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Here is a surefire bet: Gather together a bunch of entrepreneurs to talk about venture capitalists, and before long the conversation will turn to the issue of control. Here's the common refrain: "If we take VC money, the next thing you know, they'll be in control, and we'll be out on our ear."
Now, try the reverse. Gather a bunch of VCs, and before long you'll hear something like this: "If we invest in them and we don't have the ability to take control, these young hotshots may run right over the edge of the cliff and take all our money with them."
The problem, of course, stems from the following: Entrepreneurs often have mixed goals in starting a business. They want to deliver on a product vision, want to grow a major enterprise and make money, and also want to be the boss. Venture capitalists have only one goal: To make money for their investors and themselves. Sometimes, if the company gets off track and management doesn't seem able to fix it quickly, VCs want to bring in people who they believe can.
So, if you are the entrepreneur/CEO, how do you avoid this potential conflict point? First and foremost -- perform. The last thing a VC wants to do is change senior management. It is messy and risky and often leads to a washout of the previous round of investment. And no VC in their right mind wants to take the reins themselves. We know how hard you work!
In that spirit, here is a checklist I've found useful over the years in serving as a board member in a number of firms, both public and private. It doesn't cover every situation and covers some that tend to appear only as companies get beyond the start-up stage, but you may still find it useful. If you as the CEO can put this list up on your bathroom mirror and every morning tell yourself you aren't running afoul of any of its tenets, then you have a long, successful career ahead of you!
With all due respect to Stephen Covey, here are:
The Seven Reasons to Remove a CEO.
- Poor Leadership
- Lacks the confidence of key personnel
- Hires/retains weak people in key positions or fails to fill key roles in a timely way
- Fails to grow/retain successor(s) and/or create management depth
- Poor Vision
- Lacks clear understanding of where business is going
- Lacks focus on organization and priorities or tries to keep too many balls in the air
- Is unable to strike key industry strategic partnership relationships
- Poor Results
- Has major and sustained poor financial performance or missed targets
- Shows major loss of competitive position or market share
- Is unable to forecast timing/nature of recovery events or of revenue achievement
- Poor Understanding of Business
- Misses key industry trends and changes
- Lacks understanding of fundamental profitability factors
- Cannot crisply define what it takes to win
- Poor Work Habits
- Does not put heart and soul into business
- Sets bad example/role model for others
- Is not viewed in industry as a key player
- Poor Management Style
- Allows top management infighting, not working as a team
- Demonstrates unpredictable decision processes or will not make tough decisions
- Starves key programs but spares sacred cows
- Poor Board Candor/Communication
- Controls flow of information/agenda, preventing focus on or sufficient time for critical issues
- Does not allow ready access to VPs and other key individuals
- Keeps favorite nonstrategic programs or perquisites out of board review and approval process
Significant evidence across any one of these categories should be enough to awaken a board to the potential for trouble. Two or more should cause a responsible board to act.
Venture capital boards are like normal boards, only more so! They have little time to spend developing management in the face of fierce competition and dynamically moving markets. They are much more ready to fix something that is broken or keep a rocket ship from coming off the rails.
So--avoid The Seven Deadly Sins for CEOs.
You'll find your venture capitalists supporting you every step of the way!
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I was doing some research and came across this article you wrote. This article provides an exceptional overview of a highly ineffective CEO. The reason I can qualify your article is because I experienced a CEO who hit all seven areas! I could give you multiple examples that would be representative of each area you listed here, but my response to your article would be massive. I was the 3rd Vice President to move out of my specific position within 12 months. Overall this company has about 48 employees and in the past 3 years has turned over more than 40 positions across all departments. Based on information I gathered this company has never achieved a sales goal. The CEO is more interested in what they want to hear rather than what the data shows. The points regarding this CEO seem endless and some of the recent decisions defy any kind of logic.
I believe that just hitting one of the points you listed could be the death of a company. So far this company in the 8+ years has not gone under and has made it due to the dedication of the people and investors who believe in the company product. I now have a full understanding on why a company plagued with these issues can survive. However, surviving is a limited future because at some point the ball will finally drop and unfortunately the number will not be a winner. The board of directors has not acted for multiple reasons. Mainly I believe that the level of investment isn’t enough to really spend more energy or capital on acquiring a new CEO. It appears they look at this as a lottery ticket that could or could not be a big winner.
Best Regards