The Founder's Guide to Hiring a CEO
May 13, 2022 – by Jaimee Marshall
‘It’s time to hire a CEO.’
This is a conversation we frequently have with founders at various stages of their business lifecycles.
Though each circumstance is different, one consistent theme emerges: handing over the reins to a ‘professional’ CEO is one of the most challenging decisions a founder can face.
Bringing in an outside CEO is both high stakes and high risk, but it can have a transformative impact in propelling a business to the next level of growth. The key is understanding that this journey doesn’t end with the hire – it will require diligence and the development of new working muscles long after the CEO is in place.
To help guide the process, we’ve compiled a list of best practices drawn from countless searches we have conducted for founders and private equity investors over the last thirty-five years. Here’s what we’ve learned:
1. Assessing organizational and personal readiness
Creating a business from scratch and nurturing it into a successful operation is deeply personal. Only entrepreneurs whose total dedication and efforts have manifested enterprises can understand the full psychological impact of entrusting leadership to an outsider.
Whether the decision is reached independently or with investor influence, the founder needs to be genuinely ready to bring in outside help before hiring a CEO. This is a prerequisite for success.
From an organizational perspective, this includes clearly defining core values and which elements of the culture should remain sacrosanct as the company evolves. These fundamental principles can’t just live in the mind of the founder – they must be identifiable to the entire team and communicable to any potential CEO candidates. Without them, concepts like finding a ‘culture fit’ or aligning on values will be left to chance.
On a personal level, the founder needs to be ready to give up control in critical areas. S/he should be able to articulate the role the founder will play once the CEO is in place and be able to commit to the following:
- Respect that the CEO comes with experience and will do things differently
- Allow that some decisions will take longer – while founders are often opportunistic and prone to rely on instinct, a CEO groomed in a more corporate environment may work through decisions more methodically through a strategic process
- Empower the CEO to make their own decisions and promise not to undermine them
- Agree to redirect employees who attempt to go around the CEO – this must not happen
- Let go of (or at least minimize) sacred cow employees or processes
If core values aren’t clear or if the founder is reluctant to make these commitments, then hiring a CEO is likely premature. In that case, it’s worth considering an investment in less-senior talent with the potential to grow into the CEO role over time.
2. Hiring the right person for the job
The CEO’s desired background will vary based on the founder’s goals. S/he should first identify what experience is needed – is it growth experience? Larger company experience? Public or Private Equity experience? Strategy or leadership? Functional expertise? Channel or sector knowledge?
Once that filter is set, the next step is finding the right person for the opportunity. This is more nuanced, as founder-led businesses have certain quirks and change-resistant behaviors that pose unique challenges when bringing in external CEO talent.
To be successful, the CEO will need to be sensitive to the culture, patient with the time it takes to earn trust, and respectful of the fact that the founder has built the business from scratch – a truly special and remarkable accomplishment. Rather than seeking out ‘rockstars’ or leaders from a particular set of companies, the founder should instead look for candidates who are likely to:
- Respect the founder, their strengths and what they have created
- Appreciate entrepreneurial methods while bringing in best practice skills and experiences
- Be a cultural fit with the organization and share the same values as the founder
- Put the company’s interests first
- Protect the founder and elicit confidence that they are acting in his/her best interest
- Be low ego and flexible
- Let the founder continue to take center stage in public-facing events
- Understand how to work ‘lean’ and be a bit scrappy and respectful of expenses
- Pick their battles and avoid ‘sweating the small stuff’
- Have complimentary skills if the founder is remaining with the business
The CEO should also have interpersonal chemistry with the founder and match the character of the business s/he built. In addition to vetting candidates’ experience and references from past companies, the founder should invest time getting to know prospective hires including some social interaction, such as dinner with spouses or partners. Assessment tools can also help to evaluate personal and professional fit. The time spent pre-hire will establish trust which is critical to the long-term viability of the partnership.
3. Creating the conditions for ongoing success
The real work begins when the CEO is hired. With the right person in place, it’s incumbent upon the founder to establish alignment with the CEO from day one and communicate regularly to maintain this connection over time. Additional actions for immediate and sustained success include:
- Map out a proper onboarding plan to integrate the CEO into the culture
- Agree on a strategy for working together up front which includes an unemotional discussion of ground rules and potential pitfalls before they occur
- Be clear about goals and define measurable objectives to achieve each year
- Establish regular check-ins to ensure ongoing communication and alignment
- Be transparent with thinking
- Have a board or other advisory vehicle set up that can help tie-break and resolve conflicts
- Consider bringing on a coach who can help both parties navigate the relationship
- Pre-negotiate a contractual exit if either side breaches significant desired behaviors
Preserving the quality of this relationship must be a top priority for both parties for as long as the founder stays involved. If the relationship drifts, the company is likely to devolve into two camps which will ultimately be detrimental to the business. The goal should be to form a mutually-beneficial partnership that grows over time.
Hiring a CEO will impact a founder-led business – for better or for worse. Founders seeking to take this step should be meticulous about finding the right person and diligent about creating conditions for both parties to achieve long-term success.