My firm’s mission statement is to earn superior returns by helping entrepreneurs build great growth companies. Our model is to support the existing management team, however, growth stage companies scale and evolve rapidly, and sometimes we need to recruit more experienced leadership. While we encourage companies to have a clear succession plan for the CEO, often companies at this stage ($10-50 million in revenue) do not have built-in successors.
Last fall, one of our portfolio companies (without a succession plan) lost its CEO, and because I worked closely with the company since our original investment, the board appointed me interim CEO while we got the company on track and found an experienced new leader.
The company has 100+ employees, hundreds of customers, and more than 15,000 end users. I spent almost four months as CEO. Prior to this role, my “operating experience” consisted of working as a waitress during college. My entire professional career has been in finance, where I have worked in small, flat organizations with a project-driven, deal team-oriented model. In short, I had no idea what to expect, and I learned a lot, quickly.
As investors, we rarely have the opportunity to get involved at the portfolio company level, and I am incredibly grateful for the experience. Below are my key takeaways from four months as CEO. I hope these insights will allow other investors to gain the empathy I attained from my role without actually having to step into an operating position (although, if you get the opportunity definitely do it!).
1. A clear strategy is the key to execution
When I assumed the CEO role, the organization had been struggling with a lack of strategic clarity. The company is in a market with both endless growth opportunities and nearly as many potential distractions if strategy is not clear and priorities are not set. Creating a true north star for the team was my top priority.
You can’t really “cram” for being a CEO, but fortunately there are many resources available to provide some ideas. I asked for help from everyone I could. I leaned on my Catalyst team members with operating experience as well as the executives at my other portfolio companies – they were incredibly generous with their time, insights and recommendations. I took their feedback, read The First 90 Days, listened to Reid Hoffman’s Masters of Scale, and watched Simon Sinek’s TED Talk “Start with Why” to organize an approach to defining the strategy.
In my first 30 days, I solicited feedback from the entire organization to identify the company’s unique strengths and to understand its urgent challenges. The executive team worked with a board member to prioritize the most critical problems for the organization, reexamine our target market, declare a brand promise for that market, and plan specific objectives for each department to execute on the promise. On Day 30, we presented the conclusions from our strategy workshop to the organization. Specifically, we outlined the key tenets of the brand promise, to be considered in everyone’s daily work. Interestingly the slide that seemed to resonate the most was an overview of what was not part of the strategy.
We also outlined three key themes that each department should consider as they pursue the brand strategy. These should apply to almost any growing company:
- How can we innovate the product?
- How can we grow and scale faster?
- How can we nurture a culture of growth, innovation, and excellence?
Then we asked the organization to help us execute. We asked for feedback on the departmental objectives and reasonable timelines. We set recurring town hall meetings for each department to take turns presenting their strategic efforts, accomplishments, roadblocks, and opportunities. Aligning the organization around the strategy helped employees understand how their daily work (the call they make to ensure a customer is happy, the code they write to better enable billing, the model they build to analyze customer metrics) contributes to our delivering on the brand promise. The teams also appreciated the autonomy to set their own measurable objectives, and reporting to the entire company created a sense of mutual accountability.
The strategy work was the part of the role that tied most closely to the board work as an investor. As a board member/observer, much of portfolio management involves working with the management team to think about the future of the business and to hone the strategy. Communicating a strategy to an entire organization is a different matter altogether. To make it easier, we provided bite-sized “strategy slogans” to employees to allow them to focus their efforts on driving toward the strategy – and it worked! Months after our initial strategy discussion, it was rewarding to hear employees repeat tenets of the brand promise or strategy statement when discussing their activities. Consistency in messaging the strategy and tying the brand promise to daily interactions helped drive organizational adoption.
Investor takeaway: Help CEOs and management teams revisit their strategies and the way they communicate strategy across the organization. Simple, straightforward, buzzword free axioms resonate best. The strategy must be authentic to the company. When the entire team understands the brand promise, they will be much more invested in delivering on that promise and driving success. Talk to employees outside of the executive team to understand their view of the strategy and use this feedback to help the CEO drive buy-in across the organization.
2. Data is half the battle
Investors spend a lot of time evaluating metrics and reviewing KPIs related to value-creation, but in making operational decisions they become even more critical. Wanting data is one thing, and building the systems to obtain accurate and useful data is another. When employees understand and have confidence in the metrics, they tend to have more confidence in management and the decisions they make.
