Previously, Part I of this post introduced an artifact that Lock 8 Partners uses to support the learning & development of portfolio CEOs. We refer to that artifact as the CEO Development Rubric (CDR), and its purpose is to codify expectations for SaaS CEOs around their unique role and responsibilities. The CDR is comprised of eight core disciplines that we believe CEOs must develop and deliver for their orgs. For review, the disciplines are bulleted below (see Part I for full write-up).
2. Vision & Strategy
3. Execution / Resource Management
6. Learner / Owner Mindset
Part II of this post seeks to explain how the CDR gets used, in service to helping CEOs advance their professional development and perform to their full potential.
First, it’s worth unpacking why the CDR is needed at all. The answer relates to the singularly important role CEOs play in the outcomes of their organizations. If CEOs perform well, so too do their organizations. Period. And yet, many boards of directors treat exemplary CEO performance similarly to how the Supreme Court once defined obscenity — it’s difficult to define, “…but I know it when I see it.” Likewise, it’s easy for CEOs to be overwhelmed or confused by the never-ending supply of how-to advice (a.k.a. “fad diets”) flooding their inboxes every day. In either case, the stakes are too high to simply allow CEOs to chart their own course and then applaud or critique the outcome. Instead, we try to remove the guess work by clearly defining the behaviors that we’ve observed will help CEOs to be most successful. Thus, the CDR.
Next, it is important to recognize that the CDR does not / should not stand on its own. Rather, it is one of many tools aimed at collectively fostering performance accountability and constructive self-reflection among CEOs. Accompanying the CDR, the other artifacts are:
CEO Support: Per comments above, there is too much at stake to let even highly intelligent, highly motivated first time CEOs “sink or swim.” For this reason, Lock 8 invests heavily in support initiatives for CEOs. Because…if we are going to ultimately want to hold CEOs accountable to a set of outcomes and standards of behavior, we first need to give them a fighting chance to succeed. The slide below highlights some of those support initiatives.
2. Company Goals: Each business goes through a rigorous process to establish thoughtful, balanced, measurable (SMAT) annual objectives. These goals provide the ultimate report card for the CEO and the business. Achievement of these Company Goals is how variable compensation is earned; and all team members’ bonus comp is tied either directly or indirectly to goal attainment. Company Goals are critically important in terms of assessing / rewarding CEO performance. But they are admittedly not super-helpful from a professional development perspective for the CEO. Hence…
3. Performance Discussion Document: The Performance Discussion Doc (PDD) is the key artifact supporting semi-annual performance reviews of the CEO. As in most things, the hope here is to keep things simple. The mechanics of the PDD are as follows: the CEO and the Board Chair each independently write up a set of bullets in response to three core questions regarding the prior six-month period:
· What went well?
· What went badly?
· Where should the CEO focus over the next six months?
This no-nonsense approach ensures that CEOs receive direct, consistent, and constructive feedback. But, like Company Goals, the PDD has developmental deficiencies. While it is great for fostering healthy discussions about a CEO’s actual impact on the business, it fails to provide the CEO with a clear picture of what best-in-class performance looks like. This is precisely the role of the CDR — to serve as a complement to these other resources by offering a specific, concrete, digestible summation of the highest priority behaviors CEOs should seek to exemplify.
Finally, the application of the CDR is modeled exactly on the Performance Discussion Doc. The CEO and Board Chair each independently rate / write-up of how the CEO recently performed against the CDR rubric; and then they have a direct, dispassionate, constructive discussion about their views. In this way, the CDR is certainly an assessment tool…but it is first and foremost it is a developmental aid to CEOs.
To finish where this started, all CEOs (not just 1st time CEOs) need support in order to execute on their massive mandate on behalf of their organizations. And no single artifact or process is up to the task. Rather, it takes a village.
· Support Initiatives: help the CEO build required skills and capabilities
· Company Goals: establish the scorecard to assess CEO and organizational success
· Performance Discussion Document: fosters a discussion about the ongoing, on-ground reality
And…for us, the CEO Development Rubric (CDR) is the missing piece that rounds these all out by clarifying a vision for the specific behaviors that will best position the CEO for success.
