VC Cliche of the Week

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VC Cliche of the Week

This week I am going to make fun of a commonly heard VC cliche.

I've been in quite a few board meetings over the years when things aren't going so well and the Board goes into executive session (a code word for kicking the management out of the meeting).

I should stop and say that executive sessions are good things for Boards to do, but let's just call a spade a spade, they are designed to let the Board talk without management in the room.

Once the management is out of the room, someone, usually one of the VCs says, "What we need in this company is a world class CEO".

I used to sit there and agree. But I've come to realize a number of things about the "myth of the world class CEO" as Jerry calls it.

1 - There isn't such a thing as a world class CEO
2 - If there were, they'd be interviewing for the CEO job at Disney, not your little piss ant company
3 - A world class CEO isn't going to fix a bad investment
4 - Many "hired managers" are good at operating but lack the passion, drive, and vision that founders/entrepreneurs bring to the table
5 - I've seen more world class CEOs (who weren't world class or CEOs) screw up companies than founder/entrepreneurs

The next time I am in that executive session and someone uses that world, I am going to jump across the table and strangle them. Then I am going to bring the management back into the room and tell them that we need some help, some "A students" to keep the trains running on time and support the "B students" that got us into this mess.

As to who has what title, that's an important factor and time will tell what's right, but really its about building a group of talented people that can function as a team and get the job done.

There are no silver bullets in building a company.

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Posted March 16, 2005 in Venture Capital and Technology

Comments

wow. . . great post. . .

just to add, VC's needs to identify the problem first, then evaluate whether the current management team can 1)analyze the problem in more detail 2)create solutions 3) execute to the plan. If the current team cant, A students are needed. Otherwise, a blanket quest for a "world class CEO" will not get anyone closer to making more money.

Posted by: will | Mar 16, 2005 4:04:59 PM

Amen to that.
I used to work for startup who brought in a "world class CEO" (ex-bank CEO) who loved to spout about how the people in our company had to be "world class" and how we would probably have to ask some people to leave.
The company went down the toilet under (and because of) this world class CEO's leadership.

Posted by: Anon Coward | Mar 16, 2005 5:36:12 PM

Hey Fred...thanks for the tip o'the hat...as you know, I've been thinking a lot about leadership these days. I'm teaching that class on leadership in the undergraduate business program at Queens College. I think the phenomenon stems from the tendency of boards to avoid the real problems at companies. It would be so nice and simple if one person could come in and change everything. Even nicer still if that person was so universally admired that the mere act of hiring them would permanently raise the value of the company.

Look, for example, what the board at Disney went through. By all appearances, it seemed ready to hand the reins to Meg Whitman--ironically someone who, had she stayed at Disney instead of leaving to eventually become CEO of eBay, would NEVER have been given a shot at running the company. But, now that she proved herself capable at eBay, she is now "a world-class CEO." The news that she took herself out of contention forced the board to accept what appears to be Eisner's approved candidate, Bob Iger.

How silly.

Even more though it seems to me that the board abdicated its responsibility in dealing with the many, many problems at Disney which Eisner's culture exacerbated if not created. Instead of taking on Eisner years ago (say when Frank Wells, the seeming cultural counter-weight to Eisner's crazy-making, passed away) the board preferred not to engage in the conflict and allowed the culture to threaten the essence of the company: its brand.

So I guess it's a little like a game of blame the parents; in this case it's blame the board. There are truly great companies led by non-world class CEOs. And I'll bet those companies have a culture that allows anyone in management--or the board--to pop the bubble of narcissism that surrounds nearly all people in power.

Posted by: jerry | Mar 16, 2005 7:13:26 PM

I deal with this sentiment a lot, but mostly from the entrepreneur's side. It's a big source of the paranoia that founders have about dealing with VCs - that they are just caretakers until the VCs ultimately bring in "their guys" to run the company. And I have certainly heard it from the VC side. I agree with Jerry that to some extent it may be based on a naive notion that you can fix everything by bringing in the "World Class CEO". But I also think that there are still more than a few arbitrageurs left in the VC business - the guys who are more interested in trying to build companies on paper and packaging them for sale than the more painstaking work of really building a business. How often, Fred (or Jerry, if you're still reading), have you made an investment believing from day one that you were going to have to ultimately bring in a "World Class CEO"? My guess is not that often. But it's a pretty common phenomenon, in my experience.

It is challenging to counsel entrepreneurs on this issue. Any founder worth his or her salt has some ego invested in the business, and a good investor should not want to see the founder turn it over to a stranger without a compelling reason. On the other hand, the line between healthy and unhealthy paranoia can be pretty thin, and we have all seen instances where founders look for shapes in the shadows and become more obsessed with maintaining control over processes (and people) than with running the business. The best advice I can give to founders on this issue is to understand that there are lots of twists and turns in the life of a startup and anything can happen, but they should do their homework on the VCs they are talking to, particularly in terms of how they have worked with management in other companies.

Posted by: JayR | Mar 16, 2005 10:30:20 PM

There are many instances where we we invest and assume we'll have to bring in a "world class CEO" at some point. Sometimes we're right (business outgrows founder) and sometimes we're wrong (founder does fine).

The important point, though, is that the "world class CEO" concept is a good one for a company that is growing rapidly and seeing real success.

For a company that's false started or is having difficulty, it's an easy temptation to think "time to get a 'World Class CEO'" -- trouble is, those people don't want to fix your mess -- as Fred discussed in his article.

No matter how experienced and qualified the pilot, if you drop them into the seat of a 747 that's 100 feet from slamming into a mountain, they can't avert disaster. So it's no wonder you couldn't recruit a great pilot into that situation.

Posted by: another.vc | Mar 17, 2005 1:45:35 PM

one quick way to get to the heart of such situations: substitute the word "expensive" for "world class." (as in "expensive CEO" for "world class CEO".)

first, naturally, any "world class CEO" will be "expensive." so better get used to that. but more to fred's point, watch how quickly grandiose verbiage about startegy gives way to nuts and bolts problem solving when someone suggests "What we need in this company is an expensive CEO."

Posted by: steve | Mar 19, 2005 5:11:30 PM

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