Investor takeaway: Work with companies to develop a data strategy as early as possible and drive a culture of data-driven decision making. Understand management’s approach to data and KPIs, as well as how they use this data to run the business (and not just report to the board).
3. People are the other half
When I stepped into the CEO role, I hoped to gain the team’s trust and belief in my commitment to the company, our employees, and our customers. I sought to develop relationships with teammates so they were confident in my goal of making the company – and them – more successful. I needed to become part of their team and their culture, despite my very different background from the rest of the organization. I inherited this leadership role without the unbridled optimism of a founder, so I relied on leading with the approach I brought as an investor: data-driven orientation, pragmatism, and accountability.
In the CEO role it quickly becomes obvious that empathy and compassion are far more valuable than financial acumen. Investor decisions are often based on data and analyses in spreadsheets, but CEO decisions must factor in more of the human element. So much more CEO time is spent on personnel matters than can possibly be imagined.
I now understand the tension between wanting to give leaders the freedom to run their part of the organization and needing to guide the company and positively influence outcomes. I experienced the pressure, stress, constant reliance, and need to know the answer (or know the path to getting the answer). Being CEO is a lonely job, and changing culture takes a long time! It was difficult to read negative Glassdoor reviews and feel like the broader organization did not always have the same conviction I did about the positive momentum we were building. It was humbling and trying to read anonymous negative feedback. CEOs learn to focus on the important initiatives and try not to get bogged down in the pessimism – but it can be a distraction. There are also only so many people who really understand what it feels like to have the full responsibility of leading a team, driving the strategy forward, monitoring cash position and financial health, and reporting to investors – and finding those people was critical.
One of my portfolio company CEOs shared the advice that great leaders are confident and humble enough to bring onboard people who are smarter, more experienced, and capable of executing the vision. I quickly took his advice and learned to delegate. I empowered people to take more initiative, and they overwhelmingly rose to the occasion.
Providing the team with autonomy and the opportunity to collaborate on tactics generated some creative solutions. One of our biggest “small wins” was a growth hack event that connected the entire organization. We formed cross-functional, cross-geography teams and tasked them with creatively proposing solutions to one of six main challenges or opportunities the company faced. We wanted to involve all employees in problem-solving and allow them to step out of their normal roles, so we assigned challenges to teams who would not normally work on that part of the business. The event fostered empathy across the organization and surfaced some really interesting ideas that we put into use.
Investor takeaway: In both due diligence and portfolio monitoring, spend time with the broader organization in addition to the management team. The people closest to the problems often have many of the answers, insights, and freshest perspectives. Give scrappy team members the mentorship and opportunities to step up within the organization. Dig deeper than just the data – understand the story behind the numbers, from multiple vantage points. Most of all, make sure your management teams foster a dynamic, open culture and not a hierarchical, siloed one.
4. It’s easier to be a board member than a CEO
I came to appreciate the interconnectedness of a company. An income statement presents a company’s financials as distinct departmental line items, but in reality everything is interwoven. If you pull one thread – for example, increasing gross margin by reducing service rates – there are compounding effects of that decision throughout the fabric of the company.
I realized that “improve gross margin” is such an easy thing to say as a board member — but how? What are the trade-offs? What do we sacrifice? How does that support the bigger strategy? Are we trading short-term profits at the expense of long-term value creation?
I learned the cumbersome process and inconvenience of preparing reporting and board materials, especially in the absence of automated data and dashboards. Preparing a monthly finance review of quarterly board package distracts from daily operations, but it also forces a recalibration and bigger picture view of the business. When the preparation process is collaborative, it drives the management team to realign on the strategy, successes and challenges, and near- and long-term objectives.
Investor takeaway: Encourage management teams to create straightforward, easy-to-replicate board decks. Ensure they don’t spend weeks distracted from operations to report out! Remind them of the importance of a well-run board meeting: focus on 2-3 key strategic topics and spend no more than an hour on reporting. The board meeting should serve as management’s opportunity to glean insights, advice, and guidance from their board members.
I learned a lot over my four-month CEO stint. I loved the energy of working with a team and am excited to bring insights and empathy to other portfolio companies with whom I work. It was eye-opening to experience firsthand the stressful, isolating, invigorating, rewarding work of a CEO, and I have a new appreciation for the challenges leadership teams face.
Mia Hegazy is Principal at growth equity firm Catalyst Investors.