Leadership and Upheaval
After I wrote that consistency is undervalued and the risk of upheaval underestimated, a few people wrote back to ask how that view applies to company leadership. Almost at the same time, I was on the phone with someone asking about our strategy who wanted to know if we “prefer to invest in strong management teams or situations where leadership needs to be replaced and/or augmented?”
When it rains, it pours.
Our CEO Brent wrote in his annual letter this year about what CEOs are and aren’t. One of his points was that the job of a CEO should be hard. Because “if a CEO believes all the pieces are in place and their work is finished, that same attitude will ripple through the organization.”
So the type of leadership situation we prefer to invest in is a strong management team that also needs to be augmented. That’s because if a small business already has a fully formed team – and it’s still small – then growth is likely constrained. But if there’s a strong team that needs something, then who or what you add might be the thing that drives growth.
I put “prefer” in italics, however, because the real world doesn’t really care about our preferences. What matters more is if what should happen can happen.
That’s what I told the person on the phone. We’ll look at almost any leadership situation provided that whatever needs to be done with the team can actually get done. For example, if a CEO needs to be replaced immediately, but doing so would destabilize the organization and put the business at risk, that’s a non-starter. But if a CEO needs to be replaced and we have a credible candidate in mind – and that CEO doesn’t hold key customer relationships or unique institutional knowledge – we’re comfortable taking that on.
Similarly, a strong management team that wants to continue running a business is great. But replacing a management team that needs to be but is deeply entrenched is a very different story.
It’s also worth noting that there are different types of CEOs with different styles, and that as an owner or board of directors you have to be honest about whether the CEO you have is a good fit with what you are asking the business to do. As Brent noted, “a CEO’s attention is a company’s flashlight.” Whatever they point it at “becomes the thing.”
Like all of us, a CEO’s attention typically gravitates (as it should) towards what they enjoy and what they’re good at. So if that’s different from what a business needs to do, that will become a problem.
Former Paypal president David Marcus wrote recently about what he thinks went wrong at his former employer after he left. One of the issues he cites is that the board hired a telecom executive as CEO and that as a result “product conviction gave way to financial optimization” with the company prioritizing “payment volume instead of margin and differentiation.” That decision may have helped PayPal get bigger, but it also made it more vulnerable to competition.
One difference between sports and business is that when you fire a head coach, you usually also fire the staff. In business, when you replace a CEO, much of the rest of the team often stays in place. That matters.
So if you’re thinking about a leadership change, while there is always risk in upheaval, if (1) the company truly needs a new direction and (2) the rest of the team is capable, then you can probably make the change. If those things aren’t true, you should probably stick with what you have and work on building out the team instead.
– Tim
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