Tom LeFevre, Intuit co-founder and member of The Angels’ Forum, gave an interview a few years ago on evaluating good startup CEO’s. While he didn’t find clear markers for success, he identified six types of CEO likely to fail.
His comments resonated with my own experience evaluating startups at the time and I hunted down the reference again. It still rings true.
Three of the types he labelled “Not-CEOs” and three he labelled “Flawed-CEOs.” LeFevre recommended avoiding investments in startups with either type of CEO. Here are his categories with my own gloss added.
Not-CEO’s
1. The Functional VP: schooled in a particular corporate division, they tend to solve all problems with the tools they know best. For example, Sales VP’s; for whom every problem seems solvable with financial incentives and more sales personnel. Think of them as carpenters for whom every problem looks like a nail, and hard problems simply require a bigger hammer. If the core driver of the business is within their sweet spot this type can enjoy early success.
2. The Researcher: suffers from analysis paralysis. Characterized by long reports, slow decision making and excellent attention to detail. The VC presentations will be excellent, but even I don’t think this type is worth an investment.
3. The Inventor: cannot see their way to commercialize a product. I see this often in the medical space. This type can be a good founder but is likely the first to be replaced. The key test is whether they will be willing to quickly downshift to a CTO-level position. Wasserman’s Founder’s Dilemmas empirical findings that stepping aside results in a greater financial return to the founder can provide good ammunition for a willing transition.
Flawed CEOs
1. Fund Raisers: Very common and very dangerous. By nature they can raise money. But, unless the actual business is raising money, this type is an expensive disaster. Imagine them as a 60-foot wooden sloop. Admire the teak but be happy someone else owns it. The key to identification is in their resume. There will usually be a lack of any positive operational or management background.
2. Small Business people: This is a difficult type to ferret out, particularly in younger CEO’s, because their primary characteristic is lack of business sophistication. So, discount for age and then factor back in a willingness to learn and grow.
3. Corporate Executive: easily characterized by a background in large enterprises. The risk is an inability to manage startup cash flow and the creation of top-heavy organizations.
While LeFevre goes on to suggest that you not invest in startups where you have identified the CEO as one of these types, I don’t believe the decision is quite so black and white. Although the categories are useful and certainly catchy, in reality, CEO’s present many shades of grey along various continuums. The labels more accurately reflect tendencies and traits of individuals than true categories. The key is to weigh the risk/opportunity and use coaching to reduce the risk.
Coaching provides two benefits:
1. Many CEO’s can grow into the ever-expanding role as the enterprise matures. At a minimum, effective coaching extends their effectiveness further into the process. View coaching as extending the CEO runway in the same fashion as cash extends the operational runway.
2. Coaching, and the resulting increase in self-awareness, can smooth the transition from founder to a more effective supporting role.
The original full interview is here: http://www.confmanager.com/main.cfm?cid=77&nid=14305
