Subscribe to Inc. magazine
HUMAN RESOURCES

The Most Dangerous Hire

For years you've crowed about the company you built. Now it's time to hand over the reins. Here are answers to some questions you've asked -- and some you haven't even thought of.
Advertisement

How do you hire a CEO when you're not even sure what a CEO does?

That's the query we received from an anonymous letter writer, an angst-ridden company founder who had tried and failed -- and tried and failed again -- to replace himself. One sleepless night he finally realized why he was floundering: he'd led his company by instinct. And it had worked, for a time. But now, when he wanted to grow his business to the proverbial "next level," he realized he didn't even know how to write a job description for the professional CEO he needed.

For most entrepreneurs, the notion of replacing oneself is an unsettling, deeply unpleasant concept. It's like looking into a fun-house mirror and seeing no reflection at all. How can your company continue to exist without you? What kind of a person could possibly work as hard as you do or have as much passion? Who can nurture your baby? The answer often is that whoever you ask to take over enters as a hero and winds up as the devil you wish you'd never invited in.

To help you avoid that scenario, we asked several experts to share some lessons about what a skilled CEO does -- and if, when, and how you should hire a new leader for your business.


So what does a CEO really do, anyway?

Ridiculous question, right? Hardly. If you think you know what a CEO does, you're probably wrong, says Eric Kriss. And he ought to know. As a longtime entrepreneur and two-time Inc 500 CEO, he's made the transition from passionate company founder to professional chief executive. Kriss's basic premise: many entrepreneurs believe that CEOs are über-administrators who handle all the details of running a business. (If you share that belief, examine your own tendency to micromanage your company.) What a CEO really does, Kriss says, is lead, not manage.

"The quintessential entrepreneur is someone who wants to put his hands around the whole ball of wax," says Kriss. At a certain point in a company's growth, the entrepreneur who wants to control everything can no longer keep up. And so he or she mistakenly looks for a better manager and calls that person a CEO. "They look around and say either 'My company is failing' or 'It's not achieving growth,' " says Kriss. "They are getting overwhelmed because they don't know how to manage a sales force or understand a balance sheet. They say, 'I need a CEO.' They think that means they need someone to handle all the administrative tasks, but that's incorrect. It's a cry for help. What they're really saying is, 'I no longer know how to lead the company.' The basic job of a CEO is a leadership job. By leadership, I mean the pursuit of a coherent strategy and the marshaling of all resources to be able to pursue that strategy.

"A CEO is someone who's good at prioritization, who can handle complex environments. There are lots of different tasks: you need an individual who is capable of strategic thinking, who can encompass that into team building, and who understands the language of business and how it works from an economic, legal, and managerial point of view. It's someone who can marshal all those things.

"The number one job qualification is prior experience. It overrides everything else. You want someone who has run a company successfully before and has a track record. I wouldn't put an age bracket on it, but there's a hell of a lot of scrutiny. You have to ask the hard question of someone who's 28. How many years of experience could they have had?"


What psychological barriers will I face in hiring my own replacement?

There are two significant ones, says clinical psychologist Dr. Steven Berglas. You will have to first recognize the need for a skilled CEO's brand of leadership and then develop the fortitude to cede control to a newcomer. As a management consultant, Berglas, author of Reclaiming the Fire: How Successful People Overcome Burnout, helps entrepreneurs deal with such challenges. Most founders have a tough time recognizing when it's time to go, he says. Sure, they may have become miserable. Yet founders are often the last people to take their own misery as a serious sign that something needs to change. And that lack of insight may make things worse. "They may have acted out or are abrogating responsibility," says Berglas. "But the key is to understand that you're not having fun, that you're not excited. Being successful and competent has myriad problems associated with it, one of which is you don't think you're going to have problems."


But wait! Is "How do I hire a CEO?" even the right question?

Maybe not, says Dr. Ichak Adizes, who goes so far as to say that if you're suddenly hiring a CEO to replace yourself instead of having spent years nurturing a successor, you're abdicating responsibility. Hire a chief operating officer first, and slowly promote that person into your job, he says.

Adizes, who founded the Adizes Institute, headquartered in Santa Barbara, Calif., has spent decades studying the life cycles of businesses. There are predictable stages, and understanding them, he says, can teach you when it's time to make such decisions as when to hand over power. Sadly, most founders wait until they're in crisis. Then they want to hire a CEO "because they are desperate," says Adizes.

