I recently took the post of CEO of ShopCo, a startup focused on reinventing the circular shopping business. Through the vetting process of considering the post, I learned and had to re-learn some important lessons.
It goes something like this: You’re in the running for the CEO’s job at a startup. Already a creeping sense of uncertainty has set in as you prepare for the next interview. What do you need to know about the company? What rocks do you need to peek under?
Senior executive changes are happening at lightening speed in the tech space. Seasoned managers move from one early-stage company to another, and from established companies and venture firms into the startup world. Some of the savviest new-gen Web companies recruit directly from brand-name consumer and media outfits.
If you’re in line for a CEO post at a pre-IPO company, you’ve got a lot to think about. I’ve been on both sides of the table, hiring CEO’s and being recruited. Asking the right questions is critical in order to avoid wasting your time and energy. Over the past six months, I’ve looked at opportunities, asked these questions, uncovered inconsistencies, and found situations where people were less than forthcoming. I turned on my heels and walked. That said, with my new gig I didn’t follow all of my own rules. So this is a bit of “do as I say, not as I do.” I’m still learning, but here goes…
My Top 7 Must Do’s:
- Any prospective CEO candidate should ask for the most recent board decks. I suggest looking at the ones from the last year at a minimum. Once you’ve reviewed them, you might insist on a walk-through of the two most recent presentations as they were shown to the board.
- Do your own due diligence on departures. Look on LinkedIn for people who were associated with the company. You may find core team members who are no longer there, even after you’ve been assured none have left. This is an obvious red flag. Why wasn’t this disclosed? Keeping critical information under wraps to a potential new CEO is highly suspect. I’ve been amazed by founders who claim no executive turnover when a quick LinkedIn search uncovers three former CFOs.
- Talk to users, partners, customers. Find a way to subtly get access to people who know the business. Gain their perspective on the company’s value proposition and leadership team. With Internet companies, customer feedback is always in the data. Get access to Omniture, or a similar account, and have someone walk you through the data. In the last few years, we have all seen companies position their consumer traction as great when, in fact, organic traffic is off. Daily or monthly average user numbers speak to an engagement problem, and revenue success is driven off advertising optimization, not user growth.
- Engage the board. Have direct conversations with each board member to understand their commitment to the company. You need to gauge your ability as a new CEO to add or change independent board members. You also need to understand the relationship between board members and the founders. Go beyond the board and talk to investors who don’t hold a board seat.
- It’s crucial to understand a company’s financial position, both operationally and from a capitalization standpoint. Be sure to understand the cap chart and the preference stack. There have been plenty of examples in the past, though not as many recently, where the preferences of investors would make almost any exit worthless for the senior team and the team as a whole. Now may be your best and only chance to negotiate a better package for you and your team. No one wants to work at a startup where the only potential for a positive outcome is a Google– or Facebook-like exit.
- Review the pitches to partners. Understand past exit discussions and how the company was positioned in those discussions. This will give you some of the best insights on exit potential and, more importantly, on the board’s view of exits.
- Finally, find out what a typical day looks like at the company. Go to lunch with a random group of employees. Go for drinks after work. You’ll find out what people are really thinking. Show up at the company offices before 9 a.m. and after 5 p.m. Are people there? Are they working happily? Are they motivated? Are they having fun?
You may think you’ve found the world’s most wonderful opportunity. But you need to make sure. Remember, you’re investing your time and you can never get that back.
Ben T. Smith IV is CEO of ShopCo, a startup focused on reinventing circular shopping with a social experience. He is also a Venture Partner at Accelerator Ventures and co-founder of MerchantCircle.com and Spoke.com. Ben blogs at btsiv.com, and you can follow him on Twitter at @bentsmithfour. Tony Scott, president of ChampionScott Partners also contributed to the seven must-do’s in this story.