27 December 2006

A very bad Transition

A good friend of mine in Austin, TX, Hank Jones (Henry W. Jones, III Esq.) who is an industry pundit and expert on Open Source issues, sent me information on a founder transition that really went awry. According to allegations filed by the company in the Superior Court in Orange County, California, Medsphere apparently twice tried to find a CEO to take over from two founder brothers ( Why CEOs Fail?). The first ended abruptly less than a year into the new CEO's tenure when the brothers forced the Board's hand. A second CEO was recruited with even more egregious consequences. According to the company's amended complaint, the two founder brothers got so angry at the direction the new second CEO put in place (only three short months after he took over), they clandestinely published the source code for the company's proprietary software as open source. That certainly put a crimp in the new CEO's plans (see his letter regarding the company's open source stance). Wow! Talk about a bad transition! Boards everywhere should be paying close attention to how dire the consequences of a bad transition can be and what an awkward position they can be put in when founders join together to counter a new CEO.

2-Feb-07 --> The story continues to develop.

26 December 2006

Try before you Buy?

Most of us who have been through or witnessed a founder transition would agree that this is no doubt a tricky process fraught with potential disaster at nearly every turn. Yet the process most companies and boards engage in with the potential CEO replacement is one that is set up for failure. And failure is what too often results.

Several interviews with various members of the management team and board, some surface level background and reference checks, discussions with some "insiders" who know what this candidate has done in the past, can never be sufficient to really know whether the most important criterion for successful founder transition will be met. That criterion is the chemistry and relationship that is required between the founder and the newly hired CEO.

While most of the "hard" criteria for founder/CEO transition can be learned using a time tested recruiting and interview process, the "soft" skill compatibility can probably never be really understood without trying it out. In-the-trenches interaction between the potential candidate and the founder and team might actually be the only way to really know if this transition will work.

Any organization that can avail itself of the opportunity to try-before-they-buy should take full advantage of that by engaging the CEO candidate as a consultant in advance of a final hiring decision. While this can be awkward for the candidate (confident and experienced candidates will relish this opportunity) and potentially a delay in the final decision for the recruiter, board and the team, finding out early that this relationship is not going to work is a small price to pay to avoid making a bad decision.

10 December 2006

Why CEOs Fail?

One of the most compelling articles ever written about CEO failures has many lessons for Founder/CEO's as well. In June 1999 Fortune Magazine published the article: Why CEOs Fail? The lesson was that CEO failure was generally not caused by a disagreement between the CEO and his/her board, or even a failure of strategy. More often, failure was a product of relying too long on key employees who just weren't cutting it. The CEO's failure was the refusal or unwillingness to get the right people into (or probably more important - out of) the right positions due to personal relationships that had grown between the CEO and his/her team.

Attributing the same characteristics to the founder/CEO seems to be all too appropriate. Often the Founder brings family (husbands, wives, brothers, parents), close childhood or school friends, or others with whom the founder has had an other than pure business relationship, in as early trusted employees. No one would argue that it is hard to sever those relationships; doing so might have severe implications for their outside-of-the office life. However, the implications of maintaining these relationships beyond what is good for the company can be critical to an early stage venture's prospects.

We've seen dozens of ventures that have either failed or been critically wounded by the presence of fairly nice but incompetent friends and family holding positions of authority. Not only does the lack of competence in their particular field hinder the company's success, but it also has a detrimental impact on other employees who have only their objective performance on which to rely.

Certainly the writers of this article (now gone on to fame as pop business book writers) were not focusing on founders when they wrote this piece. However, founders should pay close attention to the issues identified and realize the implications of a more-than-business relationship in the workplace.