Summary
The majority of the time a private company with a solid product in a growing market fails is because the wrong person is in charge of navigating the ship. As companies go through the phases from product design and development to profitability, the talent on the executive team needs to be reviewed to make sure the right people are in place. Industry experts typically start the company's operation, but they may have never run a company to IPO.
Analysis
As a company goes through the phases of maturity from concept to rapid growth to profitability, when should the leaders be replaced? The obvious choice is to select leaders that can cover all phases of the company. Unfortunately this talent is rare. Often product are conceptualized by experts in the field; i.e. biotechs by scientists or doctors, software by programmers. Once the product has been developed and outside investment is needed to begin production, the talent needed shifts to people who have had success raising capital and run companies with tight budgets. An individual's industry reputation needs to be factored into the formula during this transition. Executives who can get the employees to “drink the kool-aid” on corporate culture and vision are ideal for this phase of the company. Typically the founder steps aside and is moved to the CTO role and the head accountant moves into the Corporate Controller position. From revenue generation to profitability, the executive team is usually kept intact is these are fairly smooth transitions. The next phase to consider changing leadership is the execution of the company’s exit strategy. Whether the exit is IPO, acquisition, or stand-along continued growth, the appropriate talent should be recruited to complete the task. Often the team that was put in place after product development remains through exit strategy.
Because this isn’t an exact science, the BOD and CEO should continuously review the talent on board. Occasionally the right person comes onboard at the beginning; sometimes one of the executives is crossing into new territory and needs help with the next phase. For example, it’s not often a CFO has successfully executed a company’s development from product design and development through to IPO. Unfortunately, it’s not that clear-cut, sometimes the executive team may need some outside advise as to how to handle next steps. But a BOD that does not continuously review their talent, especially during the transition phases, is asking for failure.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
