You’ve nurtured your company since day one. now it’s time to hand the business to professional management. here’s how to make the transition successfully.
You’ve built your business from the ground up with your own hands. You still can see your router lighting up, as you T1 “backbone” connected to the Internet for the first time. You remember the thrill you got when your first product went out the door, like it was only yesterday.
Now, for the troubling twist: Your title remains CEO, but you’re a techie and your company is growing too fast for you to manage. In short, you’re an MCSE–not an MBA.
Increasingly your focus is on making executive decisions and dealing with administrative issues, chores you don’t relish. Your day is consumed with meetings and signing endless papers. Consequently, you haven’t written a line of code in a week; you don’t have time to upgrade your own PC, much less a customer’s 50 workstations.
Sound familiar? Thousands of technical entrepreneurs face this dilemma every year. How do you get around it? Swallow your pride, hire some professional management and move into the CTO slot.
From CEO To CTO
It sounds easy enough, but for many self-starting resellers, the prospect of turning over their company to someone else to run is frightening. Some resellers can’t do it.
As one reseller from Colorado puts it, “I was growing fast, and I was losing control. There was just too much office work to do and not enough time to do the job.” His decision? “After thinking about it, I knew l didn’t want my company to change. I decided to pull back to only my most profitable lines, and I made deals with some of the other local resellers I could trust. I ended up referring some of my customers to them in return for referrals to some of theirs that were more up my line than theirs.”
Most technology companies, though, don’t have the luxury, or confidence, to back away from growth. Instead, they must find savvy management. This often involves consulting a headhunter or turning to executive career Web sites like CareerBuilder. Whichever direction you head in, you’ll need to spend some time and energy evaluating promising candidates.
“If you’re going to hire a manager, you really need to look at this person’s track record and go deeper than what the head-hunter will present you with,” said Martin Gear, president of Martin Gear Consulting Ltd.
For starters, don’t rely on recommendations from HR departments at companies where the candidate used to work. Official sources, such as human resources, usually don’t have the full story and often are unable to give more than the bare facts: years of employment, titles while employed and other basic information. Some firms refuse to comment on the quality of a former employee’s work for fear of a lawsuit.
Once you have a candidate lined up, Gear suggests calling middle management at his former employers. If you don’t have names of middle managers, check company Web sites and cold-call listed managers to get some feedback on the candidate. The worst you can do is receive a “no comment.”
Assuming you reach someone willing to talk–every company has a few good gossips–the discussion could help to clarify whether a candidate’s track record for, say, producing profits is legitimate.
“Anyone can show a tremendous gross-profit record in the short term, by firing half of the employees,” said Gear. “The real question is, does the company stay profitable after that cut?”
You often also can find good candidates by relying on your network of business colleagues and friends for recommendations and suggestions.
A Friend Of A Friend …
Doug Humphrey, founder and first CEO of Digex, one of the first successful ISPs, now part of Verizon Business, said, “The best way that I have found to recruit people in general is to hire friends of friends. Not friends who you are too close with, and not strangers, who have nobody to vouch for them. Friends of friends are far enough from you for it to work, but close enough that you have a sort of ‘guarantee’ that they are at least OK, and that they will work hard to not embarrass the person who recommended them.”
You also should consider outright stealing talent from your competition. Be careful, though; Gear points out that getting your competitor’s CEO to run your company can be a very expensive proposition that is fraught with possible legal problems. Noncompete agreements, though difficult to enforce, still may tie you up in legal red tape.
Once you’re comfortable with a candidate’s background, challenge yourself to dig deeper. If all you care about is proper credentials–an MBA from Harvard or Wharton–you’re not looking deep enough.
Aside from the candidate’s experience, consider whether he would be a good cultural fit for your company Is the candidate too introverted for your company? Does he dress down when everyone else dresses up? Noticing little details like this can help you to avoid hiring the wrong candidate.
Gear comments that there “has to be a synergy between you and the manager you hire, If you’re at all uncomfortable, regardless of their credentials, you should look elsewhere.”
