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A prior post made the case in favor of hiring first time CEOs to lead small-scale SaaS businesses; and this piece picks up where that one left off. Specifically, it expands on characteristics to prioritize when screening CEO candidates, some questions to help assess them, and — most importantly — ways to support executives in deepening those attributes once they are in-seat as CEOs.
Per that earlier post, “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.
These supporting activities are critical: it is perfectly reasonable to ask rookie CEOs to lead effectively; but it would be naïve to ask them to do so without a support network or a shared commitment to their ongoing development. This post shares what that support can look like in practice by diving into “what / why / how” behind these particular characteristics and how fostering them can help position CEOs for success.
I. Humility / Coachability
The What / Why: First time SaaS CEOs confront countless unknowns every single day. They make most decisions with imperfect information; and they are understandably wrong an awful lot. This can be unnerving for even the most self-confident and growth-minded among us. For perfectionists with fixed mindsets, this can be downright debilitating. To thrive in such an environment, successful CEOs will consistently adopt a “beginner’s mind” of openness, eagerness, and a lack of preconceptions. They approach their responsibilities with a learning lens: what can I learn from this experience; and how can I apply those lessons learned in a scalable way on a go-forward basis?
The How (to Assess): When evaluating CEOs, it helps to frequently revisit a simple question: what did you learn from that experience (aka: what would you do differently next time)? This is a common question, but usually asked in the context of evaluating a prior failure. We think it applies equally to all experiences: from great successes, to flaming failures, to mundane everyday circumstances…and strong CEO candidates will have no shortage of substantive responses when repeatedly asked this question.
The How (to Support): We look to help CEOs strengthen these “inspect-and-adapt” muscles a couple different ways. First, we believe in executive coaching, as outlined here. All Lock 8 portfolio company CEOs are strongly encouraged (but not forced) to work regularly with outside executive coaches. We know of no better way to cultivate a safe space where CEOs can regularly ask / answer uncomfortable questions to support their own ongoing development. The second is confidential peer-to-peer support among executives. Let’s face it, being CEO can be quite lonely, particularly for first timers. Surrounding oneself with execs in similar circumstances can foster an amazingly strong network. Among Lock 8’s portfolio companies, we’ve established a structured CEO Forum that is modeled after YPO Forums, which for decades have been providing CEOs with insight and perspective only trusted peers can provide.
II. Emotional Quotient
The What / Why: EQ is “the ability to understand, use, and manage your own emotions in positive ways to relieve stress, communicate effectively, empathize with others, overcome challenges and defuse conflict.” The importance of this for CEOs cannot be overstated; the very essence of their role is to balance the (often conflicting) needs of a diverse set of stakeholders. High EQ depends on many strengths, most especially a leaders’ self-awareness. To deftly manage complex, goal-oriented, conflict-laden situations, CEOs must first understand their own perspective / biases and appreciate how their actions, words, and tone can impact others. This skill also enables leaders to recognize their own weaknesses, which helps them know when / where / whom to ask for help.
The How (to Assess): There are many ways to test for EQ, the most useful one being time — spend enough time with someone, and a clear picture will emerge of how that person will respond to most situations. But time is the scarcest resource we have, so we resort to interviews as a shortcut. One go-to interview question to suss out self-awareness is: “what is a common misperception that people have about you?” It’s a deceptively hard question, and you can learn a ton about a person from how they respond — most notably, their level of EQ and willingness to share their awareness of self. Also useful is to ask how someone else (a manager) would describe their areas of improvement. Responses give an indication of confidence, self-awareness and active participation in learning to work differently.
The How (to Support): Although they can be controversial, we like formal assessments. To be clear, we do NOT use these to evaluate CEO candidates, nor do we make hiring decisions based on them. Rather, execs complete a set of diagnostics once they are in-seat; and then they are provided with a detailed briefing and analysis of their results from a trained testing professional. We’ve been using the following four assessments over the past few years; and we think they offer a well-rounded assessment of the executive: Hogan Personality Inventory (HPI), Hogan Development Survey (HDS), Watson-Glaser Critical Thinking Appraisal (W-G), and Raven’s Advanced Progressive Matrices (RAPM). Again, the goal is not to determine whether someone is smart versus very smart…rather, it is to establish a shared baseline for understanding that exec. Most importantly, this practice elevates that person’s self-awareness to better understand themselves, raise their own EQ, and self-identify where they will need help.
III. Systems Thinking
The What / Why: This is about interconnectivity. CEOs are the ultimate general manager, responsible for optimizing the performance of complex, multifaceted organizations. This requires a keen understanding of how all of the parts / departments / functions fit together and how an action in one impacts all of the others — and to make the best decision for the whole
The How (to Assess): Case studies are a great way to investigate how someone thinks; but we’ve found these can be challenging to implement with more senior roles. As far as interview questions go, we like to focus on the concept of alignment. Getting CEO candidates to unpack circumstances where organizational alignment led to successful outcomes (and misalignment undermined otherwise promising enterprises) is a rich vein to mine.
The How (to Support): This may be the area to which we dedicate the most time and resources to support first time CEOs on an ongoing basis. The foundation is a year-long process of periodically revisiting and revising the roles / responsibilities of all parts of the organization, and how they support one another. A number of exercises and artifacts support this effort, including: the Cascade of Pain (described here), the Give-Get Grid (described here), and this graphic that we think is a bit like the old board-game Othello (“A minute to learn, a lifetime to master”). To decode it just a bit, it helps CEOs take a structured approach to assessing the totality of a SaaS business and how the core disciplines interrelate to one another and to the all-important product / solution.
The What / Why: One of my go-to parenting aphorisms is: “life is a series of choices; choose wisely.” Nowhere is this truer than for first time CEO’s in small-scale SaaS businesses. Their very existence is defined by a series of tradeoffs, where there are never enough resources / capital / hours in a week. Hence, world-class prioritization skills are paramount.
The How (to Assess): It will come as no surprise that we like to put a twist on some pretty standard interview questions to test for this skill. One favorite is: “please describe a time when you prioritized the wrong thing, and it worked out anyway.” This is often followed by: “please share a time when you prioritized the right thing, and it failed anyway.” These tend to elicit provocative discussions about prioritization, which offer a valuable indication of a person’s interest level in the process behind making smart tradeoffs.
The How (to Support): Our approach to this topic is a bit contrarian. Common wisdom suggests that goalsetting is a foundational task, which then informs a set of activities in pursuit of those goals. Unfortunately, this can be pretty arbitrary in small-scale SaaS businesses, leading to overly ambitious or under-informed goals. We prefer to delay goalsetting a bit, at least until that exercise can be better informed. This generally entails soliciting input from multiple stakeholders, through things like a Listening Tour (described here) and triangulating budgets from different perspectives (described here).
In sum, these characteristics are critical to help first time CEOs survive. And, while we certainly test for them in the interview process, we spend a lot more time and energy in helping to support the ongoing development of those attributes in CEOs over time.
A quick closing aside: these characteristics are crucial as CEO differentiators; separating the good from very good. They are “spices” that makes the meal compelling and something of unique value. The “main dish,” though, is comprised of a core set of must-haves that were summarized in a prior post as an exec’s ability to (1) Get it, (2) Want it, and (3) Capacity to do it. This latest post does not intend to suggest ignoring or in any way under-valuing such must-haves. Admittedly, without these staples, those spices would be wasted and without substance.