Teaser For Pascal Levensohn’s Upcoming White Paper on Replacing a CEO
Pascal Levensohn just put up a teaser post about his upcoming white paper addressing venture governance and the CEO succession challenge. I’ve referred to this paper in the last two posts I wrote on signs that a board should consider replacing the CEO and talking to fellow directors about replacing a CEO.
I recently posted about the signs that a board should consider replacing the CEO. My partner Heidi Roizen came up with these as her answer to a question posed by Pascal Levensohn for a new paper that he is writing on the “Ten Signs That It’s Time to Make A CEO Change in A Venture Backed Company.”
Pascal asked two questions in his interview request. The first, which I addressed in the other post, was “What are the five most important signal indicators to you that it’s time to replace the CEO of one of your portfolio companies?” The second question was “When you have approached your fellow directors to tell them that you think the current CEO needs to be replaced, what has been the most difficult thing you have had to address in convincing them to support your position?” As with the previous post, I’ve started with Heidi’s response and edited freely.
Before I dig in, recognize that none of this is easy stuff, for the VC, the CEO, or the board. So – my comments below are from a VCs perspective and are not intended to be “balanced.” Rather – I’m trying to give a feeling for what the underlying issues are, what is “good” vs. “bad” behavior, and to address one way to think about this. I’ve been involved in many situations where a CEO had to be replaced – they fall into two categories “it ends happy” and “it ends unhappy” – I really haven’t had anything “in-between.”
Interestingly, in many situations the other board members have arrived at the same conclusion that the CEO needs to be replaced. However, individual directors tend to come to this conclusion on different time frames depending on their personalities, their level of engagement in the company, and their comfort level (or lack thereof) with CEO level confrontation.
The biggest point of resistance among directors is that there is never a “good” time to replace a CEO. Startups are fragile things and CEO changes rattle customers, employees, VCs, VC’s partners, vendors, parents, children, and pets. As a result there are often holdouts on the board who want to limp along and avoid dealing with the issue, particularly if there is a “transaction” looming such as a large customer opportunity, another financing, or an M&A deal. My experience indicates that it is never a good idea to limp along.
Replacing a CEO can be the hardest work a board has to do. Once the decision is made, you (you – in this case – refers generally to “the board”) have to start by dealing with the issue directly with the CEO. You have to fire them and then figure out what the transition plan is going to look like (never fun after you’ve fired someone, especially if they don’t think they deserve to be fired, act irrationally, throw things at you, immediately call their lawyer, or simply walk away.) You then have to articulate what you are looking for in a new CEO. You have to figure out how to keep the company operational in the interim, both at an executive level as well as across the entire company. If you decide to use a recruiter, you have to find them, spend time bringing that person up to speed, go through interviews, reach consensus, then land someone, and deal with not only their comp but the repercussions on all the other comp and equity holdings among management. Oh – and most capable new CEOs want to make sure the company has enough capital to insure that it is successful, which often means providing a new financing as part of bringing a new CEO on board.
Some VCs devolve into non-constructive behavior when faced with a CEO that is not performing. Rather than addressing the issue directly, the VC becomes angry and hostile to the CEO, asks for irrelevant data / meetings / homework assignments from the CEO, and behaves in a surly, unproductive manner at the board meetings, bitching about the CEO in private to other directors, and generally being passive aggressive about the situation.
A wise and extremely successful VC (let’s call him Yoda) once said, “Every morning when you get up, think about your company’s CEO and decide whether you are going to support him or not. If you are going to support him, do everything in your power to help him make your company successful. If you are not going to support him, then replace him.” By saying “help him make the company successful”, I don’t mean that the VC should be only a cheerleader, but that she should include lots of tough love type stuff that may not necessarily feel like support at the time.
While this sounds simple, I often see VCs become “just another problem” for the CEO. This is a lousy situation. I’ve personally evolved a very simplistic point of view, which I describe as “I support the CEO’s of my portfolio companies 100%, until the moment I don’t, at which point I act on it.” With this lens on, I can spend all of my time “working for” the CEO, rather than having the CEO feel like he works for me.
I’ve been chairman of the National Center for Women & Information Technology for the past year. I recently wrote an article – which is up on the NCWIT web site – on why I chose to get involved in NCWIT. I’ve reposted it here for convenience.
The most common question I’ve received over the past year, regarding the National Center for Women & Information Technology (NCWIT), is “why is the board chair a man?”
When I agreed to be chair, I anticipated that people would ask me this question. What I didn’t realize was that it would be so perplexing. Initially I’d respond with an easy and pithy answer, but as time has passed my response has become deeper and more reflective. Someday, I hope the question will simply disappear – along with the need for an organization like NCWIT (one of our goals is in fact to make ourselves obsolete.)
