Is the first non-founding CEO of a venture “doomed to fail”?
On Monday, we debuted my new case on founder-CEO succession at Wily Technology. In class, we discussed the potential problems faced by Dick Williams, Wily’s first non-founding CEO, if founder Lew Cirne were to stay in the company post-succession — e.g., if Lew were to remain unhappy with being replaced, or were to oppose any of the changes Williams wants to make. As it turns out, Lew’s eventual — very positive — attitude about the succession (after getting over his shock at having to step down as CEO and Chairman) seems to have helped make Williams’ transition into Wily much smoother for Williams, and Wily ended up being bought recently by Computer Associates for $375M.
The class after “Wily,” we taught Paul Gompers’ case on Precise Software. In it, the company’s first non-founder CEO ends up at war with the founder, and in the end is replaced by the VCs. (This had echoes of our earlier case on Vermeer Technologies; in class after we taught the case, founder Charles Ferguson described how he had ended up at war with the CEO he had hired, almost as soon as that CEO had walked in the door.)
At the end of our Precise class, the company’s VC commented that, “When you hire that first non-founding CEO, you really have to hire 2 CEOs, because the first one will fail and then you need someone to step in and pick up the pieces.” In the context of the Wily and Vermeer cases, his comment brought to mind some questions.
Questions: Do you agree with Precise’s VC that the first non-founding CEO is doomed to fail? Why or why not? Is this only true if a powerful founder stays around (as happened at Precise and Vermeer), or is it even true if the founder is not still around?
Henry McCance, the Chairman of Greylock Partners (who co-authored “Wily” with me and came to class that day), commented that if Wily had been hiring its CEO several months earlier in its evolution, it probably would not have been able to attract a CEO who would be able to take it all the way to exit. Instead, it would have had to have hired a CEO who could be a bridge between the founder-CEO stage and the exit-CEO stage. (In some ways, a “planned” version of the Precise scenario?)
In a case I am writing right now on Comet Systems, John Reed plays that bridging role. When Comet co-founder Jamie Rosen hired John as Comet’s first non-founding CEO, John told Jamie that John was only going to remain at Comet for 18 months before moving on to his next venture, as he had done with several previous ventures. In effect, John serves as a “Bridge CEO” who tries to take a company from founder stage to exit-CEO stage without trying to be that exit CEO. (Talking with John brought to mind some parallels to Randy Komisar’s old “Virtual CEO” role.) John commented that he had yet to find anyone who played a similar, recurring role in new ventures.
Questions: Do you know of any other Bridge CEOs? If so:
- What do they do that a founder-CEO would not be able to do?
- How are Bridge CEOs different from the later-stage CEOs who follow them?
- How successful are they at bridging the gap between founder-CEOs and later-stage CEOs?
Hi Noam -The firm Deja.com had a bridge CEO - Guy Hoffman and I would say he was quite successful at moving the firm from its initial stages (as DejaNews) and into the IPO stage. The founder of the firm, Steve Madere, was part of the TMT (generally as CTO) after the VC firms got involved and in the initial stages of the IPO preparation. Guy Hoffman was (and still is) part of the VC firm Austin Ventures and that firm was heavily involved in helping DejaNews grow. The problems with the firm started to happen when the first IPO stage CEO (Tom Phillips) came on board and started reshaping the firm into something dramatically different from what it was under Madere and Hoffman. The firm filed an S-1 but eventually became part of the dot.com bust and failed to go public. It’s two main assets were sold off to Google and Ebay when the firm broke up after the failure of the IPO.There is a more detailed discussion of the failure of Deja.com in my article “IPO effects: Corporate restructuring when a firm goes public,” Journal of Public Affairs. London: May 2004. Vol. 4, Iss. 2; p. 155
Noam,This is a VERY interesting topic which I have not done a lot of thinking on. I’m thnking I’ll spend a little time doing some quick and dirty research in our portfolio and report back on what the data say.Cheers,Paul
Hi Noam,Thanks again for the opportunity to be present at your class on Wily last week - it was an honor!While success is certainly a challenge for any non-founding CEO of a high growth early stage company, I disagree with the idea that the CEO is “doomed to failure”. Dick Williams’ tenure at Wily serves as a clear example of success as the first non-founding CEO. Under his leadership, the company grew from a run rate of 12M to 60+M, and from 50 to 275 employees, established itself as the clear leader in its market, and enjoyed an exit that benefitted all of its stakeholders. Meanwhile, the company’s core values were preserved - no, strengthened - and much of the early team remain at the company to this day, and some remain as senior members of the leadership team. The transition was seamless and smooth.What I think was vitally important to Dick’s and the company’s success was his commitment to form a partnership with me. That partnership flourished throughout his 4+ years at the company, and and still does today as we strive to grow Wily’s business as a part of CA.In fact, I think the CEO’s partnership with the founder is a key requirement for his or her success in all but the most dire of turnaround situations. Such a partnership is often hard to forge and preserve, as both parties must continually forego ego and their personal interests for the interests of the company as a whole. This is difficult; I know from personal expericence. As the founder, there were many times when I really struggled with the fact that I was no longer running the show. But during such times, my respect for Dick, and his respect for me, kept me focused on the company, and that in turn strengthened the partnership.Thanks again!-Lew
We recently brought in a CEO on a company where the founding CEO stayed in the company. I’ll let you know in a couple years how it went…or sooner!
Bridge CEOs are often doomed, especially if the appropriate expectations are not set by the investors bringing them in. It takes a special breed of founder to actually understand and appreciate when the original challenge has sufficiently changed so that there now is someone else who can better lead the company through that new stage. Founders usually do not gain this appreciation on their own. If the new CEO and founder are left to “work this out” on their own, then disaster is imminent.