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Although venture capital is readily available for second-tier and even start-up companies in the burgeoning high tech industry, investors increasingly are concerned about the shortage of leaders with the right vision and drive to grow a new business. It’s not that the supply of executives has diminished—rather, the tremendous growth in technology has spawned an explosion in the number of companies being formed. This, in turn, has created a fierce competition for CEO and top management talent.
Here are five steps young companies can follow to find the leadership they need.
Step One: Define What Sets the Company Apart
The company must develop a clear vision of what it has to offer—what sets it apart from other organizations. If it has a unique idea or a hot new product in development, it has a much better chance of attracting great management. One of the keys to a successful search is being able to sell a highly qualified individual on the opportunity to be the master of his fate, to be challenged and stimulated, to build a dynamic team and, ultimately, a great company.
Step Two: Develop Realistic Expectations
It is important to recognize that in today’s rapidly changing market, a CEO candidate may not have all the answers. A company must develop realistic specifications for its search and be willing to accept trade-offs. Does it really need someone with 15 to 20 years’ experience in the industry? A proven executive with 10 to 15 years’ management experience, who has not yet come up on the CEO radar screen, will certainly be easier to find, and perhaps be more highly motivated to build the company from ground zero and make a mark. History has shown that individuals who already have delivered hundreds of millions in shareholder value in one industry rarely do it a second time. And CEOs seldom leave the companies they have built into successful enterprises.
There are certain basics that remain constant and should never be compromised—integrity, intellect and a strong work ethic. But what if the candidate has strengths in some areas but limitations in others? Everyone wants someone who is a great sales executive, who knows the industry and is ahead of the technology curve, someone who can deliver dynamic speeches and take the company public when the time is right. But these individuals are few and far between. So the company should look within its current management for people with the skills to fill the gaps. For example, if there already is a marketing expert in place who understands the technology and the subtleties of the market—the new CEO will not need to have this expertise. In fact, a strong team can deliver solutions to a wider range of challenges than a single person and be a key factor in the company’s growth and success.
Step Three: Eliminate Barriers to Success
Having prioritized the skills that the CEO must have and those that are secondary or can be found within the company, the next step is to eliminate potential barriers to a candidate’s success. For example, investors often will want to bring in a CEO to take responsibility for the company’s day-to-day operations, yet they will leave the founder in place as chairman with an active role in the organization. This arrangement can be a disaster because the new CEO frequently will not be given the autonomy and authority needed to establish the vision, lead the company and grow the business. Furthermore, if there is any chance that the chairman will second guess the CEO’s every move, it will be next to impossible to attract high-caliber talent.
The difficulty in locating suitable candidates to run emerging high tech companies not only has increased the search time, it also has led many a company to bring in a temporary consultant while it searches for a permanent CEO. Although this may be a viable stop-gap measure, it also can discourage qualified candidates who may feel that they have to reverse the work done by the consultant before they can implement their own strategy. Thus, there can be a hidden cost associated with the delay in finding a CEO.
Step Four: Be Flexible
The shortage of top management talent has raised another challenge—one that highlights the need for flexibility in choosing a CEO. Today, companies have to go further and further afield to find a candidate with the experience, energy, drive and spirit of adventure needed to set a young company’s course and build it into a successful enterprise.
The law of supply and demand may require major concessions to bring the ideal CEO on board. For example, the leading candidate may want to continue living in San Francisco while the company is located in Seattle. What kind of compromise can be reached to accommodate everyone’s needs? Or the perfect CEO may be found on the East Coast and doesn’t want to relocate to the company’s headquarters in Silicon Valley. Would the company be willing to move? If it is still at the beginning of its growth curve, and its target market is largely centered in the Eastern United States, it may consider this option to get the leadership it wants. These are just some of the issues that may arise as companies compete for the CEOs on whom their future will depend.
Step Five: Recognize the Importance of Equity
The final piece of the puzzle may offer some surprises. While there is continued upward pressure on compensation, with some early stage companies paying annual CEO salaries of $200,000 and even $300,000, recent years have seen a growing number of these individuals asking for equity in a company (anywhere from 12 percent on up) as opposed to cash compensation. Some candidates have made a substantial amount on stock at their current place of employment they can cash in, so money often is not the primary motive for accepting the CEO position. Recognizing that equity is playing an increasingly important role in a CEO’s compensation package, some companies are offering equity participation based on a stepped performance measurement over a particular time period. They offer a higher percentage of equity each year, based on company performance or shareholder return. Other negotiable items center around anti-dilution issues, but these can prove very difficult since company shares can only be cut so many ways. If no new shares can be issued, what incentives can be offered to newcomers as the company begins to build its management team?
Clearly, finding qualified candidates to run the proliferation of new companies in the high tech industry is a challenge. Only if a company develops reasonable expectations, recognizes the limitations imposed by rapid developments within the industry and is willing to trade a certain amount of experience for vision, energy and drive, can it bring on the leaders that will infuse the industry with the initiative and discipline to compete effectively in world markets.
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