This blog has focused extensively in the past on the topic of first-time CEOs within small-scall SaaS business. This post made the case for hiring first time CEOs; this piece shared tips for screening / selecting those CEOs and how to support their transition to chief executive; and this one offered tactics around leveraging formal appraisals to optimize CEOs’ performance. The following 2-part post aims to pick up where those others left off. Specifically, it addresses CEO performance and how to thoughtfully assess and enhance it. We’ll tackle this topic in two parts.
1. Part I introduces a framework that summarizes for aspiring CEOs the seemingly infinite demands that chief executives face. The purpose of this bit is to help CEOs clearly understand “what good looks like” in terms of performing this critical role on behalf of their organizations.
2. Part II shares how Lock 8 Partners leverages this framework in conjunction with other artifacts to help our portfolio CEOs develop and perform. Part II is directed toward board members or anyone seeking to bring out the best in CEOs — by both holding CEOs accountable and prioritizing their professional development.
What follows is text pulled from an artifact we call the CEO Developmental Rubric (CDR). It is one of the frameworks we use to evaluate and provide feedback to CEOs. The CDR seeks to dispel whatever pre-conceptions incoming first-time CEOs may have about their new role…and to clearly outline precisely what is expected of them in that seat. Those expectations span eight core disciplines, each with supporting themes and explanations. Below are those disciplines / themes / summaries:
Leadership: Build Leadership Team / empower individual contributors / practice self-reliance / foster culture of learning, growth, & performance / plan for future-state
The CEO surrounds themselves with high-caliber LT members and actively works to foster cohesion / collaboration / independence / inter-reliability among this “First Team.” In turn, the CEO and LT recruit / develop / empower individual contributors that strengthen the team and advance attainment of company goals. The CEO lives and models the company values and establishes a culture and environment where others feel safe and motivated to do the same. The CEO proactively considers the org’s future-state and engages in succession planning to maximize org effectiveness and minimize the impact of transitions or organizational surprises. Finally, L8 CEOs strike a balance between developing the team and / but also being self-reliant — they are long-term builders, but also action-ready doers…and they are comfortable rolling-up their sleeves to get things done individually and alongside their teams.
Vision and Strategy: Articulate Vision / lay-out Strategy and Tactics / consider and mitigate complexities / inspect & adapt
The CEO articulates and codifies a clear, concise, compelling Vision for the company and where it is going…and shares that effectively with stakeholders, particularly the internal team. The CEO lays out specific Strategies and Tactics by which the company can successfully execute that Vision and achieve well-defined / broadly understood Objectives. The CEO considers the deep complexities of these tasks amid the dynamic / nuanced competitive environment in which the company operates. The CEO remains steadfast on the Vision but regularly reconsiders / re-calibrates / adjusts Strategy & Tactics in a timely manner to an ever-changing operating landscape.
Execution / Resource Management: Hit the Plan(!) / enforce operating cadence / optimize team time / focus on priorities & avoid distractions
Through discipline and rigor, the CEO ensures that the business just “gets things done.” Specifically, the company can be counted on to consistently attain its stated Company Objectives (Hit the Plan!). The CEO establishes organizational focus on these Objectives and implements an operating cadence of daily / weekly / monthly / quarterly / annual activities that optimizes the business’ most precious resource — people’s time. The CEO prioritizes the most impactful initiatives and ensures that others do the same. The CEO avoids distractions or endeavors that detract from the company’s resources and ability to get things done — both in the immediate and longer terms.
Communications: Communicate with intentionality / balance views / listen relentlessly / seek coaching & incorporate feedback
The CEO communicates with purpose and ensures that the organization does likewise. The CEO communicates intentionally and proactively with all stakeholders in form / tone / substance / frequency / altitude that is targeted and specific to each audience (those being: Market / Clients / Team / Shareholders / Options Holders). The CEO communicates credibly with the board of directors (BoD) in a way that fosters BoD engagement and impactful discussions. The CEO calibrates communications to ensure a realistic view and one that balances optimism / pessimism and that avoids “hope as a strategy” in favor of “confronting the brutal truth.” The CEO receives communications at least as well as they transmit. The CEO actively listens to all stakeholders, seeking always to learn new perspectives that can benefit the business and themselves. The CEO seeks / accepts / incorporates feedback from a broad range of stakeholders and proactively closes the loop on suggested points to explore.
