One of the most common issues pertaining to startup companies that comes up in venture investing is whether or not the existing leadership team could benefit from a change in leadership at the top. If the title of this post didn’t give it away already, yes, I am talking about the CEO position.
The CEO position – it is either the least or most coveted position in any company. Despite this, almost every entrepreneur I meet believes with 100% conviction that no other person in the world has the skills, capabilities, or drive to lead their company into the promise land. Whether or not I believe the entrepreneur possesses the skills necessary to lead, the question I often ask myself is “what is a good CEO anyway?”
In the world of early stage investing, many investment decisions we make are based on both quantitative and qualitative factors (sometimes more qualitative). When we are assessing entrepreneurs at this stage we either look for some evidence of past leadership success with a previous company, or we look for traits in the person that we believe are needed in a good CEO. Such traits include tactfulness, effective and clear communication skills, an understanding of personal limitations, strong sales ability, and an understanding of when to pivot. In addition, it’s important to have the ability to delegate effectively, build cohesive teams, and paint a clear vision for where the company is headed. To the degree that entrepreneurs can “learn” how to do these things at a rate fast enough to keep pace with the growth of their company, than they have a better chance of succeeding. However, if their company is growing much faster than the entrepreneur, than maybe it’s best to recruit a CEO from elsewhere.
On many occasions the founding partner of the company can fail to recognize when they need to step out of the way and give the reigns to someone else. I once worked with one company founder for over a year before he finally realized that we were serious when we said we wanted a change in leadership at the top before we would even consider investing. To a certain degree, I admire the bull-headedness that some entrepreneurs possess, but at a certain point it just becomes detrimental to the company as a whole.
Then there are the sane entrepreneurs who are willing to do anything for their company to survive, including stepping into a lesser role in the company. These are the types of entrepreneurs that I like – ones that are humble and think greater of the company than they do of themselves. In my opinion, these are the types of entrepreneurs that possess the “right” character traits to lead. I know it sounds cliché, but you have to learn to follow before you can lead.
So, back to my original question – What makes a good CEO? I think that on most occasions it is blatantly obvious when an original founder needs to step aside and let someone else lead. However, there are also occasions when I meet a founder with no past company leadership experience that just seems to “get it.” Call me cynical, but I don’t think anyone is born with leadership skills. I believe they are taught. One might argue that you can’t teach charisma, passion, or self-confidence (and I might agree with you on this). However, these traits aren’t necessarily traits of leadership; they’re more or less the types of traits that leaders might want to have if they want people to “like” them. But being “liked” isn’t necessary all the time and some CEOs I’ve met have told me they don’t really care if they are liked as long as they get the job done.
In conclusion, a good CEO isn’t hard to find (as long as you have the budget to pay for one). What’s harder to find and identify is someone who has the right ingredients to one day become a great CEO. I think this is what makes my job so fun.