CEO Success Factors

We've been re-evaluating a bunch of CEO hires and looking at patterns. Who made it, and who did "just OK?" Early results are surprising. Bottom line? The up and comer, first timers seem to be performing right in line and possibly better than the "veterans." For example, I'll take Larry Page over Carol Bartz any day of the week. I'd even take Zuckerberg over a turnaround, slash and burn "operator" in the digital media world, any day of the week.

A big hit for us was Frank Slootman at Data Domain ($2B exit). He was a first time CEO and the two things he has really going for him: incredibly smart and incredibly competitive. Isilon exited at $2B recently, same story. Smart, intense guy running it, wouldn't strike you as a "usual suspect" CEO type. CEO of LoopNet, Rich Boyle, was promoted from head of engineering and sold LoopNet recently for $850M or so. The list goes on and on.

Boards need to think long and hard about risk. How do you define risk? At what point do you say "I'm betting the company on this person?" As opposed to, "how do we avoid a shareholder lawsuit if we get it wrong?" The risk aversion in public company Boards is shocking, disappointing and yet another handicap to US company competitiveness over the long term. That culture of risk aversion needs to end, yesterday.

As for startups, the "usual suspects" orientation really needs to change in my view. When will a return to inspired hiring occur? There are only so many usual suspects running around, many with very questionable "leg drive" after coming off a nice exit, and it's time to re-think the qualities that make up excellent CEOs. Every situation is unique and custom. But the basic thinking should be "who" and not just "what" are we looking for?

Building a Board

I've built a nice Board practice over the last couple of years and have clients ranging from $1B public companies to startups with 50 people. Technology, energy and even health care clients. What have I learned? That it is terribly important to pay attention to building your Board. If you get it wrong, tearing it down could tear down your company. Here are five tips for CEOs and Directors to consider:

1. Don't focus on celebrity Board members. It's not worth the headaches and they'll hijack the dynamic half the time while the other half, not adding any real value. Focus on people who are level headed, focused, will follow through, really WANT to be on your Board and who have reasonable chemistry with others (not too much chemistry, see below).

2. Focus on people with real experience in the domain in which you're operating, either functionally or with industry experience that will move the needle for you. Otherwise they're wasting space and time.

3. Compensate Directors properly. Don't be penny wise and pound foolish. Being a Director isn't as sexy as it used to be, it's not easy money and it needs to be taken seriously. So compensate people accordingly.

4. Make sure no one individual has too much control over the selection of a candidate. Boards are about constructive debates and healthy critiques of a CEO and their management team, etc. Don't hire "yes people." Hire someone who will shoot straight, first and foremost, but do it with class and tact.

5. Take your time and do it right. Be thoughtful. Don't be impulsive and "fall in love with people." Be dispassionate and objective. Treat the hiring of a Director as you would any key executive, including a CEO. Remember, you have to live with this selection and it's nearly as hard to fire a Director as it is a CEO, possibly harder...

Health care I/T=overlooked?

Have a very cool new client called Epocrates, a misunderstood but very exciting young company. Just went public at a solid valuation, is about $120M in revenues, growing solidly. It's mobility meets SaaS and drives huge efficiency gains for pharma clients in delivering key data services to a massive network of doctor/users. It also saves lives...which is pretty cool to say the least.

CEO is an ex-President level exec at J&J, very sophisticated and smart. I believe this company and others like it are proving that the time has finally come for health care I/T. With all the froth around digital media and social, this megatrend will likely be overshadowed. I intend to spend a LOT of time exploring it. Like clean energy, it's a space where you can make money and feel good about what you're working on--that it has some kind of societal benefit that's quite real.

Flash=huge hardware megatrend

If you'd have told me that in 2011, two of our hottest tech clients, out of all the spaces in which we operate, were related to the disk drive industry, I'd have laughed out loud. But Fusion-IO and Pliant have turned out to be big likely winners this year and are on a tear. Basic idea: mechanical storage loses to solid state. $30B up for grabs all of the sudden. Flash technology has caught up in terms of reliability, while vastly superior in speed and energy costs and some very cool software bridged the gaps. We will see big exits for both of these companies in the next 12 months.

So what's the next hardware breakthrough? Just when you think a category is quiet...

$100 oil

It's pretty clear that $100 oil is coming back either now or in the next couple of years. I predict it will settle back down to mid 80's when Libya finally rids itself of Qaddafi but by 2015 we'll see $150/bbl again. The X factor is whether the Saudi people demand a Democratic state and revolt, or there is a major security setback in Iraq. What does this mean for alternative energy? Means biofuels may have turned out to be the dark horse winner of the clean tech investment sweepstakes. I thought the space was dead two years ago because technology hadn't broken through and capital was fleeing the space. I am happy to have been wrong since we have about 30 of these companies as clients...Amyris changed the game. Also means electric vehicles are winners.

Watch gas prices. Gas is most closely competitive with alternative energy. If gas prices go above $6 and stay there, that's very good news for wind and solar and other renewables related to generation. Then the question becomes, will higher commodity prices take the oxygen out of the capital markets and starve these companies right when they need cash for expansion.

Still looming large is what we do with coal. Methanize it cheaply (watch Luca and Ciris) and cleanly and you have a winner.

5 things every new CEO should do/not do

I've recruited too many CEO's to count now. There are some clear do's and do not's as one joins a company. Here are 5, to start:

1. Show some humility. Don't show any arrogance and you don't need to posture. You've been annointed CEO for a reason. Look the part. Be statesman like and balanced. Listen carefully. Get the lay of the land. The team will respect you more for this approach and you will need their support, even if you think they all need to go, to get the rank and file comfortable and keep them focused.

2. Engage Founders and/or the technical team early and often. Without them, there is no company and no edge.

3. Talk to customers, as many as possible. Get on the road and show the team you're willing to put your back into the work.

4. Don't "ready fire aim" with people. Give them a chance. Evaluate them on their own merit after understanding their situation and atmosphere, challenges, etc. Don't take anything for granted or at face value.

5. Give the Board regular updates. They're nervous about the hire, though they might not show it. Every hire has risk, particularly CEO hires. Get them comfortable. AND BE PREPARED FOR YOUR FIRST BOARD MEETING. First impressions are key.