It's not easy to hire someone to run the company you founded. But in early 1999, as start-up Roving Software was raising its first round of outside financing, founder Randy Parker was embracing the idea of hiring a professional chief executive to take his company, a developer of customer service e-mail programs for online merchants, to the next level. "We weren't overtly shopping for a CEO, but we were open to the idea," recalls Parker, whose Needham, Mass., company now has more than 20 employees. "What happens is you start talking with your advisers, and the contacts start flowing." One thing Parker did know: He wanted to have a new CEO in place within three to six months.
Meanwhile, Gail Goodman, a seasoned software executive with marketing and product development experience, had just left a VP position at an e-business in search of a CEO spot. She came highly recommended from a venture capital contact, and her goals were clear: hot market, solid equity stake, and a high-quality team of self-starters. She had a passion for e-commerce innovation and hoped to join an early-stage start-up.
On Jan. 18, 1999, Goodman's résumé landed in Parker's e-mail in-box, and the due-diligence dance began. For a time, Parker and Goodman tested one another's visions, goals, and management style. Here, they share some practical due-diligence tips and advice.
- Recruit a board member or adviser to spearhead the hiring process. Parker, who is now Roving's president and chief technology officer, asked a close adviser who had plenty of time and years of experience to conduct interviews, organize reference checks, negotiate salary, and generally serve as a go-between. "I had only been involved with one other CEO search, but I didn't get into the nitty-gritty," says Parker, adding that his adviser has strong negotiating skills, which are critical. The intermediary made the process less stressful for Goodman, too, because she could explore issues that would have been hard to address directly with Parker. "The actual negotiation of a package is awkward enough. You want to show you're committed, but you have to take care of yourself, too," notes Goodman. "It was just easier to talk with a third party."
- Check references like crazy. Parker, the board adviser, and the vice president of sales and marketing made reference calls to more than 20 of Goodman's current and former associates, trying to get a consistent read on her personality, leadership style, integrity, and strengths and weaknesses. "We wanted to test her horsepower, her ability to knock down challenges," says Parker. "Of the people she managed, the performers said she was great to work with, very demanding, a real go-getter. Nonperformers said things like, 'Yeah, she really kicked some butt around here.' In the end, she had clean marks. Other candidates weren't nearly as solid in all areas."
- Discuss your goals carefully. Alignment is the key phrase here. "It was important for both Gail and me to realize that having vision alignment in the first place is critical. We had to be on the same page. As for the vision itself, we basically wanted to make sure we saw the same things for the company, the same goals, especially the exit strategy," says Parker. In Goodman, Parker saw a leader who could lend clarity. She also had an abiding appreciation for Roving's market and the passion for strengthening the link between consumers and online merchants.
- Poke holes in the business plan -- together. As part of her due diligence, Goodman was anxious to learn if Parker was truly able to let go of the reins. "I had talked with a lot of people about that very issue -- testing the founder's willingness to let go. The answer is there is no magic formula, but one good test is to see whether he's open to changes in his business plan. If he's not, it's not going to be easy." Parker was open to finding bugs in the plan, and Goodman was quick to point them out. "When you know you've got someone strong, you encourage them to strategize and explore," says Parker.
- Put the prospective CEO in the trenches. While she was considering Roving, Goodman volunteered to briefly staff the company's booth at a trade show. "Ten minutes in the booth, and I was sold," she says. "Clearly I got a sense of the customer reaction to the product. As I told them about our solutions, I saw their eyes light up. I got the market validation I was looking for. It was also a tremendous opportunity to see the team in action -- at least their presentation of product. I'd strongly recommend it."
Karen Carney is a producer at inc.com.