May 25, 2011

How To Evaluate A CEO from Starbucks CEO and a Top Silicon Valley VC

Filed under: entrepreneur,leadership,learning,start ups,venture — Mark @ 1:42 pm

There is no more important role in any company than the CEO. So much has been written about what it takes to be a leader and there are different kinds of CEOs – big company, start up, technology, services and many more. (You can see an interesting Wharton study of Founding v Professional CEO analysis here) If you are building a company, investing in a business or thinking of hiring (your) CEO replacement, what criteria should be used to see if you have the right person?

Many CEOs are very good and what they do yet many aren't sure how they stack up. According to Starbucks CEO Howard Schultz,  many CEOs are in fact a bit insecure that they don't know it all. Several founding CEOs I know have said they couldn't be hired for their job if they applied for it today. That insecurity is a strength if its anchored with humility and vulnerability so they can show their human side. Being the "smartest guy" in the room and know-it-all is a turn off to employees, partners and customers. For vulnerability to work, there must be trust on the team and that is built by candor within the team. My formula for building strength by leveraging vulnerability is – Candor + trust = growing respect.

These are subjective criteria and there is no CEO Olympics. We can measure a variety of outcomes, performance, stock price, M&A success however picking a good CEO is still an art. Silicon Valley VC Andreessen Horowitz partner Ben Horowitz posted their criteria for evaluating CEOs – its a very good read and I suggest checking out the full article – the key questions he raised are:

  1. Does the CEO know what to do?
  2. Can the CEO get the company to do what she knows?
  3. Did the CEO achieve the desired results against an appropriate set of objectives?

If you are the CEO and being evaluated from the outside, what can you do to be more effective? Being open, curious and respectful of your people and incoming market information can help you insure your goals are still the best target. If there has been a big market shift, it's your call how to react. A key component in that process is being able to use your vulnerability and ask "what is it I don't know I DON'T know?" (See my earlier post on this topic)

Working with top people to discuss tough decisions is a great way to help CEOs get perspective. An outside director, business adviser or coach is a big help. I found it very useful as the cliche "its lonely at the top" was very accurate for me and other CEOs I know, especially in new technology fields where the rules are being written and rewritten all the time.

May 16, 2011

Entrepreneur and CEO trap: What You Don’t Know YOU Don’t Know

Filed under: entrepreneur,leadership,management — Mark @ 1:33 pm

I had conversation last week with a client who considering options to solve a pressing management issue. He had spent a lot of time researching and outlined a clear SWOT analysis of the issue. After carefully considering his 2 choices, he decided on his 2nd option.

I asked, "what about option 3 – it's a blend of the 2". He looked at me and thought for a moment and said, "But I only have 2 option." "Really?" I asked. "Option 3 can solve our issue without the risks you outlined in the 2nd option." His realization forced him to reconsider the entire issue and the next day (you guessed it) he went with option 3. This was a clear example of the biggest danger: He didn't know WHAT he didn't know.

I see this often working with management teams and entrepreneurs – they think they have all the options to make a decision. Many times the true danger is what you don't know you don't know  A good illustration of this is a post I read today by NY entrepreneur Ben Pieratt, CEO of Svpply, that bravely admitted, "I have no idea what I'm doing." (See his full post here). He said "I enjoy naming products and I think I have a talent for it. I have an understanding of design that extends well past the aesthetic. …But I have zero experience or expertise in building a company"

He recognized that his biggest danger was he didn't have the depth of experience beyond his comfort zone to make the best decisions for the company. Simply, he didn't know he DIDN'T know. Many of us (myself included) have these challenges. I believe a great antidote to the this "idontknow-itis" is expanding your management bench with experienced leaders who will question your assumptions, ask you questions and explore "what-if" scenarios. Clearly, Ben knows enough to build a company that's growing, has attracted outside investors and talent yet there are clearly things he has no experience solving.

Another example is a client who assumed he needed to keep spending $100,000 each month on advertising. I challenged his belief that if he stopped advertising, sales would tank. We tried 1 month of reducing spending just 90% below the previous month's ad budget. The results were amazing – sales declined just 10%.  The reworked assumptions saved this client over $1 million in ads that went straight to the bottom line.

The key issue in both these cases is humility. Having the guts and confidence to ask yourself and others for input to guide you the right decision is the hallmark of a leader who places results ahead of ego and will learn by overcoming these lurking unknown unknowns. My advice, ask yourself "what is it I don't know I don't know". The answer can help you be much more successful.