Stay Tuned In
If your own HR department is doing the first cut, be sure to double-check its work. Alas, HR departments–though very, very valuable–sometimes overlook promising candidates because their resumes lack certain buzzwords.
For instance, HR may eliminate a CEO candidate because he lacks an MBA–despite the fact that the candidate has 10 years of management experience running companies in your line of business.
Also, be sure your HR team has an open mind and considers candidates that come from outside the high-tech industry Everywhere you turn these days, proven business pros from old-line companies like Disney Pepsi and Nike are handing in their resignations to run dot-coin organizations.
Don’t Fire Yourself
Of course, once you hire a CEO, you run the risk of being forced out the door. Hey, it happens. Just ask Steve Jobs, who recruited John Sculley to run Apple Computer in the mid-1980s. Not long after, Jobs was out of a job-and it took him a decade to get it back.
How do you avoid losing your sweat-equity? By hiring the right people. Your senior people should be well rewarded for their efforts on behalf of the company But, well rewarded doesn’t mean turning over the keys to the kingdom–a.k.a. majority ownership of the company.
The Foundation for Enterprise Development has found that top executives at start-up companies often can have 15 percent to 25 percent equity stakes in the firm. An established company should offer no more than 8 percent to 19 percent of its fully diluted value in the firm, the foundation estimates.
Share The Limelight
You also should look for someone who has a solid track record as a team player. That’s a valuable trait, especially at start-up companies. Humphrey observes that a “start-up is like a family a very close community. The people care a lot, about each other and about the company and through that interest they resist change that is [considered] ‘bad.'”
Any new top management will bring change. The key is to make that change good for the whole entity. If your new executives don’t understand that corporate culture needs to be changed slowly or worse still, disrespects the current corporate culture, you’re in trouble. We’ve all heard about the three-piece. suit CEO who tried to force a dress code on an unkempt crew of programmers. You don’t want to go there.
Still, change is part of all successful businesses. Five years ago, hardly any of us were on the Internet. Today we all are. You knew you had to accept change in your technology and you’ll need to learn to accept it in your business practices, as well. And more often than not, in a start-up situation, that change comes with the infusion of new management blood.
Secrets Of Success
How do you improve your chances of bringing in the right people and making sure the relationship works? Here are some rules of thumb:
Do due diligence. We love that legal phrase. Here, it means checking any management prospect’s work history with a fine-toothed comb. That way, there will be no surprises.
Don’t hire buddies. You know the old adage about not mixing business and friendship.
You hired management for a reason. Give them your administrative work and let them do their job so you can focus on the jobs you do best. If you are constantly second-guessing or micromanaging them, you only end up wasting everyone’s time while raising everyone’s blood pressure. This is, without doubt, the hardest lesson to learn, but learn it you must.
Don’t give away the company. Everybody wants options. Offer them, but make them performance-dependent. And always make sure that no possible combination of ownership agreements can be used to force you out.
Embrace change. It’s not entirely your company anymore, and things won’t be done exactly the way you would have done them. Get over it. Don’t encourage “old” employees to come to you with grievances against management. Effective new management always brings change that causes short-term pain. Accept it, bear it, and only judge change by its long-term impact.
Hire For The Job, Not For The Long Term
Consider this: If what you really need is someone to turn your company into a lean, mean marketing machine or to take it through its IPO, do you really want to permanently crown him as CEO?
If you have a specific long-term goal in mind, consider finding the right person for that job and that job alone. After the stock is out or the company is reorganized, then, and only then, should you consider keeping him on for the long haul.
Many senior staffers work well in a given situation. Once that phase has been successfully navigated, give them a long, hard look before deciding to keep them. Someone who knows the ins and out of venture capital like the back of his hand is great for getting through the first rounds of garnering capital. For maintaining momentum, long after the seed money is gone, you may be better off with a less “high-wire” top management team.
A version of this story was first published in Sm@rt Reseller Jan 24, 2000