Leadership: Change it up

For 12 years at the angel investor group I saw 250 to 300 deals a year. Now that I run a family investment fund and an informal angel network, I see about 100 a year.

It’s a great vantage point to see how leadership works.

This question of when you change leaders always comes up -- mainly when it’s too late.

Aside from the emergency reasons to change a leader (death, sudden retirement, firing, scandal, incapacitation, political correctness blunders – just kidding about this last one, or maybe I shouldn’t kid about it), there are only two times when you should change business leaders.

SITUATION #1: When the leader outgrows the business.

• You can be a leader with a specialty. Let’s say you’re finishing a merger or have negotiated the sale. Consider a graceful retirement after the harsh cost cutting and tough negotiations and let a healer move in.
• Or let’s say you’re a consolidator or deal maker. Now that you’ve just raised $15.0 million for the new plant and have a three-year runway in standby cash with hardly any debt, maybe you should turn it over to an ops expert and move on to your next financial/capital deal.
• Or you could be a leader who realizes it’s not challenging anymore. Departing before you start mailing it in could be the smart play.

SITUATION #2: When the business has outgrown you.

• “Founderitis” is a thing. It’s real. When you have risen to your maximum competence level, maybe you should drop back to CTO or take that board chair gig. Better this than have the public embarrassment of being shown the door.
• When you are about to finish a big raise or you’ve set up the next five years with a great bank line and debt package for a three country expansion, maybe you should step aside as part of the transaction and take a payout you negotiate.
• For sure you should leave when you first take it public. Inevitably the bootstrapper or start-up guy is not the right one for the post IPO phase. Worse than a stranded asset is a stranded CEO. I saw quite a few angel deals go public on a tech exchange and blow it this way.

The main point is that you should have protective reconnaissance systems built in so that you know ahead of time when it’s time. Don’t deny reality.

Pride is a thing. It’s true that “Pride goeth before the fall!”

How should the business stay ready for any of the above scenarios:

• Have a succession plan (a real one).
• Conduct regular serious performance analysis.
• Sharpen up your directives to the leader.
• Trust but verify.
• Make sure the executive committee or compensation committee is doing true oversight on the leader.