Entrepreneur

How to know when it’s time to hire an outside CEO

As anyone who has started their own company will tell you, it’s hard for others to understand your passion for your endeavor.

Startup founders can seem crazy, willing to work long hours for little or no pay, driven by wanting to see their idea come to fruition. And, for those few great ideas that actually make it beyond a science experiment and secure funding, customers, and revenue, one of the greatest challenges can be transitioning from a founder to a manager and corporate leader.

It is easy for all of us to get focused on the few exceptional success stories of first-time founder CEOs like Bill Gates or Mark Zuckerberg. Let it suffice to say that these are indeed exceptions and not the norm.

More typically, it takes multiple attempts for a founder to build the skills and experience base to be the CEO that leads the company to a successful outcome. Most other companies, such as Cisco, Intel, and Google, to name a few, became successful by bringing together talent and foresight of a great team of experts beyond just the founders, and one of the first actions needed to build a great team is hiring a great CEO.

In the years since we left Microsoft and scribbled on our napkin an idea for a distributed storage network, our idea has now grown into a fast-scaling business with thousands of customers, and we seem on the right path for growth and market success.

This was not a sure thing. One key decision that has made the difference was bringing in a professional and proven CEO to lead us from the startup stage to the scale-up phase and beyond. Approximately two years after our incorporation, we hired someone who had served as CEO five previous times, always joining founders at this stage, and successfully taking those businesses to the next level, whether that was IPO, acquisition, or strong growth.

But how do you know when and if to bring in an outside CEO? While we may not have all the answers, we have identified a few clues to help you know when it’s time for you to hire a professional CEO as well as how to clarify your own role in the company once that leader is on board.

Don’t “squat” the CEO role


Unlike some exceptional 20-year-old entrepreneurs, we started our first venture well into our thirties, each with more than a decade of experience under our belts building and delivering complex technologies, as well as building, growing, and managing large teams.

One of the advantages of that is you deeply understand what it takes to build and run effective teams. An effective team is a collection of experts across a wide range of functional areas with strong team chemistry. Each member of the team “earns” their title through experience, skills, trust, and respect of their colleagues.

Having “apprentices” occupy key roles on the team is not an ideal place for startups because time and money are precious commodities that should not be spent on helping someone build new skills. There are enough unknowns in a new venture to be adding lack of experience and skills to that list.

As such, at our company’s inception, we decided that titles and roles needed to be earned. We earned the founder titles by incorporating and bootstrapping the company. Our individual experiences as well as company formation documents bestowed the roles we needed to play in the early stages. We intentionally kept the CEO position open. Neither of us had the experience base to hold that title.

Strategically, this allowed us to be constantly on the lookout for a strong CEO. This turned out to be one of the best early decisions we made because when the time came, we were able to attract a rock star CEO and help him integrate into the company culture seamlessly and start adding value quickly.

Invest in your investors.


Pick your investors and advisors carefully, and then trust them deeply. They trusted you with their money and time, and it is the least you can do in return. Investors are deeply invested in your success. They are successful, experienced individuals who are constantly looking at success and failure patterns for startups. They are not mired in the day-to-day details and so can provide a valuable outside-in perspective.

We hear too many stories about poor investor/founder dynamics. Clearly the relationship didn’t start that way or investment wouldn’t have happened. So what went wrong?

Maybe we have been truly lucky, but we believe the bulk of the responsibility sits with the founders. Investors are humans and do have expectations — the onus is on the founders to actively respond to those expectations. One of the most important conversations to engage investors in is whether you have the right team, starting with the CEO role. This was an open ongoing dialog at Symform board meetings, and we knew exactly when the time was right to take the step.

Listen to your employees.


Whether you have just a handful of employees at this point or are well into the double digits, these early hires are a critical source of information.

How do they talk about the company with others? What are leadership and strategic challenges they are struggling with on a daily basis? Is there a consistent view of strategy across the organization? Do they have clarity on the chain of command and how decisions are made? Are decisions being constantly questioned and getting revisited to the point where execution is being hampered? Are commitments not being met? Are you unable to hire key talent?

These are all signs of a key leadership gap, usually right at the top. A strong CEO is needed.

Trust your instincts


Part of being a good leader is knowing your own strengthens and limits. If you believe your company is at a point where you don’t have the skills and experience to take it to the next level, and then trust that feeling.

Engage with your team and board in an open dialog, and make that very important decision to bring on a strong CEO.

After all this if you decide hiring a CEO is the right step, don’t undersell yourself or your company. Go for the best you can get. Pay the price to get a rock star CEO, even if that means additional funding to pay for it. Find someone that has experience in your space or a related field and a strong track record. Make sure your candidates believe in the product or technology and exhibit passion at what you are building.

And then let that CEO run the business. We can tell you from our direct experience that if you’ve hired the right person, which we believe we have, then it becomes quickly evident that this person knows what he or she is doing. It’s incredible how six months with the right CEO can impact your business.

Talent attracts talent, and a good CEO brings on other rock star employees and executives. Investors and the market takes notice and are more confident of your projections and plans.

So, as founders, it is important to focus on the ultimate prize: a successful venture. Being a founder of a successful company is far more rewarding than being an apprentice CEO of a not-so-successful one. So leave your egos and individual ambitions at home, and focus on building the right team of experts to help you realize your dream, starting with a top-notch CEO.

Praerit Garg and Bassam Tabbara are co-founders of cloud storage provider Symform. They brought Matthew Schiltz onboard as CEO in June 2011. Since then, the Seattle-based startup has closed a $2 million round of funding.

Image courtesy of Galushko Sergey, Shutterstock.


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