How To Tell If You Need To Fire Your CEO
Everything bad that happens at a company is fundamentally a people problem. Most startups fail. Often, they fail because the person at the top fails. The problem is exacerbated by the reluctance of board members who for reasons of self-interest, have no desire to be branded as being non-friendly to startup founders and turn a blind eye to CEO incompetence. Venture investors with their risk-adjusted calculations and with the same yearning to be perceived as pro-entrepreneur are also often remiss to exercise the intellectual rigor and moral imperative of ensuring that real leadership is established from the top down.
The greatest growth a startup will experience is when the CEO / Founder becomes or hires a leader of leaders. That is the pivotal point when a startup becomes a real business. CEO / Founders can help launch a business and can help grow a startup. A startup will only metamorphosize into a high-growth business with leadership. And it all starts at the top.
For the CEO to take the helm of the company, he or she must be Chief of Strategy, Vision, Coaching, Cheerleading, and Mentoring. CEOs should also surround themselves with giants — people who are better than them at any number of functional areas. If they don’t, the consequences will be dire and the only question will be ‘fast & sudden?’ or ‘slow & painful?’ An under-performing CEO, whether he or she is a founder who’s unsuited to running a growing company or a hired CEO who simply isn’t living up to expectations, can drag a whole team down and make success impossible, making CEO failure the primary cause of the destruction of value in startup land.
The competitive nature of venture investing puts pressure on investors to further lower their standards in order to win the deal, and adds yet another vector towards the destruction of value.
And so how can boards and venture investors still be supportive of entrepreneurs and also uphold the merit and virtue of being intellectually honest and morally correct in their analysis of the founder/leadership gap dilemma?
The time for the title of ‘Chief Entrepreneur Officer’ is now.
Most board members would never hire the CEO / Founder to be the CEO of any other enterprise. So let’s not kid ourselves anymore!
Let’s hold Founding CEO’s accountable to a different yardstick, that of Chief Entrepreneur Officer, and let’s reserve the title of Chief Executive Officer for a well defined leadership role to be filled by someone who deserves it, based on proven leadership and merit.
How do you know when it’s time to take your CEO out? Usually, a CEO replacement happens for one of two reasons:
- The board has lost faith in the CEO’s ability to drive the company toward its strategic objectives.
- The CEO has lost the faith and/or the will of his or her people.
Whether the verdict comes from the top down or the bottom up, a consistent pattern of failing to meet expectations is hard to miss, and requires immediate action.
Advice to board members: keep a sharp eye on executive turnover and turnover in general. Engage in exit interviews. You will get all of the raw data you need.
The board’s first responsibility is in succession planning and in ensuring that strong, competent, functional leaders are in place to support the continuity of the business and drive growth. The second-in-command, as the person most likely to succeed the CEO, should be a detailed-oriented, operations person with a strong grasp of the business. They should also have been mentored in the skill set that a CEO needs: Selling the vision of the company to team members and the world, making sure all of the right people are on board and sitting in the right seats, and making sure the company has enough cash in the bank to execute the vision.
The board has a responsibility to investors to make sure the CEO is surrounded by strong executive leaders who can lead the operational functions with high excellence. If you’re a board member, do yourself a favor now and make sure your company has a deep bench of potential leaders in case of crisis.
To get started with this, you will need to perform a brutally honest assessment of your organization as it exists.
Here’s a simple 3-step plan for success:
- Get crystal-clear on your company’s strategic objectives for the next 6, 12, and 24 months.
- Build a functional org chart that is pure and honest in its assessment of what your company needs to achieve those outcomes. Take individual executives’ names out of the equation, so that you can create a plan of the necessary functions at your company, not the people filling those seats.
- Perform a gap analysis and form a strong understanding of the leadership team you need, versus the one you have — and then start filling those gaps.
There’s a common misconception that it’s better to have someone doing a bad job than to have no-one doing the job at all. This is motivated purely by fear — and like a lot of fear-based beliefs, it’s a bad one. An underperforming employee is a cancer in your company, at any level. So if your CEO isn’t the right fit, discuss with your board members the opportunity for value creation, organize a communication plan and begin a (confidential if necessary) search for a new CEO today!
You can do a search to fill that role with a true leader.
In the meantime, the strong leadership bench you’ve developed will come together, in that vacuum, to heal the damage a bad CEO has caused. Soon, you’ll have the best possible person doing the most important job at your company. You’ll create good in the universe. And give everyone a real chance at maximizing value creation.
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