Jul 2 2006

Do CEO’s Overcompensate for Their Strengths?

As I sit in the Seattle airport waiting to board my delayed flight to Anchorage (Dear Alaska Airlines: Since it’s a “mechanical delay”, please feel free to delay it as long as you want until you are absolutely sure the airplane works), I was pondering a conversation I had at the very end of Gnomedex with an entrepreneur that I’d met for the first time.

We had a good chat about his business (definitely interesting stuff) and then he asked me a few questions.  One of them was something like “what are the characteristics of the best CEOs that you’ve worked with”?)  This was in the context of him currently being a CEO, but feeling like he should ultimately be the CTO and was starting to think about bringing a CEO into the company.

While answering this question, I commented that the “not so great” CEO’s often “overcompensate for their strengths.”  I guess this was either a good sound bite or an incomprehensible comment because he stopped me and asked me to tell me more about what I meant.

CEO’s of entrepreneurial companies tend to come from five backgrounds: (1) random, (2) engineering, (3) sales, (4) finance, and (5) operations.  Forget about random, or the first time entrepreneur / CEO – let’s just focus on the experienced CEO that is hired into a company or is a first time CEO, but multi-time entrepreneur.  Let’s also talk only about the “not so great ones.”

In these cases, the weakest part of the leadership of the organization is often the CEO’s strength.  So – a CEO that used to be a VP of Sales often does not hire a strong VP of Sales.  Same with the ex-CFO – his CFO tends to be less experienced.  The engineering oriented CEO does better, but often ends up with several “engineering leads” rather than a super strong VP Engineering.

Now – this doesn’t always translate into a weak organization below the leadership.  For example, while the sales oriented CEO might hire a weak VP of Sales, he overcompensates for this, spends a lot of time “leading sales”, and ends up with an effective sales organization.  However, the CEO neglects other parts of their organization because he spends to much time on sales, and as a result is a less effective CEO.

I’ve experienced this a number of times.  I amusingly recall a discussion I had with a first-time CEO of one of the companies I had done a first round investment in.  He was a very experienced COO / CFO of two previously successful startups where he was a founder.  This was the first company that he’d founded as a CEO.  For the first six months, the financials were extraordinarily well analyzed, the board packages were beautifully done, and the processes within the company were rock solid.  However, we were making less progress than we would have liked on the product, the strategy, and the early customer relationships.  At some point, we had a hysterical conversation in a board meeting where I said something like “dude – the financials are irrelevant – I know you have $1.5m in the bank and are spending $150k / month ramping to $200k and I can figure out the number of months left before you slam into the wall.  Ok – that took 15 seconds.  Let’s spend the next 1 hours, 59 minutes, and 45 seconds talking about what we are going to do to make this business great.”  Fortunately he immediately got what I was trying to say.  The last two years with him at the helm of the company have been very satisfying.

If you are a CEO, step back and think about your historical background / strengths. Then – think about the person you have in the VP of Your Strength role.  Is this person an absolute superstar?  If so, get out of her way and spend most of your time on the other parts of the business that you might be less comfortable with.  If not, go get a rock star for this position so you can stop overcompensating.