Analysis: Leverage data / generate insights / build instrumentation / focus pragmatically
The CEO leverages available information to inform a thoughtful, fact-based, data-supported view of the situation and opportunity. The CEO synthesizes data to formulate second-order insights and hypotheses regarding where the business needs to go. The CEO takes a long-term view toward instrumentation, with a “patient-but-ambitious” understanding that small-scale SaaS businesses frequently need to build systems and processes from the ground-up and over time to support the desired-state of business analytics. The CEO is pragmatic in terms of ruthlessly focusing on metrics-that-matter and avoiding the “noise vs. signal” problem of looking at too many metrics that overwhelm business leaders and under-impact the business. This same principle applies to frequency of metrics review — the CEO regularly examines metrics but avoids “living in the numbers” at the expense of seeing the big picture for the business or engaging authentically with others.
Learner / Owner Mindset: Approach issues openly / commit to CEO craft / seek broad understanding / spend like an owner
The CEO consistently demonstrates two important, and somewhat contradictory, mindsets — that of the “Learner” and the “Owner.” The CEO assumes a Beginners Mind, approaching issues with genuine curiosity, openness, and commitment to learning. The CEO brings a strong appetite for advancing their craft of becoming the best leader / CEO they can be. The CEO also behaves like an owner of the business — seeking to understand all aspects of it, but with a healthy appreciation that they cannot possibly be / do all things. The CEO also acts as the owner in terms of financial stewardship. They treat / spend company resources with prudence / frugality, but also with a willingness to invest and take calculated risks to optimize long-term value of the enterprise.
Resilience: Confront the brutal facts / remain focused / ruthlessly compartmentalize / maintain your humanity
Being the CEO of a small-scale SaaS business is hard. Very hard. There is always more to do, and almost never enough resources to do it. The CEO is frequently confronted with new, often unpredictable crises, for which there is rarely infrastructure or a roadmap to assist the CEO in navigating. For these and so many more reasons, the CEO must remain resilient, unflappable, unsinkable. They must consistently demonstrate what is commonly referred to as “grit.” And they need to channel this type of resilience into the DNA of their organization. All of this must be accomplished while maintaining credibility among the team and demonstrating empathy, so as not to be perceived as overly rigid or unsympathetic to the challenges the team collectively faces.
Creativity / X-Factor: Innovative ideas / ideas into action / action into advantage / advantage into value
The CEO brings something extra to the business — innovative product ideas, contrarian vision for the industry, best-in-class domain expertise, innovative solutions to process challenges, ground-breaking ways to optimize resources, highly differentiated ways to position / sell the company versus competition — anything that creatively provides the business with a difficult-to-replicate advantage. This X-Factor can take countless forms, and it can be the difference between good versus great businesses and for strong versus exceptional leaders.
Although the responsibilities of CEOs truly are overwhelming, we’ve found that these eight disciplines encapsulate what we at Lock 8 hope CEOs will bring to the SaaS businesses in which we invest. I’ll go into more detail in Part II of this post on the mechanics of how these concepts get applied. But hopefully they stand on their own as a focus-producing resource for aspiring, first-time, or even veteran CEOs.
Within our portfolio’s cohort of SaaS CEOs, budgeting consistently ranks among the most challenging aspects of their jobs. This led to a recent post on this blog which argued in favor of now as a good time of year for SaaS businesses to examine previously un-budgeted expense items. That prior piece prompted a broader review of general budgeting processes, and provided a reminder of another simple but effective tip to help make budgeting less painful for SaaS CEOs.
