One of the surprising milestones of entrepreneurial success comes when you need to hire someone else to run the company you've founded or invested in. There comes a time when the visionary skill set that started the organization isn't the same one needed to grow it. The revenue range at which this step is necessary can vary widely depending on the needs of the organization, but it often happens between $5 and $50 million in annual revenue. When I ran my first business I, at first, thought giving up the reins would be a failure on my part. I now understand that hiring a president or director of operations is actually a step toward a successful liberation that can allow a founder or early stage entrepreneur to continue with their visionary role.
I've recently worked with a few companies who needed to pick a new leader for various reasons. The below is an excerpt of memos written to their shareholders with guidance on how to pick the right person:
Vetting
1) The candidate should present a detailed vision of what the company will look like in the future and what milestones they are ready to be held accountable to on the way to creating that vision. This plan should include key growth opportunities that will be explored and pursued and what the corporate culture and rhythm will look like. The level of detail of any plan may partly be dependent on the industry experience of the candidate, but the “why” and the “how” should be clearly articulated regardless of industry experience.
2) The candidate should ideally provide references who can vouch for the candidate's previous ability to grow Enterprise Value. Everyone does need to start somewhere, so if this is a candidate who is new to this type of role, and all investors are okay with this, then at least three personal character references should be provided.
3) Direct evaluation and feedback from existing key team members in an open and transparent process should be gathered to ensure a cultural fit and to minimize the risk of potential loss of other key team members from a leadership transition.
4) A background check should be run to confirm there is nothing in the candidate's past that would preclude them from operating in the proposed role. From a liability perspective this could be critical.
Performance Milestones
The core measurement of a president's effectiveness is their ability to deliver returns to shareholders and willingness to be held accountable for such returns. This doesn't mean that the president's job is all about squeezing dollars and ignoring the qualitative aspects of the business that are so much more important. The president should be able to build an inspiring, purpose-driven culture through a business model that can provide appropriate IRR to investors. Otherwise the president may have the best ideas in the world, but isn't the right person for the job.
Therefore, the potential president should go into the role ready to be fully accountable for the performance of the business and be ready to step aside if, after a certain period, that performance isn't what it should be (or the needs of the company change, requiring a leader with different skill sets).
Examples of concrete goals that should be in place from the beginning could be:
· The company will be cash flow positive within X months
· The company will be profitable within X months
· The company will be a dominant company in its industry by the end of 20XX, or
· The investors will receive a liquidity event with an IRR of at least X% by the end of 20XX
There should be a clear path to moving on to the next president if these aren't reasonably accomplished.