06 October 2015

Tragic Transitions

Yesterday American Apparel filed for US Bankruptcy protection.  Besides their challenges with revenue and debt, the ugly transition from their founder - Dov Charney - clearly played an important role in the company's demise. Founded in 1989 by Charney, the company struggled with its inability to effectively sever its relationship, leading to months of turmoil and a cloudy future.  

If you don't think that founder transitions are fragile and important, American Apparel will be an important lesson for you. Was it right for the company and its board to seek a replacement for Charney?  Seemingly based upon the financial condition and alleged behavior of the founder, the answer is YES. Did the board handle this transition poorly exacerbating the problem? Based upon the allegations and the pending lawsuit, that answer is also definitive, YES. Could the company have been righted and put back on the right path, with a new CEO and a clear new direction? Although I am clearly not an insider in this company, I also bet the answer would be, YES!

Perhaps bankruptcy is the appropriate path for the company.  It will give them some breathing room, make the lawsuit filed by Charney a much more remote liability, and enable the board to decide on how to move this company forward.

29 September 2015

Ralph Lauren Rides His Polo Pony Into the Sunset

Stefan Larsson, a former H&M executive and president of Old Navy, Gap brand, is taking over the helm at Ralph Lauren.   Mr. Larsson is credited with reviving Old Navy, one of the a bright spot in Gap’s portfolio. (I will purposely fail to mention that the last CEO of Gap, who didn't fare nearly as well, was a kid from my hometown.)
The change is a purposeful attempt by Ralph Lauren to get its financial house in order. Recent earnings beat analyst estimates, but revenue dipped more than 5 percent, causing a precipitous drop in share price.
According to the New York Times, Mr. Lauren said that he intended to remain active at the company he founded in new roles as executive chairman and chief creative officer. 
What does active mean? Mr. Larsson apparently will report to Mr. Lauren. However, Lauren described it as a partnership“But I don’t feel like I’m stepping back now,” Mr. Lauren said.
If not stepping back, what is this change all about?  If Lauren is not going to give Larsson full authority to do what is necessary to remedy the financial performance, why promote him to CEO? And the new CEO is reporting to the former one?  Does that mean change is at hand, or more of the same? 

It appears that the two executives come at this business from vastly different perspectives and experience. Unlike Lauren, Larsson made his mark in the low cost fashion world.  Will his cost conscious views conflict with those of Ralph?

13 September 2015

If You Can Stand the Heat, Stay in the Kitchen

Several months ago we published our blog about Hamdi Ulukaya being pushed out of the CEO role of Chobani. Apparently we were a bit premature.  Hamdi is still in charge and now his private equity investor TPG is happy with his current performance. But is there a problem still lurking?

Hamdi was recently quoted by Business Week when asked about the prior press relating to his imminent departure: "Nobody could think of Chobani without me and me with Chobani."  Uh oh! This convergence of the person with company he founded may ultimately be the downfall of both.

As we have pointed out many times, founders and the companies they found often approach a singularity of identity. Certainly for a charismatic founder like Ulukaya, this is a natural result of his outsized personality. But the fact that the two are inseparable is not a reason for either to celebrate, at least if capitalistic results are the goal of Chobani's investors (which is no doubt the case for TPG). Both would be well advised to begin re-separating into two distinct personalities - no matter how long Hamdi's tenure may last.  Too many great companies have had to rebound from the inevitable surgical removal of the founder from his company. And, too many founders have found themselves with a large void in their lives.

While Chobani is apparently now seeking a COO (rather than replacing the CEO), Ulukaya's presence and stature will make this a difficult job to fill. In fact, I wouldn't be the least bit surprised if the board and its private equity investors, only succumbed to keeping its founder around to now seek a buyer for the company rather than trying to navigate what will surely be a fragile founder transition.

05 September 2015

A Nick for a Nick

Nick Robertson
The Guardian reported that Asos, the British on-line retail company founded as: "As Seen on the Screen", has replaced Nick Robertson, its founder who stepped down, with its COO Nick Beighton, who appears to have been groomed for this role since early last year.  Robertson recently sold a significant part of his holding (worth approx $30million US) in January of this year, although still retains almost 10% of the capitalization.

According to the article, a person familiar with the company praised Robertson for the move, noting that he realized he didn't have the skills to run the business at this time.  The company was founded in 2000.  Beighton joined in 2009 as its finance director.

We praise the company for establishing a long runway for its transition founder and for Nick Robertson for being a self-aware founder and  understanding his evolving role in the success of the company.  Now we will need to wait and see how the company fares under this new leadership,

02 September 2015

The Natural Evolution of a Founding Team

Unlike most other animals, the skin of a snake does not change in size.  Therefore in order to grow, the snake must shed its skin.  This happens multiple times during the life of a snake.  The process is a natural part of its maturity.

Founding teams are often similar.  If the members of the founding team are unable to grow, over time they need to be shed.  This should be as natural a maturing process as a snake loosing its skin, and need not be an emotional parting.  Founders who become overly attached to their initial teams often end up with teams constricting the growth of the organization.

During the startup phase, founders are prone to attract less experienced executives often based upon a pre-existing personal relationship.  Letting this relationship color their assessment can derail even the best entrepreneur. Maintaining an objective view of team members is critical to a founder intending to maintain her tenure.  Should the founder be unable to objectively assess her team, it is likely that her successor will. Unfortunately, terminations at the hands of a successor tend to be emotionally charged and traumatic for the organization.

