It isn’t easy to pick the right people to work with a company. Jim Huston & Richard Yen of Blueprint Ventures shared a few suggestions with Venture Capital Journal subscribers this fall. –Alex
Picking the Right CEO can be Risky Business
It’s as cliché as anything in the venture business—without a good CEO and strong management team, an emerging business is doomed. Of course, a successful venture has many elements that must work together: people, huge market size, defensibility and potential of the technology, and deal structure. And it’s not enough to just get some of them right—you have to get them ALL right or you risk ending up with a doughnut. But people are really the most important element, at least initially when the venture is at its most formative stage. As legendary investor Arthur Rock once said, “I invest in people, not ideas. If you can find good people, if they’re wrong about the product they’ll make a switch.” And of all the people, the CEO is, well, “da man” (in the generic sense, of course).
So what makes a good CEO? And how do VCs decide which CEOs to invest in, when to push a CEO out, and what to look for when recruiting a new CEO? Inspirational, articulate, relevant domain expertise, proven track record, adaptable, confident yet humble … the list could go on. Warren Buffett has some very sound advice here: “In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.” That’s especially true for a CEO.
Gut check time
But these are really just attributes or personality traits. Type in “CEO” on Amazon.com and you get more than 57,000 hits—and that’s just for books. Maybe the magic formula for the perfect CEO is in one of those books, but don’t count on it. Maybe you give all potential (and current) CEOs a Myers-Briggs personality test in the belief that there is an ideal CEO “type”. Maybe, schmaybe. The reality is that after all the due diligence calls and reference checks and personality tests or whatever, it ultimately comes down to gut feel. Do you think that this person can inspire and lead the team, win customers and make the tough decisions that lie ahead?
In many ways, the role of VCs and their relationship with a CEO is analogous to that of movie studios and their relationships with movie stars. Of course, while some VCs may secretly dream of attending an opening night—or better yet, the Oscars—with a Charlize Theron draped on their arm, our reality is a bit more mundane. But the recent public breakup of two Hollywood stars got us thinking about the similarities between making movies and building emerging businesses. And no, we’re not talking about the breakup of Jessica and Nick or Jennifer and Brad. Those are all so yesterday. No, we are referring to Tom Cruise getting publicly bounced out of Paramount by Sumner Redstone.
For years, Tom Cruise has been nearly a sure thing, guaranteed to deliver a nine-figure box office. But in mid-August, Redstone said sayonara to his Top Gun Samurai, ending a nearly 15-year relationship that had brought an estimated $2.5 billion to Paramount and hundreds of millions to Cruise. And this very public firing came not as a result of recent duds at the box-office—Mission Impossible III has now taken in almost $400 million worldwide and is the only Paramount movie anywhere near the Top 10 worldwide box office gross this year. No, it had to do with TomKat’s rather erratic behavior of late, such as manically bouncing on Oprah Winfrey’s couch as he sang the praises of Katie Holmes, publicly campaigning for the Church of Scientology, stumbling in the parent of the year sweepstakes with his bizarre baby Suri antics, and some rather harsh comments toward Brooke Shields about psychiatry and antidepressant drugs. Now TomKat is saying that he plans to finance his future movies through hedge funds. LPs, you might want to at least ask for opening night tickets because that may be the best return you’ll get on those investments.
There actually are a number of similarities between the movie business and the venture business. For a movie producer, his mission critical tasks are selecting a script, raising the financial backing to get it done and selecting a director and the lead actor(s). For the VC, his mission critical tasks are to raise a fund, select entrepreneurs to invest in, and then work with those companies to get them to an exit. For both producers and VCs, the Mission Impossible is getting it right every time. Firing a CEO is actually one of the only real control levers a VC has in a company. And just like Redstone cut bait with Cruise before that asset headed south, timing is everything. As the NY Times pointed out on Aug. 28, Redstone’s decision may have just been a cold, hard calculation that Cruise was no longer worth the expense. “Who knows what went through Mr. Redstone’s mind?” said Jehoshua Eliashberg, a professor at the Wharton School. “But one can’t discard that the reason is that it doesn’t make economic sense to pay him all this money.”