First, let’s take a minute to recap why budgets are important for small-scale SaaS businesses, even those that are bootstrapped or that operate without a formalized board of directors. Most importantly, budgets serve as sense-makers for businesses. They quantify in specific terms whatever qualitative plans exist for the business. We generally codify initiatives and objectives in an annual Strategic Operating Plan, but these artifacts go by many names and can range widely in form. In whatever form your plan exists, a budget double-checks whether that plan is feasible and properly funded. It also helps enforce alignment of resources across the team and around that plan. Finally, budgets help businesses translate their inevitable idiosyncrasies into a set of universally understood measures (e.g., revenue, expenses, Rule of 40, etc.). In short: budgets = good. The problem is that budgets can be excruciatingly difficult to nail down, particularly for CEOs who may not have deep financial training (which, in the world of small-scale SaaS, is more the rule than the exception). For those typical CEOs, a persona-based approach to budgeting can help.
Wait…personas?! Aren’t those what our Marketing team uses to identify ideal customer profiles? Well…yes…but they can also help crystallize roles relating to the budget process. Specifically, no matter the composition of your team, someone will need to fill the following roles / personas in the budgeting process:
1. The Leader: This person is running point on the entire budgeting process, making sure that the right people are involved in the right ways at the right times. Although this has some tactical project management aspects to it, the CEO is best situated in small-scale SaaS organizations to serve in this role as the budgeting Leader. This is also the person who ultimately has last say on the numbers.
2. The Sensei: This person is a step removed from the budgeting activities and can provide a broader perspective about both the budget process and the actual work product. This person should offer a top-down view on what “Good” looks like — both in terms of the budget output itself, as well as how a given year’s budget supports the multi-year narrative of a company’s financial story. The Sensei is often a board member(s), but it doesn’t need to be. In particularly small SaaS businesses, this might reasonably be an outside advisor, accountant, or consultant.
3. The Model Master: This person is responsible for building, maintaining, and ensuring the accuracy of financial spreadsheet model that usually serves as the backbone of a budget. This person “owns” the (typically) Excel files and builds bottoms-up revenue and expense models. This often takes the form of a “three statement model” which adds a balance sheet and cash-flow statement to the omnipresent profit & loss statement. This Model Master is usually someone in a Finance role, but it can also be an outsourced expert who assists smaller businesses.
4. The Historian: This person has valuable institutional memory. The Historian provides context and empirical data from the past to inform future-looking forecasts. This is a lot more about subtle nuances in the business (e.g., sector seasonality, observed customer payment trends over time, sales cycle statistics) than it is about the headline numbers of a budget. This person is rarely the loudest voice at the table; but their voice is one that should be carefully considered.
5. The Water Carrier: This person is responsible for making material parts of the budget come to fruition. The Water Carrier is also the person / people who carry the quota that will turn the plan into reality (usually in the form of sales and (eventually) revenue). Unsurprisingly, the Water Carriers inject a dose of reality to budgets, particularly when The Leader and the Sensei get overly optimistic / ambitious. This person is usually the head(s) of Sales and Marketing, but can vary across different roles depending on the business model. Unlike other personas mentioned above, this person is almost never a consultant or part-time team-member.
We’ve observed that each one of these personas plays a critical role in successful budgeting processes. If even one of them is missing, it can throw-off the process and drive imbalances and gaps. Importantly, this does NOT mean that there needs to be exactly one person for each of these personas. In smaller companies one person may end up filling two or more of the roles outlined above. For instance, the CEO is often not only the Leader, but also the Historian. This tends to work just fine. The only thing to really avoid is violating the so-called Ghostbuster Rule (“…Don’t cross the streams!!”). Specifically, it’s quite problematic to have one role “moonlight” into someone else’s domain. The prototypical example is the CEO who decides that they want to suddenly dip into and out of the model when the mood strikes them. Don’t do that…it would be bad.
I’ll close with one last framework that can be quite valuable in the budgeting process: RACI chart (R = Responsible / A = Accountable / C = Consulted / I = Informed) can be great for clarifying which position in the org is responsible for what. Hopefully the example below is self-explanatory.
Sample RACI Chart for Budgeting Process
As valuable as the RACI is, though, we’ve observed that its utility is limited unless specific conditions are met. Rather, we find that it’s important to nail the personas above, before a RACI makes much sense to anyone.
In sum, personas aren’t just for Marketing anymore…they can definitely help make budgeting less challenging for all.