You’ve never been a CEO but might like to be one some day. But how? Nobody sees you as a CEO since you’ve never been one? I wrote this conundrum and the need to take charge of how the market define your skills in my much-read blog post on “personal branding.” If you don’t create the message about yourself, the market will. And if you want to be a CEO one day you need the messaging to reflect that.
The strange this is that once you’ve been a CEO even one time the market will see always see you as a CEO but nobody really wants to give a new-comer chance.
Of course you could start your own company. For many people that’s the right answer. As I talked about in “Is it Time to Learn or Time to Earn” – overwhelmingly the best economics go to those that start successful companies. But not everybody has the right skills to build a highly successful and valuable startup from scratch. In fact, I would argue that most people don’t.
The decision tree for being a startup CEO begins with whether you can sustain 12-18 months of little or no salary while you define your market, do research, build v1 of your product, raise seed funding, attract your initial team, get your first customers and test whether you have initial product / market fit or enough momentum to be able to raise a large round of capital. Even when you do sign-up initial customers it’s still not clear that your company will be a success and you’re still likely paying yourself under market rates.
Of course I’m not suggesting people shouldn’t start a company. If you can and if you want to – you should. I’m just pointing out that it’s not for most people.
For some aspiring to be tech entrepreneurs, I often suggest a two-step process, as I argued in this post that “The First Startup Founder You Need to Invest in Is You.” The punch line from this post was “angel yourself.” It was meant both as a call to those writing angel checks into other people’s companies that they ought to think about putting that capital toward themselves either by becoming a startup founder or (and this was my real point) by taking an under-market salary in a company where they can learn the right skills to do it in the future.
Sadly most people I meet these days would rather pile $20k of savings to be seen as an angel in somebody else’s startup than they would to take a $40k pay haircut (the pre-tax equivalent to $20k) to work for the hottest startup they could and have both the stock options and the career experience and networking that comes from working with amazing peers at HotCo.
There is a second set of career discussions I have even more frequently than my “angel yourself” advice but this type is almost never discussed publicly in blogs, which tend to emphasize only billion-dollar opportunities, 20-something technical founders and Silicon Valley elitism. This career advice is for people who are slightly older, have slightly more personal responsibilities at home and who can’t just “throw caution to the wind” due to financial obligations.
The narrative of this discussion is something like this: I meet a 35-40-year-old founder with two kids and mortgage. He or she has worked at some very successful big technology or media companies and went to a great school. He worked at 2 startups but veered back into the corporate world because his savings got tied up in an expensive down-payment on a house in a tier-1 city where $1.5 million property buys you what you imagined $250,000 would have. They own a fixer-upper in an outskirt neighborhood in the wrong school district but they’ll make do.
He still has the dream. He has the hunger. He wants a chance at changing life’s circumstances with building equity value that might free him and his family from the rat-race of 529 accounts, property taxes, summer-school tuitions and even spending some cash on aging parents.
This is the narrative that isn’t talked about – but I promise you it is the more common narrative amongst even those that went to top-tier schools, got the right jobs, worked hard in their 20s but didn’t quite join Google, Facebook, Twitter at the right time. She joined Yahoo! after the glory days and earned $300,000 in stead of $3 million and after taxes that $150,000 just sustained life and some amount of future savings.
For these people I have a solution or two.
The most common one I recommend is a senior role in a company that is just past the Series A so they can earn some amount of reasonable family-necessary comp while still having the upside of startup. This is the 85% scenario for these people and my discussions with them is usually, “what is your minimum nut you could afford to take a risk at a startup vs. wanting the upside potential?” If the “nut” is too high I usually veer them towards later-stage opportunities (post B or C round) where the comp is higher, the exit is more likely / nearer, the upside is still nice but obviously not the same as if you joined early).
But I also have advice for the 15% that really do want to be a startup CEO. These people wished they had done it in their 20s but didn’t make that choice. Maybe they were in their 20s in 2002 when being a startup CEO wasn’t really available to most?
I often tell people in this scenario to focus on a VC “fixer upper.” My friend Ian Sigelow wrote about this last week and advised people not to take on this kind of job. I would urge you to read this post because for the most part he’s not wrong. For people who don’t fit my 15% narrative I would tell you that if you can avoid a fixer-upper you should. Ian’s right that it’s much harder to build that fixer upper and frankly what is also true is that working with investors who are “fatigued” on a deal is the worst.
And there’s always a but.