"Entrepreneurs love their work. They love their companies. But the style of the entrepreneur is to start a company but not sustain its success," he says. "They don't know how to manage day-to-day issues. When the dream is becoming a nightmare, they don't like the people they're working with, they refuse to go to meetings, they don't want to hear about it. That's when they think it's time to go, and that's when they make the mistake of hiring a CEO.

"I often give advice to founders at exactly this point in time. They say, 'We are hiring a CEO.' I say, 'Slow down!' The founder should look for someone who is organized, systematized, thoughtful, thorough, and who gives some resistance -- a COO rather than a CEO. But that person will not run the company. This complementary person will take care of the guts of the company. The COO looks at the inside, while the founder looks at the outside."

Do the hiring slowly and carefully. "Hire as a consultant a COO for whom you have respect and watch him," Adizes advises. "You must go through a courtship stage before you hire someone. It is as difficult as matchmaking. If you can't hire a consultant, then bring someone in and give him the pieces of authority one at a time. This is a transition that can be very dangerous. What founders should not do is get to a stage of despair where they look for someone and give him the keys to the shop.

"Then you build a team of people to work with him to make the changes that you all agree need to be made. People will start developing respect for him, and by the time he's finished, he is a natural. It becomes clear that the company needs this guy. Eventually, the COO becomes president, and you are the CEO/chairman. Then he becomes president, CEO, and chairman."

Of course, Adizes says, the best time to hire a COO is "when you start the company, so that this crisis does not occur. If you didn't do that and have nobody to promote, then do it when the company is very successful and growing."


Is there a process that I can go through to help me decide whether I should stay or go? And if I decide to leave, how can I find and train a new CEO without harming my company -- or myself?

To answer those questions, we turned to Dick Strayer, CEO of Larcen Strayer Consulting, in Los Gatos, Calif. Strayer is an adviser for venture-capital firms, like OVP Venture Partners and Alpine Technology Ventures, and their portfolio companies. He advocates taking a step-by-step process that begins with self-examination -- What do you want your company to achieve next? What do you want to do with your life? -- and ends with thoroughly integrating a new leader into the business. Here is Strayer's abbreviated version of the process:

"First, take a look one to two years out in the context of your business strategy. What will be the requirements of leadership at that juncture? What does that mean for the leader? Try to get input from the board and from the management team. The answer is there.

"The second step is, assess your current strengths and weaknesses and your potential for growth -- for example, many founders can't escape a tendency to micromanage," says Strayer. "Ask yourself, 'Can I attract and manage a strong executive team? Do I have an interest in working with investors?' Then the toughest part is, 'What's my potential for growth, and where's my real interest?' That requires a high degree of self-awareness.

"Depending on where your company is in its growth curve, there are different sets of leadership requirements. When you're scrambling for money and trying to convince people to join, you need a leader who breaks all the rules, who's persistent and stubborn, and who doesn't delegate a thing. As you move into adolescence, many founders start to falter.

"Then there's the other vector. Where do you go? If there's nothing for you to go to, you're going to resist moving ahead. You have to find a passion, excitement, a pathway for yourself."

If after careful self-examination you decide you want to hire a CEO, Strayer advises that you do so methodically. "I think it's absolutely essential that you have a selection process," he says. "The board and you should agree on the criteria and who's going to make the decision. There should be consensus on the weighting of those factors.

"The next phase is getting the handoff -- there's a great book about this phase called Passing the Baton, by Richard F. Vancil. If you're remaining with the company, make sure from the get-go that there's a clear ledger of how you turn over information to a new executive, including contacts, staff, and product knowledge.

"The ideal period of time for the transition phase is three months at the outside," says Strayer. "What I try to do is get a board member involved as a mentor to the newly hired CEO and the founder -- someone who has a power position and meets with them every other week, separately and together. His job is to say to the founder, 'How are things going? Where are the problems?' To the new CEO, he says, 'Are you satisfied with the transition?' If you're meeting every other week, it doesn't give anyone time to get ticked off.

