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VC Cliché of the Week
The Gotham Gal gets credit for this one. We were at dinner last night (amazing place called Little Owl - the Gotham Gal blogged it) and she blurts out, "I baked the cake, you can ice it, but don't screw it up"
It made me think of entrepreneurs who hand over their companies to others to run them.
It's a handoff fraught with risk and often forced by the VC.
I have two good friends, Gordon and Mark, who did just that with their companies only to watch the hired CEO screw it up.
But there's a good way to do this and a bad way. The bad way is to do a search, find someone you don't know, immediately hand over the keys to the car, and step aside.
The good way is to recruit one or more people to the company early on, spend time with them infusing them with your passion and vision, getting them familiar with the technology and culture, and gradually giving them the keys to the car.
The handoff of power should be so incremental that nobody can point to a date at which it happened.
There will always be an official date when someone takes the CEO title, but it should happen when its already a defacto title.
Baking the cake can also refer to the work an early stage VC does. There comes a time for me when I start to get bored with a company. When the discussions in board meetings turn to detailed budget reviews, lots of financial analysis, heavy audit committee work, S1 filings, bankers showing up to talk business, I know my work is done.
That doesn't mean I will get off the board then, but sometimes I will. It largely depends on the managment's preference and whether or not I'm comfortable with letting others ice the cake.
Comments (3) | Posted June 28, 2006 in Venture Capital and Technology
Comments
I don't agree completely with your observations about the gradual handoff. To my mind the handoff from the founder/entrepreneur is one of the most delicate and risky things a company does. When the new CEO takes over, he or she has to really take over; if the founder is waiting in the wings, the handoff is nonexistent. The characteristics that tend to make for a successful founder, including great attention to detail and involvement in every aspect of the company, are characteristics that block others from making decisions. Nominal delegation of authority doesn't work when everyone knows the founder will revisit everything and the final decision is always his. Once a company reaches a certain size delegation is essential to the the nimble decision making that a company will need to survive. If the founder himself does not make this difficult transition by letting his baby start flying on its own, then a new CEO is needed and the founder has to really step back and let the new CEO be CEO in fact, not just in name. This is hard to do as well. But the worst case is a nominal delegation with power remaining at the CEO. it frustrates everyone and is a formula for failure. The ideal case, rarely achieved, is for the new CEO to come in at level below CEO and build his internal and external credibility with all constituencies, inlcuding the founder, before a transition is made. This won't have the same risks of any of the other paths.
Posted by: Ted Weitz | Jun 29, 2006 12:17:52 PM
As one of the case studies cited in Fred's post, I have to disagree w/Ted's comments above. Upoc, which was my company and I was CEO, suffered in large part because I handed over too much power and was too uncritical (in the constructive, not nit-picking or obstructive sense) of the new CEO. I honestly made best efforts to make it work and giving the guy too much authority proved to be a disaster. He had no credibility (since he was new to the co and the industry) and I undermined my own by supporting him vigorously. Which left the company stranded from a leadership situation. Plus our Board sucked.
Bottom line: the guy we brought in was a poor fit, but, I believe that no matter who you bring in, any change, to be viable, needs to be a gradual transition of both authority and trust for the new person.
I blogged about some of the details of this story, including the Board dimension which Fred does not really discuss here: http://gordon.blogsmith.com/2006/06/29/ceo-transitions-some-details-on-a-leadership-change-gone-awry-a/
Posted by: Gordon Gould | Jun 29, 2006 7:52:57 PM
There seems to be a chasm between those who like baking and those who like icing the cake. Bakers versus icers; creative versus corporate class. One gets kudos by founding a solution or company (the cleverer the better), the other gets kudos by administrating a big corporation (the bigger the better).
Two different cultures. The Master in Business Creation (MBC), and the Master in Business Administration (MBA). And there is friction between the two.
The truth nowadays is that one can't live without the other; you need process and structure, as well as innovation and disruption. Rather than a handover from creative founder to rational administrator, you need team work. Not easy. Google is having a go of it, but I don't envy Eric's position.
Posted by: paul elosegui | Jul 3, 2006 3:20:28 AM
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