?

Never too shy to “ping” a complete stranger for help, I emailed Garage Ventures MD, Guy Kawasaki, this morning seeking some insights into this matter; Guy was cool enough to quickly reply:

I wish I had a magic solution for you, but I don’t. You’re just going to have to discuss this openly with the CEO. A good CEO will recognize that the company comes first, not his own needs. Also, there is a chance he could grow into the position–believe me, VCs don’t know everything about how someone will grow into a job.

I shared this email with the CEO, we chatted at length, and resolved this matter (with the support of her advisors) rather quickly. I’m really proud of this lady; her response was neither aggressive nor condescending (i.e. I’m local Chinese, therefore I know best how to run a company in China); in fact she totally agreed that her interest must never get in the way of the company. And with that, she went about mapping out an execution game plan for the next 3, 6 and 9-months and at each milestone highlighted specific, measurable, and tangible results that she would ultimately be solely responsible for. Furthermore, a contingency plan in is the works, which includes key/replacement hires. In my book, that is a responsible, fundable leader (especially in China where it is extremely difficult to find an entrepreneur with this quality).

Only time will tell how this pans out, whether the milestone and accountability stick – for if they don’t, it will be as much the responsibility of the CEO as it is of the “value-add” investors (myself included)…

As a side note, Guy Kawasaki wrote a very nice article called, “The Art of Execution” – totally worth a read for start-ups going through similar situations.

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