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LEADERSHIP FROM EARLY STAGE TO IPO OR BUYOUT
Recently a Southern California organization recognized nine successful technology companies in early stage to ramp up that had revenues from under one million to over eight million dollars. The motivation of the leaders of these companies was striking. Why? All of them were passionate about the value they were delivering to their customers. It wasn’t the money. It was the contribution that was most significant. This perspective is too often overlooked, and yet it is often a major factor in the success of a business. Executives who feel this way are not likely to put their own interests first or do many of the foolish things we see happening in our world. When the going gets tough, and it always gets tough at some time, leaders need that inner commitment to sort out what is important, deal with the crisis, and move on with all the stakeholders on board. This commitment should always be there for the management team of a company of any size.
As a member of Tech Coast Angels (TCA) in Los Angeles for nine years, I have seen some companies succeed and some fall by the wayside. While many things are important for success, the strength and character of the management team is the most important. With the right team, the quality of the execution helps ensure that the business plan and the fundamentals will lead to success.
TCA gets involved after the “friends and family” round, when the management team usually consists of the founder and one or two other people, who together do everything. The founder often has developed the product and is the technical leader. Even at this stage, the management team should include someone with a vision and focus on the outside (the market, customers, competitors, money sources) and someone to manage the inside (product development, operations, costs). In all cases the qualities of the leaders will determine the values and style of the company and ultimately its success.
At the early stage, the entire leadership team must not only be highly motivated to succeed, but also have in-depth knowledge of and experience in the company’s market and business. The leaders must have integrity; be smart (but not too “intelligent”); have good communications skills; and be practical, willing, and quick to adjust to whatever obstacles and opportunities show up. The ability to change course is critical, for nobody gets it all right from the beginning. The sooner a leadership team can respond to the world they encounter, the more likely they will be to succeed.
As a company gains momentum and begins to ramp up, the demands on the management team become more varied and complex. Recruiting and delegation become critical management skills as different people begin to head up each of the key functional areas. At this stage, the CEO must concentrate on major strategic issues and opportunities, provide vision and overall direction for the company, and build relationships with a number of constituents outside of the company including potential acquirers and money sources. The heads of the key functions (sales/marketing, technology, operations, and finance) must have in-depth knowledge of their areas of responsibility, be passionate about contributing to the company’s success and, as the company grows, have the ability to develop and lead a team. Also, as the roles of executives become more specialized, trust and communications within the company become more important for all members of the management team.
Some CEOs who do well in early stages are unable to disengage from the daily operations or are not interested in stepping back and taking a more strategic leadership role. The board of directors needs to make the hard decision about whether to keep or replace the current CEO. If they do decide to recruit a new CEO, they should look for someone with a different skill set than his or her predecessor. At this stage, the CEO needs to have the same integrity, self confidence, and character of his or her predecessor, but must also excel at guiding and coaching the functional heads, communicating the company’s vision to all constituents, and assessing people’s capabilities and putting them in the proper roles. The new CEO does not need to have as much depth in the company’s business, but must be able to learn it quickly, and have the values and style to integrate well into the company. Most importantly, the new CEO must have a personal commitment to the mission of the company, be able to think a couple of moves ahead and clearly see strategic opportunities.
If sufficient respect and appreciation is felt by the board towards the founding CEO, he or she could continue making a contribution to the company in a different role. In some cases this can be as the technical leader or senior advisor. A lot depends on how the former CEO feels about continuing and whether he or she wants to be involved and is still committed to the company fulfilling its mission. On the other hand, if the former CEO is likely to become critical of policies undertaken by the new CEO, the board must create a separation between the founder and the company.
As a company moves towards an IPO, it will become increasingly important that some members, preferably both the CEO and CFO, have experience in managing a publicly held company. Today the legal, financial, management, and reporting requirements for public companies are so complex and demanding that a management team is at risk if it does not have a good understanding of them. The team must know what questions to ask and be able to assess the answers.
As difficult as it may be, the development of a company demands new skills from its CEO and executive team. Matching the skill of the executive team with the needs of the company at the next level is a complex and difficult task. It is, however, critical for growing the value of the enterprise. The board must also keep in mind that integrity and passion never go out of style. When these traits are directed at the contribution the company is making to its customers and responsible in dealings with all stakeholders, the company is in good shape from a fundamental standpoint. The right skills then magnify their impact on value.
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