I wrote last week about Being CEO and I said that I'd done it twice in my career. But I omitted an important point: how do you get to be CEO? I assume we are talking about a small company, or a startup. But, in fact, a private equity firm faces many of the same issues when they take a company private, and large companies sometimes replace their CEOs. But they're not going to pick you (or me). Be a CEO Already The reality is that the number-one criterion that anyone is going to look for if they have a free choice is that you have been CEO before. Better still, is that when you were CEO before, you had a good exit, selling the company you ran for a good price or at least generally having left the company in better shape than you found it. Another important consideration is not just whether you have managed a big organization before, but whether you have done it in a similar environment. When I was at VLSI Technology, when the fab was messed up (which it was from time-to-time), the natural reaction was to bring in an experienced fab operations manager from TI or Motorola. But these people had never taken a fab that had problems, without a huge organization, and got things back on track. They were good at keeping a smoothly running fab running smoothly, with a huge organization to back them up. I've seen a similar phenomenon with managers coming to startups from large companies. They struggle because they are not used to working with severely limited resources, on very short timescales. It's like taking a cruise-ship captain and putting him into a catamaran. (Or her. I just searched, and the interwebs tell me that Celebrity Summit is the first cruise ship captained by an American woman, so perhaps there are earlier Scandinavian women, too.) Yes, both a cruise ship and a racing boat require sailing skills, and leadership, and running a team. But that's about all that is common. Even the sailing skills are pretty different. Having said that the first criterion for a CEO is to have done it before, of Cadence's CEOs, I think only Jack Harding had been CEO before—he had been the CEO of Coopers and Chyan that Cadence acquired. Lip-Bu founded Walden International (where he is still Chairman) and you can decide if that counts. Joe Costello certainly had never been CEO before, Ray Bingham had been CFO of a number of companies including Cadence, and Mike Fister had run businesses at Intel but, had neither had done a CEO job before. For an established company, the CEO is appointed by the board. In a pre-IPO company, the CEO is nominally appointed by the board but the reality is that the CEO is largely chosen by the lead investor who decides whether to keep and support the founding CEO or whether, for some reason, it is time for a change. Not all CEOs who can get a company off the ground can take it to the next level. A lot of companies do the "CEO to CTO switch", where the founding CEO becomes the CTO, and a new CEO, "adult supervision", is brought in. Getting a First CEO Job So if you’ve been CEO before and not made too much of a mess of it, you can get to be CEO again. So how do you get your first gig? Well, you are not going to get headhunted to run a class-A company. Before anyone is going to trust you with a class-A company, you have to have taken a mess and made something of it. Most people’s first CEO job is to take a company in trouble and try and fix it. This isn’t as bad as it sounds since expectations are low and so the standards that the board will judge you by are not as demanding as if you took a company with great potential. This type of CEO job typically comes along because you are in the right place at the right time. My two stints as CEO both came about this way. At Compass, I was “on the bench” in the finance division doing M&A and technology licensing when VLSI decided Compass needed new leadership. I was someone who knew the company and could take over instantly without needing to do a CEO search. So with one hour's notice, I was suddenly running a $25M company. At Envis, I was VP marketing (actually only working part-time as a consultant) when I was asked to take over, running a company that was burning through its limited amount of cash, a rather different job despite having the same job title. If the board has time to do a proper search for a CEO, probably the most important criterion is that you are “fundable.” By that they mean that investors are going to view you as CEO as an asset not a liability. The best proof of fundability is that you have raised money successfully in a previous CEO job, but a substitute is the right combination of business savviness and track record. You’ve probably heard that VCs invest first in the market, then the team, and only then in the technology. So the CEO is really important. The perfect CEO can raise money simply on his name. Imagine if Marc Andreessen decided to start another company. More mortal CEOs are regarded as an asset to the company, a CEO who isn’t going to need to get swapped out later. Lower down are people who are at least OK for the current stage of the company, with a question mark over whether they will make it long term. That sounds bad, but in fact, 75% of founding CEOs don’t make it to an exit without being replaced, so it’s not as disparaging as it sounds. Marc Andreessen only starts companies by proxy these days, through Andreessen-Horowitz, and they got big fast by deciding to focus on training technical founders to be better (hard), rather than swapping them out (easy). As a result, any really good technical founder wants to be funded by a16z. The motivation for their focus was noticing that many of the biggest and most successful companies in technology were run by their founders all the way up. HP, Apple, Facebook, Amazon, Microsoft, Google, Netflix, and more, were taken all the way to enormous success before they passed the reins to a new CEO (and some of the founding CEOs on that list are still there). Apple is even the exception that proves the rule: when Apple was run by Sculley and Amelio it lost its way, and it only got back on track when Jobs returned. DIY CEO Of course, the guaranteed way to be CEO is to found your own company. You get to choose the CEO, and can pick yourself. But whether you make a good CEO, and whether you can get funded, are not questions that go away. You just have to answer them yourself! Sign up for Sunday Brunch, the weekly Breakfast Bytes email![]()
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