I’ve been a feminist for as long as I can remember. My training has been furthered by my wife Amy, a Wellesley graduate, writer, and feminist; and my mother Cecelia, an artist and a feminist. “Women’s issues” is one of the major philanthropic areas that Amy and I support (the others are education, environment, entrepreneurship, human rights, and art) and I’ve had a long-standing hatred and disdain for sexist behavior. But while NCWIT has a clear gender focus — it is, after all, the National Center for Women & Information Technology — the gender issue was only a small impetus for my enthusiasm for getting involved in NCWIT.
I’d never really thought about the implications of the lack of women in the information technology (IT) business or the computer sciences. My first company – a software consulting company – had 15 consultants, half of whom were women. We knew we were atypical, but we found that women were often better consultants than men and our goal was to hire the absolute best people we could find, regardless of gender. I’ve worked closely with several female entrepreneurs who stood out as much more effective than their male counterparts. While it was obvious that there were many more men than women in the IT industry, I didn’t pay much attention to it.
Then I met Lucy Sanders, the CEO of NCWIT. Lucy is a nerd, so we connected immediately. During her career, she worked her way up from an entry level programming job to the CTO position at a major telecommunications company (Avaya.) In our first conversation, she spoke eloquently about the issues facing women in information technology and computer science.
She hooked me when she said, “Brad, this isn’t about gender – it’s about competitiveness.”
At that moment, I started thinking about the issue in a different way. I immediately thought back to my first company, where our goal was to hire the best possible people we could find. Logically, the gender balance should be roughly 50/50 in the IT business since the skills for IT, computer science, and programming, in my opinion, don’t have any real gender linkages. But all you have to do is look around any IT organization to know the gender split is anything but 50/50.
One can supply plenty of “quick and easy” reasons why women (and girls) don’t gravitate toward computer science and IT. It’s geeky. It’s a male-dominated culture. It’s anti-social to sit in front of a computer all day long. The work is boring. The jobs are going to all go offshore. The list goes on.
But there’s something deeper going on, and I decided I wanted to help figure it out. It dawned on me that if the U.S. wants to continue to be competitive in IT and computer science 20 years from now, the dramatic gender split that currently exists needs to be gone — for multiple reasons, not the least of which are the fundamental issues of design (if 50 percent of your users are women, don’t you want 50 percent of your designers to be women?) and supply and demand (there simply aren’t enough men to satisfy the growth of the industry.)
When Lucy approached me she was clear that she didn’t know the underlying issues. While there are plenty of hypotheses and speculation, there was, then, no central organization dedicated to figuring out what was going on, coordinating all the various groups that were working on different parts of the problem, and then implementing (and communicating) broad-based, long-term solutions. She wanted NCWIT to be that organization.
At that point, it was clear to me that NCWIT was a lot bigger than “yet another women’s organization.” Lucy is an engineer, and she’s designing a system to solve the problem. Once the design is done, she’s going to execute the solution.
That’s something to which I can subscribe, regardless of my gender.
Signs That A Board Should Consider Replacing The CEO
Several months ago, I posted about Pascal Levensohn’s great white paper titled “After the Term Sheet: How Venture Boards Influence the Success or Failure of Technology Companies.” This is a must read for any entrepreneur who is raising or has raised venture capital, as well as every VC.
Pascal is now working on a new white paper titled “Ten Signs That It’s Time to Make a CEO Change In A Venture Backed Company.” He reached out to a number of VCs, including my partner Heidi Roizen, and asked the question, “What are the five most important signal indicators to you that it’s time to replace the CEO of one of your portfolio companies?”
Heidi did a great job of responding and covered most of the areas that I would have. So – rather than coming up with my own list, I thought I’d republish Heidi’s answers (with my editorial changes). Following are the answers from a VC perspective.
- I never hear from the CEO (other than at board meetings) except after I initiate the contact (or worse, when he does not respond even when I send an email or leave voicemail (i.e. avoids responding to me.))
- All communications from the CEO are “sales pitches”. If the news is all good, I know something is wrong. If all communications are “presentations” (instead of interactions), something is wrong. The corollary to this is when any bad news comes to me from a back channel (i.e. a customer, another board member, or (most often) another employee of the company.)
- There is odd body language / eye contact in management (board or otherwise) meetings among the direct reports. This is hard to articulate, but I can just see/hear/feel it when the management team disagrees but does not feel that they can have a dialogue about the issues.
- The “opportunities” always turn into “learning experiences” – that is, when I am constantly told about great deals about to happen, and then it always ends up that the deal doesn’t come in as planned. This is okay if it happens occasionally, but not if it is common practice. This dynamic would be fine if the plan were being met, but it never is in this scenario.