For fun, we at Blueprint Ventures considered all of the CEOs we’ve worked with and sorted them into the following categories. To keep it interesting, we matched up the categories with Hollywood stars.
- Stud CEO. Tom Hanks, Julia Roberts, Will Smith. These folks are sure bets to deliver a hit. They’ve got a proven track record, have made a lot of other people rich, are charismatic and have the right connections, haven’t made too many enemies, and yet still have that fire in their belly. Basically, they walk on water. Of course, all it takes is one bad day on Oprah (or more likely Moneyline) and your stud CEO can become a has-been.
- Experienced CEO. Harrison Ford, Robert Redford, Jack Nicholson, Meryl Streep, Susan Sarandon, Diane Keaton. Senior, solid sector experience, knows how to run a company. Good CEO to have IF still hungry and not priced out of the market.
- Salesy CEO. Robin Williams, Cuba Gooding Jr., Jim Carrey, Jennifer Lopez. Larger than life, visionary, PR machines and highly energetic. May be great motivators, but not always the best day-to-day executors and may cause dissension internally because they aren’t engaged in operations and can be perceived as too egocentric. Our experience is that this kind of CEO can work well if combined with a very strong No. 2—someone who really is the operations guy. This kind of combination can also work well for an offshore company (e.g. an Israeli startup) that is moving headquarters to the U.S. and keeping its development team in its home country.
- Efficient CEO. Clint Eastwood, Donald Sutherland, Martin Sheen, Julianne Moore, Jodie Foster. Organized/detailed, thoughtful and executes, but can get lost in the spotlights. As a director, Eastwood is legendary for bringing his pictures in under budget and under schedule. Much like the Salesy CEO, this CEO may need a strong No. 2—except in this case the No. 2 needs to be faced more externally.
- Young CEO. Elijah Wood, Daniel Radcliffe, Natalie Portman, Keira Knightley. Still haven’t proven they can do it on their own, but they have shown lots of promise in past ventures. Smart and talented, but best if surrounded by the right senior team. The trick here is to get them through the inevitable first-time CEO mistakes with as little disruption to the company as possible. The risk is ending up with a 20-something Macaulay Culkin running the company. Not pretty.
- Well-connected CEO. Kevin Bacon has become famous for being well connected to other actors. There was even a website called the Oracle of Bacon that played the Six Degrees of Kevin Bacon Game by calculating the shortest number of linked steps between any two actors. While it is good to have a CEO who is well connected—or a “connector” as described by Malcolm Gladwell in the Tipping Point—this is not a strong enough lead characteristic for a CEO.
- Lucky CEO. The luckiest actor has to be Orlando Bloom. The guy is a complete lightweight and yet he has hitched his wagon to two of the biggest money making franchises in Hollywood: “Lord of the Rings” and “Pirates of the Caribbean.” Sure Napoleon said he’d rather have lucky generals than good ones, but when picking a CEO, we can’t bet on luck.
- Bad Boy CEO. Russell Crowe, Colin Farrell, Lindsay Lohan. You might get a hit, but the cost and risk-adjusted reward are just too high.
So how did our CEOs fit into the above categories? If you want to know the answer, you’ll have to get to know us better. Let’s do lunch sometime.
–Jim Huston & Richard Yen, Blueprint Ventures
Jim Huston is a managing director with Blueprint Ventures. Huston focuses on software, wireless, security and IT and communications infrastructure. He is a 20-year veteran at Intel Corporation and was most recently Director of IP Acquisitions at Intel Capital. He may be reached at firstname.lastname@example.org. Richard Yen is a Principal and Kauffman Fellow with Blueprint Ventures. Yen focuses on infrastructure software, wireless technologies and consumer Internet. He may be reached at email@example.com.