Tony Scott, Ben Smith: So They’ve Offered You The CEO’s Job. Here’s What You Need To Know Before Jumping With Joy
So you’re in the running for the CEO’s job at a startup. Already a creeping sense of uncertainty has set in as you prepare for the next interview. What do you need to know about the company? What rocks do you need to peek under?
Senior executive changes are happening with increasing frequency in today’s vibrant technology market. Seasoned managers move from one early-stage company to another, and from established companies and venture firms into the startup world. Some of the savviest new-gen Web companies recruit directly from brand name consumer and media outfits.
If you’re in line for a CEO’s gig or another senior leadership role at a pre-IPO company, you’ve got a lot to think about. Asking the right questions is critical to make sure you’re not jumping into a boiling cauldron of hot oil. Here are several suggestions from successful – and not so successful – executive appointments we’ve been part of.
Remember the company and board have been trying to put the best shine on the emerging business. Now you have the upper hand. If you don’t ask the tough questions and require full disclosure of current initiatives and strategies, as well as those in the planning stages, the only person you can blame later is yourself.
We suggest sitting down with every board member and with members of the team. Assess their motivation, dedication and willingness to spend more than just 9 to 5 at their jobs. You need to feel at home and confident about the path ahead.
- First, any prospective CEO candidate should ask for the most recent board decks.We suggest looking at the ones from the last year at a minimum. Once you’ve reviewed them, you might insist on a walk-through of the two most recent presentations, perhaps as they were shown to the board.
- Second, It is important to ask about the last people who left the company.This includes directors and non-management-level employees – both those who left voluntarily and who were terminated. Ask why they left or were terminated, and the impact of their leaving.
- Do your own due diligence on departures. Look on LinkedIn for people who were associated with the company. You may find core team members who are no longer there, even after you’ve been assured none have left. This is an obvious red flag. You need to know why this wasn’t disclosed. Keeping information like this under wraps to a potential new CEO is highly questionable behavior. We have been amazed by founders who claim no executive turnover when a quick LinkedIn search uncovers three former CFOs.
- Talk to users, partners and customers.Find a way to subtly get access to people who know the business. Talk to them to understand how they feel about the company’s value proposition and leadership team. With Internet companies, customer feedback is always in the data. So get access to Omniture, or a similar account, and have someone walk you through the data. In the last few years, we have all seen companies position their consumer traction as great when in fact organic traffic is off, daily or month average user numbers tell of an engagement problem and revenue success is driven off advertising optimization, not user growth.
- Ask about the severance agreements with senior members of the team.You want to know how expensive it will be to make changes and whether your own package will cause resentment. Seek information on bonuses to the senior team members and to rank-and-file.
- Find out about the founders.What are their roles, what are their ownership positions, do you have the ability to change what they do? One of the most dangerous situations is when a founder of an early stage company has been moved aside as CEO against his or her will and is still at the company in a senior executive role. It is a common axiom in the venture business that better returns come when founders stick through to exit. So this change is not a minor risk. What’s more, the natural instinct of team members will be to discuss issues with the founder, and the natural instinct of the founder will be to continue to meddle in external and internal issues. Disputes where team members go around the CEO to founders can easily become political struggles that destroy morale and even entire companies.
- CEO candidates need to assess the board.Find out from direct conversations with each board member about their commitment to the company. You need to gauge your ability as a new CEO to add or change independent board members. You need to understand the relationship between board members and the founders. Go beyond the board and talk to investors who are not on the board.
- It is crucial to understand a company’s financial position, both operationally and from capitalization standpoint. Be sure to understand the cap chart and the preference stack. There have been plenty of examples in the past, though not as many recently, where the preferences of investors would make almost any exit worthless for the senior team and the team as a whole. Now may be your best and only chance to negotiate a better package for you, your executive team and the rest of the staff. No one wants to work at a startup where the only potential for a positive outcome is a Google– or Facebook-like exit.
- Review the pitches to partners. Understand past exit discussions and how the company was positioned in those discussions. This will give you some of the best insights on exit potential and, more importantly, on the board’s view of exits.
- Finally, find out what a day looks like at the company. Go to lunch with a random group of employees. Go for drinks after work. You’ll find out what people are really thinking. Make sure to show up at the company offices before 9 a.m. and after 5 p.m. Are people there? Are they working happily? Are they motivated? Are they fun?
You may think you’ve found the world’s most wonderful opportunity. But you need to make sure. Remember, you’re investing your time and you can never get that back.
(Tony Scott (top photo) is the president of ChampionScott Partners and has recruited board directors, CEOs and executives to over 100 startups. He can be found at http://www.championscott.com. Ben T. Smith, IV (second photo) is a serial entrepreneur, investor and the co-founder of MerchantCircle.com and Spoke.com. Both were former partners at A.T. Kearney. Ben is available on Twitter @bentsmithfour and btsiv.com.)