A prior post on this blog referenced the use of formal assessments as a vehicle to support first time CEOs. I have admittedly received pushback in the past on this point from experienced CEO-pals who question the value of such instruments. Fair enough; to each their own. But I stand by that position and offer this post in an effort to support it. This piece will double-click into three questions relating Lock 8 Partners’ use of diagnostic tools for execs:
I. What is the general thinking behind using formal appraisals with execs?
II. Which specific tests do we use and why?
III. How do we administer and use the assessments for optimal impact?
The goal here is to share some lessons learned in order to help others optimally position CEOs / execs for success in their leadership roles.
I. General Thinking:
Leadership is critical to organizational performance, and CEOs / execs are key drivers of company success. Likewise, CEO roles — even in small businesses — are enormously complex, with many potential variables ultimately influencing outcomes. At Lock 8, we naturally want to leverage any available resource to help CEOs succeed, particularly the first-time CEOs whom we prioritize hiring.
To be clear, our objective with these assessments is not to weed out the “smart” from the “astonishingly smart” — that’s not what we believe matters most to small-scale SaaS businesses. Rather, we are trying to understand how execs align to a specific role in two main areas: (1) personality factors and (2) problem solving. To do this, it is first necessary to have an in-depth understanding of the particular business and nuances of that particular executive role. Only with that context are we then able to use these two types of information to understand how someone aligns to a given role, builds relationships, performs under pressure, processes information, and makes sound decisions. If an assessment can offer an advantage to our CEOs in this fascinating and high-stakes puzzle, then sign us up for these tests…
II. Which Test(s):
…but, not just any test, and certainly never only one test. The CEO role and the individuals who successfully navigate those roles are simply too complex to rely on any one measure to predict success. It would be the equivalent of saying “choose one thing that makes all CEOs successful” — it just doesn’t exist. Rather, such a multi-faceted endeavor warrants using several different tools, measures, and techniques. Following expert guidance, we have oriented around four tests, with two focused on each of (1) personality factors and (2) problem solving.
Personality Factors: Personality factors speak to the types of preferences and inclinations that determine how a person is likely to behave under normal circumstances, as well as when under pressure. We use two instruments to measure these different aspects of personality; they are the Hogan Personality Inventory (HPI) and the Hogan Development Survey (HDS).
The HPI is a measure of “normal personality” that provides the following:
The HDS identifies the following:
The HPI and HDS provide a more in-depth understanding of the preferences and thinking that drives what many refer to as “Emotional Intelligence” (EI) or “Emotional Quotient” (EQ). They also facilitate a very quick / early understanding of an exec’s communication style, in order to better inform how that person could interact with a team. Research consistently shows that leaders who have higher self-awareness regarding their strengths, opportunities for growth, and biases to behave in certain ways are more likely to be successful. They often build stronger, more mutually respectful relationships with a broader range of people; and this increases the probability of being able to address highly complex issues effectively. For these reasons, we pay close attention to HPI and HDS.
Problem Solving: But it isn’t all just touchy-feely. Problem solving and critical thinking skills are foundational in considering whether or not someone has the capacity to serve in a leadership role such as CEO. This is where the Watson-Glaser Critical Thinking Appraisal II (W-G) and the Raven’s Advanced Progressive Matrices (RAPM) come into play.
The W-G helps us measure the following:
The insights gained from the W-G involve whether an individual can process highly complex information efficiently and make strategic decisions that take into account both short- and long-term consequences. However, the situation and the data regarding it are often ambiguous or incomplete; and this is where the RAPM is useful.
The RAPM helps us accomplish the following:
Combined, these two measures shed light on an individual’s ability to do the “systems thinking” or to “see the bigger strategic picture” that successful CEOs must have. In addition, they allow a CEO to prioritize issues and direct time and resources to those most critical concerns in a timely manner.
III. How To: Handle with Care
Given these robust, valid measures of both critical thinking and key personality factors, the question becomes how these assessments should be administered, used, and shared. The honest answer is: with flexibility, care, and compassion. That said, below are the core takeaways from our experience:
In closing: I’d like to thank Dr. Gary Lambert of Q4 Psychological Associates, not only for his significant contributions to this post, but also for his generosity of spirit in the sharing of his expertise and experience. Gary has been a great collaborator in Lock 8’s efforts to consistently improve our ability to set executives up for success. Beyond all of that, Gary is a pleasure and a lot of fun to work with.
Last week I had the opportunity to speak with three different SaaS execs about their careers. Each had valuable experience within high-growth software businesses. Each brought deep management and functional experience, having led critical departments within their respective companies. Each presented themselves as personable, passionate, and articulate about their work. And yet, they were all grappling with how to take the desired next step of their career journeys — to land the CEO gig at a growing SaaS business.
These folks are not alone; countless aspiring leaders struggle to make this leap. This is unsurprising: although many executives harbor the lifelong dream of leading a company, the chief executive role is uniquely challenging; and the sheer numbers are stacked against elevating to this level. Likewise, seemingly everyone wants to get in on SaaS these days, making the odds even longer for would-be tech leaders. And yet, making the jump to SaaS CEO is far harder than it should be. In fact, like many things in life (such as college admissions, securing student internships, earning a roster spot on competitive teams), the “right to enter” can be even more prohibitive than the required qualifications to succeed. Why is that?! This post aims to identify, and hopefully poke a few holes in, some of the less obvious reasons for why it is so hard to navigate the path to becoming a SaaS CEO.
