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Article 5: Common Ground February 7, 2010

Posted by Lawrence Lenihan in Uncategorized.
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The discussion on the future of the CEO/entrepreneur’s tenure is one of the most stressful and difficult topics to come up in the relationship between entrepreneurs and their investors.  The solution is communication up front and an objective framework around which to evaluate the performance of the CEO, with a clear understanding by both parties of the consequences of either missing or exceeding these performance expectations.  In addition, ongoing communication and a review of performance has to take place on a regular basis.  We are partners in this together and that is what partners do!

I gave you my preference for investing behind a CEO/entrepreneur who can take the business all the way.  But others might feel that experience would be a better solution.  There is no right answer – I’ve seen it work and fail both ways.  But, if the VC is going to insist on making that change, irrespective of CEO performance, both the entrepreneur and the VC need to be clear on the process for how the new CEO will be selected, the selection criteria and the timing for when a search will begin.  As an entrepreneur, don’t accept funding hoping that the VC will change his/her mind – hope is not a business strategy!  Also, the entrepreneur cannot change his/her mind without concrete and specific reasons and only after discussion with your VC partner.  Doing so falls under my category of “stealing” that I wrote about in one of my earlier posts.

On the other hand, the VC can’t pull a “bait and switch” either for the same reason.  Nor can the VC expect a successful CEO succession process without both sides having established clear business and personal performance metrics for an objective evaluation of the CEO/entrepreneur.

When a VC and an entrepreneur come together and make the decision to join as partners in building the entrepreneur’s business in the beginning, it is a time of excitement and great expectations.  Admittedly, it is really hard to have the conversation to outline the role of the CEO, how he/she will be evaluated and the consequences of not meeting expectations.

As an admission, I have not always done this well.  And even when I have, it is never easy.  But failure to establish performance expectations ahead of time and failure to communicate on an ongoing basis is a clear recipe for disaster.

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