How Founders Elevate to CEOs

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Can a first time founder evolve from an early stage CEO to a high growth CEO? Absolutely.

As a rule, VCs invest in founders first and foremost. Another (albeit, unspoken) rule is that with any given startup one of the founding partners will invariably — and sometimes arbitrarily — become the CEO. Being a good founder, though, does not necessarily equate to being a good CEO, even in an early stage business. Founders usually have a great idea, a guiding North Star and a relentless drive, but lack complete market perspective and organizational know how. A good CEO will almost always have those qualities plus an additional skill set; whether its organizational or an uncanny insight into the economics of a given market. Yet, even a founder with all the requisite “CEO talents” still needs help. For most founders it’s a question of evolving into the role. For VCs looking to identify potential high growth companies that evolution is critical.

As an investor, it’s not always easy to know the kind of CEO you have on your hands. Sometimes, for better or for worse, it’s abundantly clear. Yet, other times, the “tells” are more subtle. Chris Young, a general partner here at Revel Partners, wrote a Medium post where he identified certain characteristics and traits common to great CEOs. He also noted indicators that should send up red flags that a founder may lack a clear understanding of the complexities of growing a business or, more importantly, how to deliver results.

He refers to good CEOs as “race car drivers.” They have the ability to clearly and succinctly explain the business vision and demonstrate not only a cogent description and roadmap of the product but market/client feedback and alignment, as well. They were also able to recruit leadership and effectively delegate and assign responsibility that extended beyond mere co-founder alignment and early stage team rapport. They had a demonstrable understanding of the market opportunity and competitive set as well as a defined TAM complemented by a cogent bottoms-up approach to attack massive TAM, by industry, geography, land/expand, use case, etc.

Yet, one of the most important questions to answer when evaluating a founder is if he/she, as a disrupter or visionary, still recognizes the value of collaboration with the Board, customers and team and understands how that helps drive success. That’s why leadership experience is perhaps the most important quality you can look for in a CEO and founder.

Experience, intellectual confidence and a blend of pliability and commitment can help founders and CEOs recognize pitfalls and obstacles and address them with contingency plans to help avoid or overcome them. Finding founders that have experience and pliability gives investors confidence that, despite whatever other shortcomings they may otherwise have, their “coachability” and background can be relied upon to help them navigate the ups and downs of growth and market variability.

This is, perhaps, also why second-time founders get better valuations and frequently get funded more quickly. They tend to be more successful because they don’t have to go through the same learning curve as first time CEOs do.

Can a first time founder evolve from an early stage CEO to a high growth CEO? Absolutely. It often comes down to just how smart, curious and flexible that person is. Sometimes it’s as simple as just being available. Communicating with some CEOs on a weekly or bi-weekly period can be challenging, particularly with first-time founder CEOs. Yet, that kind of consistent communication with the right investors, those with founding/operating experience, can be invaluable when the sailing gets rough.

Seasoned CEOs tend to be more amenable to coaching. They understand the value of working with a board and the need to challenge their gut instinct. This tendency may come primarily from a desire to manage investors but often they’re simply more aware of their own blind spots because they’ve been there before and they’ve done that.

An inexperienced founder/CEO may bristle at this level of communication. Often, they’ll look at the company as their business and feel that they alone have the ability to find the way forward around a given problem. There is a stubbornness that attends that attitude and it can be damaging. Knowing how to hire and fire or grow a business and engage a board is something CEOs only really learn by doing. When you don’t have that kind experience, it’s critical to have a sounding board in the form of investors as an alternative. They can act as a bridge to the kind of experience that seasoned CEOs tend to bring to the table.

When VCs are evaluating companies and CEOs, talent and intelligence matter. But, so does coachability and a willingness to challenge closely held convictions. Occasionally you’ll find that diamond in the rough — that veteran race car driver loaded with skill and savvy — often, though, you’ll find a founder with a lot of raw talent but very little in the way of experience. VCs can help these CEOs evolve by bringing a wealth of understanding and know-how to the table and by helping them couple that shared experience with their own raw talent. But, only if the founder is first ready to learn, adapt and temper their optimism with practicality and realism.

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