- There is a revolving door at the VP level. I get very suspicious when lots of people leave for “lifestyle” issues, particularly when they are hyped as heroes when they are hired, yet I am told when they are leaving that “it is actually good this person is leaving as she wasn’t very good.” A corollary to this is when the CEO constantly blames (or complains) about one of his direct reports but then hangs onto that person because confrontations are unpleasant and/or they don’t want to deal with the pain of going through the replacement process.
Following are three more that are not really signs that you should replace the CEO, but rather are signs that you should have ALREADY replaced the CEO (and that you are now likely in deep shit.)
- Not facing fiscal reality. For example, the company is 3 months away from running out of cash, there is no clear financing in site, and the CEO is still refusing to take “survival measures” to cut staff or do whatever it takes to keep the company afloat. As my partner if the financial miss becomes endemic, the CEO needs to go. At the end of the day, if you can’t manage your business to revenue and cost targets, you will be out of business.
Pascal also asked a second question, which I’ll address in a later post. I’m looking forward to Pascal’s new paper – if it’s half as good as the last one, it’ll once again be a necessary read for entrepreneurs, VCs, and board members.
I’m hell on laptops. I fondly remember my first Compaq luggable (aka “the sewing machine”) – it’s still up in my parent’s attic somewhere. Every year or so I get a new one, and my IBM T40 had served me well.
I’ve been jonesing for a tablet PC for a while. I tried the first Compaq when it was released (it sucked – returned) and recently tried the new HP Compaq Tablet PC tc4200 (ok, but lousy screen and marginal keyboard – returned).
So – it was with relatively low expectations that I awaited my IBM X41. It was released in June and it didn’t show up until mid-August. But – it was worth every minute of the wait. This is the first tablet I’ve used that is completely interchangeable with a laptop (e.g. you want a laptop – fine, you want a tablet – fine.) While this is a Lenovo computer (instead of IBM), I can’t tell the difference between it and my IBM T40 (which was an IBM computer) – the IBM to Lenovo handoff appears seamless so far.
Without question, this was the best toy of the month. I’m only five days into September, but I came home to a few fun toys, so next month may have some competition.
I’ve used del.icio.us some over the past few months as I’ve played around with user tagging. However, I’ve been struggling with tagging – I use Firefox and am an “in context” browser (e.g. I don’t want to end up on another web page when I do an action like “tag” something.) So – my use of del.icio.us was a lot lighter than I thought it would be since it “broke” the way I browse.
The VeryDelicious Firefox plug in solved this for me when I stumbled upon it today. It’s perfect – I now have a toolbar in Firefox that lets me add up to three tags for a web page without leaving the page, knows my existing tag list (so I can choose from them), and let’s me go directly to my del.icio.us page for a specific tag. Worth checking out if you are a del.icio.us and Firefox user.
A fellow who goes by the handle “The Interdictor” has been blogging since August 27th from a high rise office building on Poydras Ave near St. Charles. The blog is an incredible hour by hour story of Katrina and her impact as she unfolded, along with some brave folks efforts to keep Intercosmos / directNIC (a hosting company) up and running. The running commentary of the experience is awe-inspiring and gives you a very different view into the situation.
I’ve help fund and start several hosting companies and many of my companies depend on hosting companies for their business. While the notion of spending the night in a data center is not a new one (yeah – I’ve done it – nice and cool, great white noise, but the floor isn’t that comfy), doing it in the context of the aftermath of a major hurricane is something that is hard to grasp.
Start at the beginning and work your way through. There are also a large number of outstanding photos of what’s going on.
Hills, Rocks, Sun, Sweat, and MotionBased GPS Mapping
I had an awesome hour run on Fowler Trail (and then on the fire road that goes to Golden – I don’t know the name of it) today. I love data, so I’ve been searching for a great watch / pedometer / HRM / web service solution for a year and I think I may have finally found it.
I’ve been running with a Fitsense watch for the past year which I liked, but didn’t love. I bought a Garmin Forerunner 201 and played with it some, but the Garmin software stunk (and wasn’t web based, so it ended up being stuck on one computer.) I was contacted by the folks from MotionBased a week ago and they set me up with an account. I dusted off my Forerunner 201 and – after three runs – am completely loving the combination of MotionBased and the 201. Since I do my training based on heart rate + time (vs. distance), I ordered a Forerunner 301 so that I’ll have a HRM.
Following is the run I did today.
It’s live data – you can click through on the View Activity link and you’ll get more data options (and get a feel for the kind of stuff that MotionBased keeps track of). The maps are awesome – you can play to your hearts content simulating your workout. I always thought the first part of Fowler was pretty steep, but it only gains 200 feet to the top. However, it’s a hilly run (and very rocky in the middle) so I gained (and lost) 1300 ft. over the 5.3 mile out and back run. An excellent way to massage the brain.