From the venture investor's perspective, what are the top reasons CEOs fail in venture-backed early and growth-stage companies?
Below is a poll aggregating responses. For VCs taking the poll for the first time, check our prior blog post for further detail on some of the possible reasons short-handed below.
Feel free to forward to other qualified investors. [Please note, it's the honor system on investors only. In other words, please resist the temptation to stack the deck or share "opinion." Experience only.]
For summary of Harvard Business Review article written a few years back around "Why Entrepreneurs Don't Scale" see below poll.
[Poll closed. See blog post here for for results.]
Founder "Peter principle." This has been well-documented by others, most notably by John Hamm, venture capitalist at VSP Capital and leadership development coach who authored a Harvard Business Review article a few years back, titled "Why Entrepreneurs Don't Scale." To set up John's observations, most of our time as executive recruiters, we focus on helping early-stage companies jump the leadership chasm from entrepreneurial to professional leadership. More often than not, there is absolute certainty that a casualty will occur- the only question is whether that casualty will be the founder(s), or the company. Where venture capital or private equity is involved, all is done to avoid the latter in favor of the former. Regardless, it is too rare an occurrence when this collision between founder CEO, growth mandate, and outside investors ends positively, and if the company survives, it has to deal with the emotional baggage of shedding this first founder layer and all the pain this brings with it. John outlines four management tendencies that work for smaller-company environments but become Achilles' heels as these CEOs try to scale their companies. The first tendency is loyalty to founding team mates. In entrepreneurial mode, you need to lead as though you're in charge of a combat unit on the wrong side of enemy lines where anyone on your team is a keeper. However, in larger company growth mode, blind loyalty can become a liability. At some point, it may be required that the rest of the team that started the company with the CEO may need to be changed out for an executive team with experience at the "growth-stage" versus just the "start-up" stage. The second tendency, task orientation, is critical in driving toward a big initial product launch, but excessive attention to detail can cause a growing organization to either suffocate under such leadership-one that can't generate creative ideas or momentum without being instructed by the CEO-or lose sight of its long-term goals. The third tendency, single-mindedness, is important in a visionary CEO who is unleashing a revolutionary product or service on the world. However, this can limit the company's potential as it grows, as all good ideas aren't always born from one person. In addition, often a lack of self-awareness or "emotional intelligence" can create a large blind spot around what isn't working with the original idea, and instead of an ability to iterate to a better but related idea for the marketplace, the founder CEO can become caught up in the initial "vision" and stick to it regardless of external market input that would indicate changes to the initial value proposition are needed to capture broader market adoption. The fourth tendency, working in isolation, is fine for the brilliant scientist focused on an ingenious idea, technology or science. But it's a non-starter for a leader whose expanding organization increasingly relies on people other than the CEO. There is also a significant difference in skill set required when the company grows beyond a single layer of management, requiring, VPs who manage directors, who may manage managers. Managing through a multi-layer management system requires a very different managerial toolbox. As the summary for the article outlines, "Leaders who scale deal honestly with problems and quickly weed out nonperformers. They see past distractions and establish strategic priorities. They learn how to deal effectively with diverse employees, customers, and external constituencies. And, most important, they make the company's continuing health and welfare their top concern."