The Founders Path: The surest path to becoming CEO of a SaaS business is to start one. Again, this is unsurprising: founders are the natural choice to lead the entrepreneurial endeavors they initiate. After all, who better to rear the brainchild than the person who hatched the idea in the first place? This founder-as-CEO model has been reinforced for decades in our minds by the many well-known and truly remarkable individuals who have not only started successful businesses, but also subsequently led them through extended periods of growth. Thomas Edison, Steve Jobs, Jeff Bezos, Jack Ma, Payal Kadakia, and countless others have made this extraordinary achievement seem almost commonplace — it’s not. It is rare and amazing, and it should be celebrated as such. And yet, founders often remain CEO of their business until either (a) the business goes belly-up (bad outcome, but statistically the likeliest), or (b) the business succeeds and grows to the point of needing a hired-gun executive (good outcome, but often an emotionally fraught one).
This whole dynamic can be cruelly ironic in a couple ways. First, a fair portion of founders end-up learning that have little appetite for many of the CEO’s duties (such as: leading people, managing a board, exec selling, or sweating the financials). Rather, founders often prefer to start things…not finish them. Conversely, many executives yearn for the top-spot in a company and have invested heavily in developing related skills…but simply don’t possess the founder-gene. Consequently, one of the most viable paths to becoming a SaaS chief executive is blocked to countless qualified leaders simply because they “don’t have a great idea for starting a business.” As a short aside, many would-be CEO’s do end up choosing to start businesses, at least in part as an entrée into the corner office. Although this absolutely can work out well, it is generally a “tail-wagging-the-dog-ish” bad idea. Anyway…where exactly does this leave the non-founder SaaS exec who has the itch to prove herself in the CEO role?
Which Came First? For non-founders, the obvious route to “CEO-dom” is to work one’s way up the ranks. Unfortunately, this is also a narrow path with many pitfalls, including the fact that climbing the corporate ladder can take years or decades (with plenty of brain-damage and no guarantees along the way). To further complicate matters, not many employers actively recruit non-founder, first-time CEO’s. Traditional VC / PE investors, who often are responsible for hiring SaaS CEO’s, rarely (if ever) actively seek out rookie CEO’s. Again, hardly surprising: these financial stakeholders have a fiduciary responsibility to maximize returns while minimizing risk. Accordingly, very few are keen to take a chance on an unproven executive in the one role that will arguably have the greatest impact on the outcome of a given investment. Likewise, self-aware founders seeking to replace themselves generally tend to prioritize a proven track-record when considering their successors — and certainly not less-experienced first time CEO candidates! All of which begs the question: if one needs to have already been a CEO to become a CEO…how does one initially break-in? That is precisely the vexing chicken-and-egg problem that the executives described above are striving to crack.
The hard truth is that — like so many things in life (e.g. skydiving, performing in a live production, asking someone out on a date) — no training can adequately prepare CEO’s for the real thing. Sure, aspiring CEO’s could / should strengthen their CV by amassing increasing levels of leadership experience and developing valuable functional expertise. Sales, marketing, finance, and product management are all proving grounds for future chief executives. General management roles, particularly ones with accompanying P&L responsibility, are also “as good as it gets” in terms of prepping future SaaS CEO’s for the stress and complexity of “sitting in the big chair.” But even with such undeniable preparation, the first-time CEO remains about as appealing as an understudy on Broadway — highly suspect unless and until he / she demonstrates the ability to handle the moment and shine when the lights come up. These and other forces combine to create a stacked deck against aspiring CEO’s. But this doesn’t have to be the case.
Contrarian Closing: Why we like first-time CEO’s
With respect to all of the points above, we beg to differ. When it comes to early-stage SaaS businesses, we dig first-time CEO’s. While there are many undeniable benefits of prior CEO experience, there is also a lot to like about first-time CEO’s in this environment. First, they tend to be quite energized by the opportunity to “make something their own.” This typically translates into a high “want-to” factor, the importance of which simply can’t be overstated (as outlined here). This is particularly true when a leader marries that enthusiasm with a high-level of capacity / competence, which is overwhelmingly characteristic of anyone who is a legitimate CEO candidate. As another short aside, this point reminds me of this gem from Simon Sinek…so, so true). First-timers also tend to have a healthy respect for the complexity of the role / situation into which they are stepping. This encourages them to be open-minded and coachable; and it discourages them from prescribing before diagnosing. This is a crucial point; some of the biggest mistakes leaders make can result from defaulting to the assumption that they’ve already “seen this movie” (aka: fully understand a situation, before having completed exhaustive discovery). Rookies, on the other hand, rarely fall into this trap. Finally, sub-scale SaaS businesses tend to be scrappy and under-resourced; and first-time CEO’s can easily jump-in with both feet. Specifically, they are in a great position to leverage up-to-date expertise that draws on their functional background…and, in the process, to help the business punch well above its weight.
In fairness, not all departmental / functional leaders can successfully make the leap to CEO. We prioritize candidates with high-levels of humility / coachability, EQ (emotional quotient), systems-thinking, and prioritization skills; and the odds of their success are greatly improved by supporting them in an intentional, structured, and consistent way (both of which seem like topics for future posts).
In sum, though, up-and-coming execs can offer a great option as CEO’s of sub-scale SaaS businesses…much more so than is suggested by the narrow paths available for them to get there.