Suddenly You Are CEO. What Do You Do Next?

We've covered sales, marketing, and application engineering. Let's go up to the top, and look at what is involved in being CEO. Some aspects of the job generalize to other senior management jobs, but some aspects are unique. I do have some experience, since I've been CEO twice. Once a $25M EDA company (Compass Design Automation) and once a pre-revenue EDA startup (Envis).

I think all senior management jobs consist of two separate dimensions that have two separate skill sets. I call these management and leadership. Some people are good at both, some are good at only one.

Management is the basic operational management of the company. Presumably, you already know how to do this, at least in your own domain (engineering, marketing, sales, etc.) or you probably wouldn’t have been promoted. When you get more senior, you have a new challenge: you have to manage people not from your own domain. If you are an engineer, it’s like salespeople are from another planet and you don’t understand what makes them tick. If you are a salesperson, you may think the same about engineering. If the company is medium sized, things are not so bad since you’ll have a sales manager and an engineering manager to insulate you. But if the company is small, then you’ll have to manage the aliens directly.

As I said in my earlier blog about sales, my recommendation is to get some advice. If you’ve never set up a sales commission plan before, don’t assume that because you are a smart engineer who knows Excel that you can just wing it. If you don’t know a friendly VP sales who can give you free advice, find a consultant and pay them. It’s a lot cheaper than making major mistakes.

Similarly, if your background is sales, you need some help to run engineering. My recommendation is to focus on the engineering process and make sure it is solid. It sounds prosaic, but making sure that the source code is managed properly, and the integration and build process is repeatable is really important. It is also often a corner that gets cut in startups. A friend of mine who consults in this area likens it to garbage collection (the kind with a truck, not the computer science kind): "It’s not glamorous but it needs to be done, and done well, and just like garbage collection, things get really messy if it isn’t."

As CEO, you may have only an accountant (or maybe nobody) to support you in finance. I think it makes sense to get a “CFO for a day” consultant to help you unless you are very comfortable with all the finance issues and already have a good feel for how to put together a business plan, how to turn a sales plan into a cash-flow forecast, and so on. If your eyes glaze over when you read blog postings on finance, you need someone to help you. Whatever you do in finance, don’t treat it as a problem that will go away if you ignore it. You’ll need to get a financial audit done at some point, sooner than you expect, and cutting corners will then come to light.

If you are not an engineer by background, you can’t manage engineering. That’s not to say that you aren’t capable of managing engineering but just like salespeople won’t respect you unless you’ve carried a bag, engineering people want to be managed by someone who understands technology and development, and knows what it takes to get a product out. If you don’t have an engineering manager, you’ll at least need to trust one of the senior engineers to be feeding you the unvarnished truth.

The second leg of being a CEO or a senior manager is leadership. The most important aspect of this is to get everyone in the company committed to moving the company in the same direction. Unless you make truly stupid decisions, it is more important that everyone is aligned than that the decision is ideal. As General Patton famously said, “A good plan executed violently now is better than the perfect plan next week.” In business, “violently” is the wrong adverb but the sentiment is the same.

Having said that, it is also important that the overall strategy of the company is good and represents the best that the management team can come up with. It is also important to be flexible. If something isn’t working, then you’ll need to try something else and preferably while you still have enough money in the bank to find out whether that new approach is good. Remember, most successful startups end up doing something somewhat or completely different from what they set out to do initially. PayPal famously set out to do security systems for PalmPilots, which morphed into doing PalmPilot payments, which turned into (mainly) doing payments for eBay auctions, then all payments.

A general rule about management and especially being a CEO: if something good happens in the company, everyone will tell you about it. If something bad happens, nobody will tell you. Despite the proverb that "bad news travels fast," inside a company, bad news travels really slowly so you need to make a special effort to discover it. In the early stages, it is good to have someone in engineering who is a personal friend who will not hide bad news. Later on, you need someone in sales like that who’ll tell you what is really happening when the company tries to sell the product. You can’t sit in your CEO office and believe everything that you are told. As Steve Blank likes to say, "There are no answers inside the building." When I was CEO of Compass Design Automation, a lot of people still smoked. I would go and have a "virtual cigarette" outside, and chat to the smokers who happened to be there, almost by definition a pretty random cross-section of the company.

Another aspect of being CEO of a larger company is whether you are transformational or operational. Some well-known examples of transformational CEOs were Steve Jobs and Bill Gates. Their successors, Tim Cook and Steve Ballmer, were operational. Their companies grew tremendously under their operational management but eventually something transformational needs to happen. Satya Nadella seems to be leading Microsoft in to the cloud era, which is transforming Microsoft. Apple is still struggling to find a worthy successor to iPhone. All its product lines seem to have peaked.

The Board

If you are CEO then you report to the board. The board has various advisory capacities, if you as CEO choose to listen. But ultimately you, as CEO, are in charge and will be held responsible. That applies even if you take the board's advice and it turns out to be misguided! The board has only one true function: to decide if and when to replace the CEO. Otherwise they must support him or her fully.

I have some direct experience of this. I was once VP at a company when I sensed that the CEO was preparing to fire me. I never really found out why, perhaps because he thought I was trying to take his job. I talked to a couple of board members and they said that would never happen, they wouldn't allow it. But as I said, the board has only one function and that is to fire the CEO or support him. The third solution, don't fire the CEO, but don't let the CEO fire me, turned out not to exist. Since they were not ready to replace the CEO—that would happen a year later—I was gone the following week.

The Book

The best book I know about being CEO is the relatively recent The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz. He worked early on at Netscape, the creators of the first browser, and also where he met Marc Andreessen. He was CEO of Loudcloud, sold the cloud business, and kept the server provisioning business, Opsware, and eventually sold that to HP. He then founded a VC firm with Marc, Andreesen-Horowitz (a16z), which cracked the code of how attract the top entrepreneurs (other than having a long track record of the best exits) by being the best VC for technology founders, because they didn't want to immediately want to downgrade them to CTO. As Ben points out in his book:

First, technical founders are the best people to run technology companies. All of the long-lasting technology companies that we admired—Hewlett-Packard, Intel, Amazon, Apple, Google, Facebook—had been run by their founders. More specifically, the innovator was running the company. Second, it was incredibly difficult for technical founders to learn to become CEOs while building their companies. I was a testament to that. But, most venture capital firms were better designed to replace the founder than to help the founder grow and succeed.

As a result, a16z in just a few years has gone from nothing to one of the top VCs, something nobody else managed to do before in a short period. They also have a great podcast each week that I highly recommend.

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