The Lonely Expansion Stage CEO: What Venture Capitalists Can Do
August 24, 2010
CEOs of expansion stage companies tend to be lonely due to the nature of the position. I wrote about the lonely CEO in a recent post then followed up with what the CEO can do about it, what the management team can do to help, and what the Board of Directors can do to help.
The venture capital firm that has invested in a company can also do a lot to help the lonely CEO, which is the topic of this post.
Other than the founders and other major shareholders of a company, a venture capital fund and firm have the most significant financial incentive to help the CEO and management team build a great company. In addition, many great venture capital firms have people who are experienced in building companies as managers or have significant experience helping teams build companies with similar technologies, products, and/or business models.
What can Venture Capitalists Do to Help the Lonely CEO and Management Team the Most?
The core business growth strategy for building great companies throughout the expansion stage is growing a team of talented people that are aligned with meaningful aspirations (mission, vision, values) and are well organized to realize those aspirations. This may sound a bit like motherhood and apple pie, but this is really what the core expansion stage business growth strategy boils down to.
You raise the probability of the company winning when:
- There are clear and meaningful long term goals (aspirations)– the clearer the better
- There are clear and meaningful shorter term goals for helping the company reach the longer term goals as fast as possible
- The financial resources are available to meet the goals
- The board and management teams have the right group of talented individuals and utilize the right set of talented external advisors
- The board and management teams are all aligned with and passionate about the goals
- The board and management teams work well individually and together
- The board and management teams are organized in a manner that moves that company forward at the highest velocity possible
Most of the issues that make the CEO lonely get created when one or more of these items are not in place. To be most helpful to the lonely CEO, the venture capital firm can help a lot by assisting the CEO, management team, and board toward nailing these items and ensuring that they are NOT doing things that are impediments to these items. In short, the VC firm serves the company, not the other way around. This is an important point that VCs, boards, and management teams need to make sure they get right.
The work starts before the first investment is made.
Before a VC invests in a company, there is a lot of work that goes into ensuring that there is an investment size, valuation and terms that the company and the VC can agree on.
Separately, and probably more importantly from the perspective of the lonely CEO, is that it is really important to make sure that there is a very good fit between the company founders, board, and investors and the VC in several areas:
- Long term aspirations for the company
- Philosophy for building the company
- Model for working together
An investment won’t get made unless both the company and the VC can agree on a transaction that makes sense, but an investment shouldn’t get made unless the founders, board, investors and the VC have shared aspirations for the company, shared beliefs on how to best build the company, and can work well together. Venture Capitalists can help prevent the lonely CEO by ensuring that their is a great alignment.
After the investment is made…
Once the investment is made, the role of the VC is all about helping the CEO and management team gain market clarity (through product and go-to-market strategy and execution) and to continue to build the company overall. The core to all of this is helping to build a great team of people and network for the company that is well organized and aligned toward the goals of the company.
This is easy to write about and really hard to do in practice because people are people. (Mark Suster has an excellent piece on the role of the VC as chief psychologist that emphasizes the reality of people issues.)
Some of the important things that a VC Can do to help the lonely CEO once an investment is made include:
- Recognize the lonely CEO issues and keep them in mind when working with the CEO
- Help the CEO build the people around him/her and become one of the CEO’s trusted advisors
- Help the CEO build out the management team of great senior managers and coach the team members to be like Alan
- Help build out a meaningful board of directors and be one of the great members of the board
The expansion stage of the company is the most difficult from a people perspective, as it is the stage where the explosive growth takes place and amplifies the issues for the lonely CEO. The VC can play a major role in helping the CEO, management team, and board address the issues, but there is a lot of work to do!
Note: Just to clarify, companies continue to develop and execute product market strategies at the expansion stage in addition to company development strategies. At OpenView, we work with our portfolio companies on many other business growth strategies in the areas of product development and customer development which are hugely important to the success of the companies throughout their development. That said, the list of issues around the right people working together well on agreed goals generally ends up being the most important for every company at the expansion stage.