Startup founders are dedicated to their companies and the growth of their business. To many founders, it may seem natural to fill the role of chief executive officer (CEO). However, the creator of a product or service isn’t always the best person to manage a business long-term.
Some founders simply do not have the right skill set for leading a business through the various stages of growth. As the young business grows, it’s important to recognize whether the company would benefit from bringing on a professional CEO.
By carefully monitoring your company’s growth stages you should be able to recognize when it’s time to hire a professional startup CEO. There will likely come a point where the founder is no longer focusing on solving problems and developing new technologies. Instead, the growth of the company has shifted founder priorities to creating procedures and managing the ever-growing employee teams.
A successful CEO has to:
The CEO doesn’t always get to focus on the fun conferences and innovation. A large part of the position is managing people and the overall momentum of the company. For many founding CEOs, the shift to more operational aspects of the business instead of innovation is difficult.
This way, the business can be led by a CEO passionate about management and growth while the founder can focus on key strategies and other important innovation pieces.
Recruiting a startup CEO is a process that will take quite a bit of time. You’re looking for a leader who has experience growing a company similar to your own but who can also work well with current company leadership. Finding the right startup CEO isn’t a process that should be rushed. Before even opening the position, understand it could take six months to a year to find the right person for the role. Now that you have a realistic timeline in place, you need to know how exactly to recruit a startup CEO.
The first place you can look to recruit a startup CEO is your network. Let your network know you’re searching for a CEO. Someone in your professional circle may know the perfect person for the job.
Another popular option is to use an executive search firm. The CEO position is vital to the success of a company so investing in an executive search firm to find the right CEO is a prudent move. Search firm staff are highly experienced professional recruiters with connections in the industry. When you tell them the type of CEO you’re looking for they’ll quickly be able to pull up a list of potential candidates for you to review and narrow down.
What to Look for in a Startup CEO
A startup CEO possesses unique skills and experiences that fit the fast-paced environment of startup businesses. As you begin reviewing experience, skillset, and backgrounds of potential candidates, here are the top three things to look for in your first professional CEO.
A common reason to bring in an experienced CEO is for their ability to develop new operating procedures and standards for the company. It’s likely the CEO will be coming into to an unstructured and fast-paced environment that will need patience and direction to organize and manage. Without previous experience in this type of environment, the CEO will take too long to adapt to the company.
Another reason to hire a professional CEO is employee management. Startups need a leader who inspires confidence in employees and who can review employees to provide constrictive feedback. Previous experience managing large teams of people will show you the CEO has the ability to inspire employees and keep the business running smoothly.
A CEO can be adaptable and a great manager, but if their vision doesn’t align with the overall goals of the company, there will be problems. Make sure the visions of the CEO and founder align before selecting a candidate, so the business doesn’t become divided between leaders.
CEO turnover within private equity portfolio companies is shockingly high. According to a 2017 survey by AlixPartners, as many as 58 percent of private equity CEOs are replaced within the first two years of acquisition. Switching CEOs after two years can be detrimental to a PE firm’s return on investment given that most PE acquisitions are only held for five to seven years. Attempting to introduce new leadership in the middle of a PE investment life cycle can be damaging to the company’s success and ultimately the profitability of the company.
PE firms often experience high turnover because the CEOs hired or brought on during an acquisition do not meet the firm’s expectations. It is difficult to select the right CEO candidate for a private equity or venture backed company. Most candidates come from impressive backgrounds and have the first-hand experience that initially makes them seem like a good fit. However, if you really want to make sure you’re bringing on the right person to manage your investment look for a candidate who has the below qualities of a successful private equity CEO.
CEOs need to be able to create a high-performing team, and a big part of that includes being a team player. Arrogant, self-involved leaders do not fare well in PE firms because they have a hard time motivating people to strive for the company’s goals. In some cases, an overbearing leader can even drive away top talent from the company.
A private equity CEO should be able to empower direct reports and make sure everyone is on the same page when working toward company goals. This means a CEO is willing to delegate tasks to the team without micromanaging the process. A strong leader also knows how to promote talent development. Key jobs within the firm can be improved through skill development and training. A team player is more equipped to notice areas of improvement because they’ll be more familiar with the department duties and be more willing to listen to concerns from those under them.
A few warning signs that indicate a candidate might not be the best team player include arrogant behavior and using “I” too much. If a CEO candidate is talking about past accomplishments and not giving any credit to his/her previous team, it’s an early warning sign that the person isn’t a team player. The number of colleagues a candidate can pull into their current venture also speaks volumes. If people who previously worked with the CEO want to stay on his/her team, that’s always a good sign.
Resilience is made up of five pillars: self-awareness, mindfulness, self-care, positive relationships & purpose. By strengthening these pillars, we, in turn, become more resilient. PE firms are bound to face a few setbacks and roadblocks when turning around a company. The CEO needs to be able to face these challenges and take them in stride. A candidate who can give examples of overcoming past errors and setbacks is able to demonstrate their resilience. A firm can have confidence in a CEO who knows how to take a negative result and work toward a solution.
You should be skeptical of candidates who have skated from success after success, or who at least try to make it seem that way. A CEO candidate who can talk about setbacks and how they overcame problems will give you a glimpse into how that CEO can adapt and work for your firm.
A CEO needs to have excellent communication skills to succeed. Open, straightforward communication can motivate team members and ensure everyone is on-target to reach company goals. It’s also imperative the CEO knows how to effectively communicate with other PE executives. Some CEOs do an excellent job managing their teams but struggle to convey information and needs to investors. In other circumstances, the opposite is true. The CEO works well with PE investors but struggles to create a team environment within the company. A good CEO should be able to demonstrate an ability to communicate across all levels of management.
When selecting a private equity CEO, executive recruiters also really pay attention to how a candidate will fit in with the PE house culture. PE executives don’t realize how important culture fit is when hiring a CEO for one of their portfolio companies. Executives have to take the culture into consideration for a number of reasons. If the current culture has been doing well for the company then sticking with the current CEO could be beneficial, but if the culture needs to be altered to produce the desired results then looking into other candidates is best. A clear understanding of the cultural shifts that need to happen for the company to reach its full potential will help you make the right choice when selecting a private equity CEO.
Choosing the right CEO for a portfolio company can make the difference between a profitable exit and stagnation. A CEO who demonstrates strong collaboration, resilience, and communication qualities will ensure your private equity investment is in good hands.
Cowen Partners is a leader among the nation’s best executive search firms. Our hands-on executive recruiters have vast experience working with private, public, pre-IPO, and non-profit organizations. Clients are typically $50 million in revenue to Fortune 1000’s or have assets between $500 million to $15 billion.
Successful placements span the entire C-Suite and include CEOs, CHROs, Chief Operating Officers, Chief Administration Officers, Chief People Officers, as well as vice president human resources, general counsel, and other director-level leadership roles.
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