There is such a thing as a “diamond in the rough” and let’s face it – if the company was totally rocking would they be hiring you? You – who hasn’t been CEO before? You – who has some family obligations so can’t go super early and take almost no salary?
Here’s why I think it might be perfect for you:
1. Being the CEO of a fixer-upper gives you the skills and branding to take on a more substantial role later
If you think about your career move as a “two-step process” then nothing sets you up to be the CEO of a better tech company than having already been CEO once. You will learn about running board meetings, setting up the ultimate financial plan, leading a team from the top, dealing with the press, raising capital, etc. If you choose to be a fixer-upper CEO for 2-3 years you’ll be ready for the big leagues.
2. Being the CEO of a fixer-upper gives you board exposure and VC relationships that will benefit you later
At most startups the CEO has constant exposure to VCs and other board members through constant phone calls, updates and board meetings. The gives the CEO the chance to build these important relationships to get choice relationships in the future. Being a CEO begets the network to be a CEO.
3. Being the CEO vs. a senior executive gives you a lot more control over exit timing
Another important piece of career advice I give to aspiring CEOs is that this gives you the ultimate decision-making abilities about an exit. In many cases a company could or should be sold early and this can reap great rewards for the executive team and early investors. But if you’re the Director or Product or VP of Marketing – you don’t get to make that decision. So it could be that a sale would yield you seven figures and you could move on to your next role but the CEO wants to “go big or go home” and sometimes go home is the outcome.
Equally, it could be that as a mid-level employee you prefer to see the company try to get to a $1 billion exit where you could make substantial money but the CEO sells early because she is sitting on 10x the equity as you and can earn well on a $50 million exit.
I’m not saying that being CEO is the right job for everybody. I’m not saying it’s even desirable. All I’m saying is that when you consider your life’s journey – what you’re good at and what you’re bad it – if you think you have what it takes just know that one fringe benefit is deciding whether or not to exit if that choice becomes available.
4. Incoming into a VC fixer-upper you often have leverage over personal compensation
In Ian’s post he rightly points out that stepping into a role with $15 million in paid-in capital that has already been spent can be a problem. This is because this “liquidation preference” gets returned to investors before you see any money – restricting the executive outcomes in mid-sized exits. But when the VC is looking for somebody willing to take on a project with a bit of hair, you actually have more leverage than you think (precisely because many people won’t take on that assignment). So you may – for example – ask for a deal in your contract that guarantees you will get a minimum of $500,000 on any sale or you may agree that your stock is exited “pari passu” with the existing liquidation preferences or that management is guaranteed a minimum bonus of $2 million on any exit (that you share with your other execs). Or maybe you just negotiate that your ownership should be 15% of the company (vs. the standard 4-6% for a hired-gun CEO).
My main point isn’t that any of these are the right structures to negotiate for. My point is that when VCs need executive help you can often negotiate a bit on the way in for something that fixes the “fixer-upper” problems. And I’ll tell you for free – you have far more leverage to negotiate this on the way in than after you’ve joined or than at the time of exit. VCs may scoff at this advice because they don’t want a bunch of people asking for non-standard deals on the way in … but I assure you this happens more than you know.
5. There is often money to be made in being contrarian
I saved my main point for last. There are many companies with phenomenal IP that is truly differentiated but where the original executive team squandered their opportunity due to inability to sell, market or service customers. There is often money to be made in finding places with under-valued IP. “Be greedy when others are fearful and fearful when others are greedy.” (Warren Buffett).
At Upfront we invested in such a company. We did the early round of financing and the founding team walked when the market turned and when the situation got tough. We looked at the IP and realized it was highly differentiated / hard to replicate. So we swallowed hard and brought in a new team and wrote another check to give the company the runway to get through hard times. That company is now doing more than $50 million a year in sales, has negative churn, is growing at > 50% year-over-year and we believe will be worth more than $1 billion at exit. It will likely IPO in the coming years. The CEO that stepped into that “VC Fixer Upper” will earn handsomely as you can imagine.
I know it’s rare, and it’s hard, but it happens.
For many who want to start companies joining early can be intellectually stimulating, financially lucrative and career defining. If you miss that window don’t let the market tell you that you don’t have a second act. You just have to look a little bit harder – to find a diamond in the rough.
So if your life’s circumstances don’t allow you to follow the typical Silicon Valley, VC-backable, up-and-to-the-right-or-bust scenario but you still want to be CEO and run a company – don’t write off the possibility of being the CEO of a VC fixer upper. It could be a stepping stone. It could also be a golden ticket. And one that you get to write.
(Cross-posted @ Both Sides of the Table)