Wednesday, April 15, 2009

Title inflation

Many early stage VCs let this happen, and as startup CEOs we are often guilty of it too. One large company success is enough to convince you that title inflation is really, really bad. In the early stages titles are cheap and all of us are focued on preserving cash--its oxygen, so we often weaken and hand out titles that are too big to wear. Now a startup is great because it gives people a shot at exceeding their capacity and then growing to fill it--it's an incubator for great C-level people. As a startup CEO you are always in the crosshairs of everyone. The best thing you can do to build success is surround yourself with the strongest executive team you can--especially people who can make up for your blindspots. Now there is a chance that one of this team will be able to replace you as CEO--this is critically important--you can’t build an organization without this (see another Blog on the indispensible founder & nutcase ...).

I’ve known a number of startup CEOs (and come to think of it two or three public company ones as well!) that surrounded themselves with mediocre people that they can control, seemingly thinking that that insured their job. In a VC backed company it will just ensure a new CEO to replace all the dead wood.

One of the single most powerful things you can do to convince your Board that you are the right CEO is demonstrate an ability to attract top quality people. Who cares if the VP marketing runs rings around you in marketing, or if the VP sales is a 10x better closer than you are--this is what you want. For some inexplicable reason, many startup CEOs think this makes them look bad--no, no, no, it's exactly the opposite. Team is everything. You build the team, you raise the money, use it to build a great company.

When companies grow larger, the founders often jealoisuly guard their titles--they were great in building the company--it's “their” company and it owes them a living ... I know one Nasdaq company that recruited a new CEO to replace the old one when the stock ceased to perform, but the old CEO insisted on holding the chairman position, and remaining “actively involved” with the management. The end result, the new CEO had to create two layers of management; they recruited a new executive team who could actually do the jobs, and kept the old founding team in place who tended to get in the way of executing anything, despite their exceptional track record of executing nothing. In the end the new CEO was replaced by the old one, and things reverted more or less back to normal ... ugg.

When you sell a company, there is apt to be a preliminary assumption that, as a startup CEO, you have pretty bad title inflation--if the acquirer quickly notices that, actually your Director of Engineering, would normally be titled VP of Engineering, but really is a solid director level guy on track to VP, then it's likely he’ll retain that position post deal, and be well respected in the new organization. This opinion will carry over to the rest of the team in the same way the negative opinion would have. I've had this argument many times with team members who felt I was pushing them down and preventing them having a solid VP slot on their resume, but again, a VP slot that isn’t real usually has the reverse effect. You also probably want to do another startup, and having industry colleagues question your personnel judgment or hiring skills wont help that ;-)