What Makes a Good CEO?

Over the years we have written a lot about the qualities of a good CFO (and here). And over that time, we have worked with hundreds of CEOs at dozens of companies – from seed stage start-ups to some of the biggest companies in tech. So we thought we would touch on their role as well. In particular, here we want to look at the role of a start-up CEO as the company moves from a great idea on a cocktail napkin to a well-funded company running like hell for growth.

The history of Silicon Valley has countless legends of this transition. For many years, the perceived wisdom was that as a company ran the typical path from VC funding to IPO, that they would need to bring in a “traditional CEO”. Google pried that model apart, and Facebook completely buried it.

Today, among venture investors there still remains a conflict between those members of the Board of Directors who want to be ever-founder-friendly and those who still see the need to bring in some outside veteran. We feel this misses the mark. Every company is different and choosing a CEO is not something that can be done following simple binary rules like this. And so every CEO needs to be judged on a wide set of characteristics.

Among these, we have found two that really stand out – teachability and delegation. Is the CEO open to others’ advice? and Is the CEO willing to truly give up control of wide swathes of the company?

There is an underlying tension here. In order for a CEO with a smart idea or brilliant vision to build a team and raise money that CEO has to undergo immense stress. Hundreds of rejections, constant criticism, with everyone questioning every move. To get to the point where the company can raise significant funding, the CEO has be able to stick to their vision, ignoring the large majority of others’ advice. And since funding is scarce delegation is not feasible.

But then one day, the big venture check arrives and all that has to change.

In the early days, the team has to be small, too many layers of management is a death sentence. The first dozen or so employees are all individual contributors. But at some point every company needs management. The real risk CEOs face at this stage is not understanding what this means. Early on, the CEO knows every employee and can directly measure their contributions. But when the team grows this no longer makes sense. We know many CEOs who understand this intellectually but do not really believe it in their hearts.

Probably the most important thing a CEO can do is pick an executive team. A good executive team can carry the load for a long way. And this is where those two traits – openness and delegation – really come into play. If you are a CEO do you trust your executives to make their own decisions and to manage their own team? Not trust in the sense that you trust them not to steal your wallet, but trust that the executive can run a team into which you may have little visibility? Unfortunately, all too often the answer is no and these companies never achieve their full potential.

When managers are not allowed autonomy and their advice goes unheeded things fall apart. This does not happen all at once, and so the CEO can run things for a long time before the dead end starts to appear.

Does the CEO want to change the product roadmap? They likely have the vision to understand the need for a change in direction, shouldn’t they be able to make a sudden change? Absolutely, they should be able to make that change, but they also need to take a moment to listen to their executives – if for no other reasons than those executives will need to make the change happen on the ground. Does the CEO want to launch a new initiative on a dime? Very little in strategy needs to be changed overnight, take a minute to let the executives weigh in – they may have some good ideas. Does someone want to hire a candidate the CEO does not have immediate chemistry with? No diversity leads to bubbles and echo chambers. The CEO wants to hire quickly – having a real hiring process may take a few weeks longer but saves infinite amounts of time required to fix future problems with bad hires. The CEO wants to hire people with “energy” – that is an important trait in a start-up – but the company also needs people with experience, capable of deliberation. Energy can mask all sorts of problems.

Vision, strategy, communication, interpersonal skills are all important traits of an early-stage CEO, but they are all areas where executives can help the most. These CEOs need to learn to treat their executives as mangers, as leaders in their own right, not just individual contributors responsible solely for their own behavior. The alternative is corrosive politics, endless bottlenecks and frustrated ambitions.

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