13 August 2015

I Guess You Weren't THAT Bad?

In December we posted the blog article below on Sean Rad's departure from the leadership at Tinder.  Well on second thought, perhaps his egregious behavior was just not that bad.  He's baaaaaack!   Talk about a quick founder rebound.  

Today CNN reported that after just five months. Christopher Payne, the professional CEO the company hired to replace Rad, is now gone.  And Rad is back in the driver's seat.

"It's only been a few months, but there was mutual agreement here that it was not the right long-term fit, and given Tinder's rapid growth trajectory both Christopher and the Board thought prompt action was best for everyone," said Matt Cohler, of Benchmark Capital, a Tinder director.

Is there more to this?  Could a new CEO really have failed that drastically, or only been given the few months to succeed and then summarily tossed out?  Or did something happen?

Was it the twitter rant about the Vanity Fair story? Or was it the seeming overreaction to Hannibal Buress's comments at the 19th Annual Webby Awards?  Or was this just a bad hire?

No matter the cause, it is clear that the board did the company no favors in its choice of successors.  This founder transition stuff is hard!  Being forced to accomplish it quickly can lead to even more disaster.
- - - - - - - - - - -

Tinder Founder to be Replaced with "Seasoned" Exec

There are few things that an early stage founder growing at double digit pace can do to cause his board to replace him.  This is one!  According to news reports Tinder will replace its cofounder, Sean Rad just two years after he founded the dating site.  Apparently, Rad had been the subject of a controversy this year when a female executive sued Tinder and its parent company IAC alleging harassment and discrimination.

“We’re recruiting a new CEO to lead Tinder through this time of explosive growth and expansion, adding world-class talent to the management team and allowing me to focus on Tinder’s product and brand,” Rad said in an e-mailed statement. “I look forward to working with the new CEO to realize Tinder’s massive potential.”

You don't actually believe that Rad is welcoming the new CEO with open arms, do you?  Not a chance.  And the new CEO will do herself good if she disposes with Rad altogether rather than let him lurk in the background undermining her ideas and authority.  I don't know Sean and he may be a very good and well meaning CEO/founder.  But after having his walking papers handed to him in such a public controversy, there really is no longer a place for him influencing the direction of the company in the future.  And his ability to work with a new CEO is certainly in question. We'll wait and see what plays out in this soap opera start-up drama.

09 August 2015

Founder Finds "Fast" Unfortunate For His Future

Hamdi Ulukaya, the founder, chairman and chief executive of Chobani, is being pushed out of his executive role by his new private equity owners.  He will remain with the company as its Chairman.

This is a text book lesson on how fast growth coupled with the need for outside financing can disrupt the tenure of a long term founder.  Whether the Chobani founder's replacement is due entirely to the financing and the change in control that accompanied the funds or the need for financing is just a result of the natural progression that a company makes from the creative founder to the execution oriented successor, this is a common theme among growing and successful companies still run by their founder.

While this news was first reported in January of this year, the company has yet to announce a replacement for Ulukaya.  According to Wall Street Journal reporter Annie Gasparro, 
“The deal occurred because Chobani had grown beyond his [Ulukaya's] ability to run it."
In the past, Ulukaya had voiced his disdain for buttoned-up professionalism, preferring his own “seat-of-the-pants style,” as Gasparro calls it. “We didn’t have any corporate executive types,” he said in previous interviews. “I didn’t want to hear all that marketing, supply chain, logistics stuff—most of it is BS.”

Apparently, what Ulukyay thinks about corporate types no longer matters. 

24 July 2015

What do you do with a Former CEO?

One of the big issues faced by CEO successors is the subsequent role of their predecessor.  All too often, these former CEO's, once replaced, take their place at the Board table, as the defacto boss of their new successor.

Let me lay this out clearly:

  • CEO gets replaced, often because the board demanded change that the CEO couldn't deliver.
  • New CEO comes in the role to replace former CEO with a clear change agenda.
  • Former CEO retains role on the board.
  • New CEO is scrutinized and judged by the person whom he replaced

You can probably see what's wrong with this picture.  Assuming this continues through multiple successions, this can become an even bigger mess, one that Twitter is currently encountering. There, three former CEOs constitute a sizable portion of the board.  As the company searches for its next chief, Dick Costolo will slip in along side Jack Dorsey and Evan Williams, all predecessors in the role.  In fact, Dorsey is playing an interim role as CEO while the search progresses.

Can this really work?  Would you want to take on this role as CEO with your three immediate successors looking over your shoulder and questioning every move?

Spencer Stuart, who owns this headhunter role, has remained mum on the topic.  But surely, any self respecting candidate would require a reconstituted board as a precondition to accepting this role.  Perhaps, that is what Spencer Stuart is hoping.

10 July 2015

Ka Pao!

CNN just announced that Ellen Pao been replaced as the interim CEO of Reddit.  Certainly she did little to ingratiate herself with the loyal Reddit community.  Certainly she was tone deaf when she fired long-time and very popular Victoria Taylor. And perhaps her reputation was muddied by her recent legal escapades that have antagonized the venture community in Silicon Valley.  Probably most important is that Reddit just wasn't ready for someone like Ellen, as an interim or otherwise.  She will be replaced by the company's founder Steve Huffman.

05 July 2015

The CEO Takes Flight @ Triumph Group

Triumph Group CEO Steps Down, Replaced By Company Founder

Richard C. Ill Replaces Jeffry D. Frisby as CEO