A CEO wants to significantly grow his company, either to prepare for an IPO or
to become an interesting takeover target. However, he struggles with
delegation. When responsibilities are delegated, the job isn’t done to the
CEO’s satisfaction and he ends up doing the work himself. He asks: what is the
CEO’s job? Is it for me?
from the CEOs:
order to grow the company to the desired level, it is necessary to hire
competent people and delegate. The most important position will be a COO with
deep experience organizing people and functions.
CEO’s role is to provide the vision and strategic objectives for the company.
The COO’s role is to assure that the right people are in place or hired to do
the work necessary to realize the vision and operational objectives.
CEO-COO relationship will be pivotal. If there are specific ways that the CEO
wants to see things done, these must be clearly delineated in discussions with
role of the COO will be to organize the company to reach the growth objective.
a competent, talented HR person to plan the organizational development road
map, and the positions that must be filled in stages to reach the goal.
growth plans of the company are ambitious. Absent significant change, growth
will be limited to a fraction of the current objective.
with the COO and HR person, build the organizational chart for the size company
that the vision imagines. Fill the chart with current personnel where the fit
is appropriate. Determine where the gaps exist and build a plan to hire these
people in stages.
E-Myth Revisited by Michael Gerber provides an exercise to accomplish this.
a high-level assistant to help in areas where the CEO finds it difficult to let
go. This will be another key relationship and will be important to learning how
to let go.
a CEO coach.
will likely be an individual with significant experience who has achieved the
growth envisioned by the strategic plan.
CEO Coach will help to draw lines between delegating and micromanaging and will
help the CEO to learn to effectively delegate to qualified people.
Situation: An early stage company is preparing for an IPO. The founder and Board have selected a new CEO with experience taking companies public. How do you facilitate a CEO transition, and how can the founder best position himself to support the new CEO?
Advice from the CEOs:
Get clear on your own strengths and desired primary responsibilities, but prepare to be flexible in negotiating responsibilities with the new CEO. For example, if the founder’s strengths are marketing, IP and early stage fund raising, see how these compliment the strengths of the new CEO. Then select a title which will allow you to leverage your strengths without impinging on the focus of the new individual. Don’t pigeon-hole yourself with your new title; keep it as broad as possible, for example Executive Vice President.
If you, as the founder, have a good long-term relationship with your VCs and the Board this will be one of your strengths. Be prepared to counsel the new CEO on individual personalities and objectives of this group. The CEO will form him own relationship with the VCs and Board over time.
Chemistry between the founder and new CEO will be very important. The job of the new CEO is to captain the ship. Your new job is to be a superior first mate.
It appears that you have an excellent learning opportunity. Learn as much as possible from the new CEO as well as the experience of the IPO process.
To smooth the transition personally between the two of you, take the opportunity to tell the CEO that you believe that the Board made the best choice and that you look forward to the opportunity to learn from him. This might be best done outside of the office, for example taking the new CEO to dinner.
Maintain your relationship with the key VCs on the Board. Let them know about your future ambitions and that if the right opportunity opens up in one of their portfolio companies, you could be interested.
Situation: A company exchanged a small percent of their stock for a Series A unsecured note 4.5 years ago. The company has not undergone an IPO because of the recession and if the note is not repaid in 5 years, the holder has the right to call the line. If the company can’t repay the line, the holder gains governance rights. Revenue declined during the recession and while it is on the upswing, the company doesn’t have the cash to repay the note. What are the best alternatives for the company to unwind this redemption clause?
Advice from the CEOs:
Raising money to repay the debt will be problematic because of the current liability. Investors want their investment to fund growth and returns, not to simply repay debt.
Assuming that your revenue rebound is sustainable can you prioritize resources to accumulate cash to repay the note? Jack Stack, in The Great Game of Business describes how he was able to rally his company’s employees to pay off a seemingly impossible debt load in one year to save his company,
If raising the cash to pay the note is impossible, you have 5 options:
Convert the note to long-term debt that you can service.
Convert the note to equity at a lower evaluation and take some dilution.
Renew and push out the note, with a sweetener.
A combination of the above.
File Chapter 11 if you can’t produce or raise the funds.
Have your options in place at least 2-3 months before the note is due. This gives you time to talk to and bargain with the note holder.
Start a PR campaign with the note holder.
Look for leading and lagging indicators that show your progress.
Build a story that lends credibility to your forecasts of future success.
Pitch that you are a good long-term investment, and now is the prime time to trade the note for equity.
Prep the holder, and build this story gradually over time.
Interview with Chuck Gershman, Founder and Former CEO, Bay Microsystems
Situation: Following a consolidation of equipment suppliers, the broadband network market has matured with a few large players. This potentially reduces diversity and creativity because barriers to entry are now enormous. How do you fund a new venture in a mature market?
Chuck Gershman’s Advice:
If you can get the venture off the ground, the opportunity is tremendous because competition for new approaches in a mature market is limited. Large players don’t move quickly. Their incentive is to change slowly to lengthen product life cycles.
The downside is fewer financiers interested in the space because of the barriers to entry, and because the likely exit is an M&A play at low multiples.
Given this, how do you attract investors?
In the hardware space, you must demonstrate a convincing go-to-market strategy with modest investment and a moderate cost of market penetration. If the cost of success is high, it requires too much investment and risk before you can accurately assess the possibility of success.
You must be able to show a substantial total available market.
You must be able to show that your capability meets the needs of the market.
You must be able to show that the customer base will respond en masse. This is critical!
With fewer investors willing to look at your product and technology, it takes more time and work to find interested investors.
Investors invest on perceived risk, so the task is to show that the risk is manageable.
In the past, investors were convinced by a committed strategic customer that would finance bringing the product to market.
In the current market, an effective strategy is to develop an early customer who is a strategic investor in your company from Day 1. This raises the likelihood of an exit, and appeal to investors, but reduces downstream options and ROI.
Another strategy is to pursue a creative IPO exit. For example, launching the IPO on a smaller foreign exchange. This reduces the long-term payout to founders, but may increase appeal to investors who prefer an IPO to an M&A exit.