"Then there is the team integration. The new CEO is probably going to bring in other people. So the team is wary and anxious. The CEO has to manage that not only with you, the founder, but with the team members. It's a tremendous challenge. We try to have the founder be really aligned with and supportive of the new CEO. In the first week or so, we try to have a new-CEO forum, where he meets with the current team and talks about the culture he'd like to put together, what he hopes to do in 90 days, and so forth. The founder should sit in. After several months there should be a team-building session with the new team."


Is there a tried-and-true method for finding the perfect leader?

Not exactly, says Colleen Aylward, who in 1992 founded Seattle-based search firm Devon James Associates Inc. But there are key factors that lead to success -- and to failure. Aylward has seen them all. In recent years her company has performed a long list of searches for companies ranging from Cray Inc. to Microsoft and Amazon.com.

One important lesson Aylward has learned? Never do the search alone. Your judgment is not as clear and objective as that of your board members. Aylward says that they, along with senior advisers, have a "deeper intuition" about what your company needs than you do. Second, by making the choice alone, you face the risk of "hiring a superhero and finding out this person who now has lots of control and equity is the wrong person," she says.

So whom should you and your advisers look for? "Founders today are looking for someone with marquee value. They want someone who has contacts, products, or services that can catapult the company forward. The vision of the founders could be 'Wow, this is a cool technical product,' but the vision of a new CEO needs to be 'How do I sustain and increase shareholder value?' " she says.

"By the time a replacement is needed, the tasks going forward are a lot clearer than they are at the inception of the company, when the CEO wore all the hats," Aylward says. At that point it's easy to write a job description that can be used not only for recruiting but also as a starting point for interviewing. You can find samples on the Web or ask your board members for job descriptions they've used for searches at other companies.

What's the key to forging a job description that accurately sums up the person you're looking for? "It needs to describe the company as it exists today," says Aylward. And it should detail "the reason the position is open, any major hurdles (stated as 'opportunities,' of course), and the metrics for success. It also needs to describe the forward vision, the corporate culture, the expectations of the teams, the team members who will touch this person's job, the immediate milestones, and the compensation." (For Aylward's comprehensive list of required skills, plus annotated versions of useful -- and useless -- job descriptions, visit www.inc.com/keyword/CEO.)

Of course, the best job description in the world won't provide you with a trusted executive. Only finely honed interviewing skills will do that. Says Aylward: "The founder should ask himself, 'Can I envision this person sitting next to me at a meeting with the press, with the board of directors, and carrying my message?' The candidate who says, 'I really like to get down in the trenches with my people' -- that really means he's a micromanager. If a guy says, 'Here's what you need to do,' that's someone who doesn't listen clearly, and that's a red flag. The guys who get the job say: 'I'm a listener. I'll be a student until I figure out what needs to be done.' "


What if I regret this move later? What then?

According to psychologist Berglas, it's not a question of if you'll regret the decision but rather when. "There is not a founder who (a) will not need to let go and (b) will not have what I call postdecisional regrets.

"I have never not seen it happen. But founders think, 'I'm the only one who's ever done this.' When [Apple Computer cofounder Steve] Jobs brought in [CEO John] Sculley, it didn't work because Sculley wanted to run the show. Sculley said: 'You gave me the gig. Now get out of my way,' " says Berglas. "It's going to be a rough adjustment. Entrepreneurs can't give control to the CEO in a contractual way; there has to be an emotional process. All entrepreneurs need to find a rabbi-type person they can be vulnerable with who's not associated with the company, someone who doesn't need to win or lose. It's healthy to have someone to vent to -- someone who will help you realize that what you're going through is completely normal."

There's no getting around the fact that leaving your company is painful. But don't take your regret as a sign that you've made a mistake, says Berglas. Trust that you're doing the right thing for your company. "I've never heard of anyone replacing themselves too soon. I believe that entrepreneurial management is an oxymoron. There are some people who like to herd cats and other people who like to think of the neatest routes to get cats places. Bill Gates did a wonderful job, but he also did the right thing when he left," Berglas says of Gates's decision to hand over the CEO title to Steve Ballmer in 2000. "Gates wouldn't have lost anything if Ballmer had taken over 10 years earlier, and he would have had more fun."


Jennifer Reingold is a freelance writer living in New York City.


Please E-mail your comments to editors@inc.com.

Related links:
The CEO Wish List
The CEO Job Description
Founding CEOs Versus Second CEOs




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: