Most of us are familiar with the classic book “Crossing the Chasm” by Geoffrey Moore. The book discusses how a company has to cross a chasm between early adapters and early majority customers. This article will explore the big stage-based chasm that first-time CEOs need to cross for the success of their company. This chasm is about the incredible growth required at a critical stage of the company’s growth.
We all recognize that being the CEO of an early stage company is difficult. Everything you do, you do for the first time. And, the CEO role evolves over time as the company matures. However, what most people miss is that the evolution of the role is not linear and that there is one particular area where CEOs constantly drop into a chasm. There is an inflection point where the role is far more difficult and challenging than in the past. It is important to begin by understanding the various stages of the CEO role.
For purposes of this publication we will assume that there are (at least) 5 levels or stages of the CEO role. They are:
Stage 1– Product conceptualization. Determine and understand the customer problem and the solution and have a vision for the product.
Stage 2-MVP. Build out the product. Build an MVP or minimally viable and salable product. This is fundamentally a product development job
Stage 3– Early customer acquisition. Use your sales skills and contacts to get your first several sales AND get them to be reference customers to match your message. If you can’t sell it, probably no one can.
Stage 4– Scale. (Warning: There is a lot in this stage) Here are your needs at this stage: often try to get funding or actually do get funding; develop a scale plan; tighten the market message; build solid defensible differentiation; have outcomes and benefits; build a solid and continuous lead generation plan; understand lead conversion rates; understand why you win and why you lose; build, manage to and report against a budget; know how to report to and manage a board; hire sales people; on-board people (sales, marketing, customer support, product development); formalize a sales process; handle accurate sales forecasting; perform detailed cash forecasting; handle organizational evolution and development plan; build out a customer support organization; manage exponentially more customer implementations; have a formalized product and company vision; expand product or product line.; build out scale processes; produce case studies; attend trade conferences; conduct sales webinars; improve SEO; build partnership programs, write blogs; write trade articles; have an industry influencer program; build and execute strategy; develop a true product launch plan and process; know the proper metrics that drive company value and hold people accountable for those metrics; implement formal employee reviews; develop formal employee communications plan; hire HR personnel; hire a finance team; make all the organizational pieces work together; deal with investor pressure to perform and properly report.
Stage 5– Later scale. Continue to grow. Build out differentiation to keep competition at bay. Determine “what’s next?”. Evolution of business and organization to match the company vision. Maintain market leadership. We don’t want to trivialize this stage, but it is more of a continuation of Stage 4.
There is, of course, a chasm at each level of CEO evolution. Many people with an idea can’t get an MVP built. And, many people who build an MVP can’t get their first 4 or 5 customers. (BTW, if you can’t get your first 4 or 5 sales, either there is no market for your product or you are not a very good salesperson). But, you should be able to see that the stage where the actual CEO responsibilities truly kick in are at stage four and this is where the bigger challenge occurs. This is the chasm that needs to be crossed…and most often, is not.
The skills that got you through Stages 1-3 will not get you through stages 4 and 5. It is much easier to build a product than it is to build a company around a product. And, that comes as a shock to most first-time CEOs.
It is therefore important to explore the CEO role in some detail as many first-time CEOs don’t fully understand the job that they signed up for. The CEO is responsible for:
This is what a CEO does. It is not a product development job. It is not a sales job. It is a strategy, scale, communications and organizational development job.
|A related issue is the surrounding talent and experience that you have available in an early stage company. In her book “Build an A Team” Whitney Johnson introduces us to the S Curve. The S curve is a valuable tool to understand individual growth in any position. The S curve shows how any employee (in any company) grows into a role over time. In the beginning, as the employee is learning the job, growth and learning is slow.|
However, once the employee gets more comfortable and training begins to kick in, the employee begins to accelerate their growth and learning. Finally, after a while, as the employee learns more and more, the learning/growth slows or stops. This holds true for anyone, including you the CEO.
In an established company the average breakdown of people in the various segments of the S curve are 15% inexperienced, 70% growing in their role and another 15% who are true experts and have stopped learning/growing.
However, in a start-up, the average breakdown is more ominous. In most startups, 80% of the people are either new to their role or new to an early-stage company, maybe 20% are growing and almost no one has real experience where they qualify as a master.
So, as an early stage CEO, you are surrounded by people both learning their jobs and without start-up experience. This includes you. You are growing into the role. Some entrepreneurs are blind to this fact and don’t realize that the most important person going through this process is the CEO himself or herself. Many of these people will not succeed either because of a lack of talent or because there is no one there to coach them in their roles. Many of these people are in leadership positions but are still learning leadership and management responsibilities
Now, let’s look at a different S curve. Let’s compare the individual stages of the CEO evolution against difficulty or complexity of the role. This is where the challenge comes in. If you look at the responsibilities for each of the roles above, you see that there is a dramatic increase in what needs to get accomplished in Stage 4. So, while many people think that the evolution of the CEO role is linear, it is not. It becomes exponentially more difficult in stage 4 (growth or scale stage) than at stage 3 (early customer acquisition stage).
This is where most CEO fall down. Most are completely unprepared for the challenges of growth and scale. This is the first time where they really need to be CEO. The complexity of the job is vastly increased over the prior stages.
- The complexity grows exponentially
- Everything you are doing you are doing for the first time. Most first-time CEOs gravitate to what they are comfortable with
- You are surrounded by people who are may be in start-up for the first time and therefore inexperienced at the challenges
- You are doing it as a young company that brings risk and change to the marketplace
This is much less of a front-line job and more of a management job. Many people are uncomfortable giving up control or don’t know how to effectively give up that control. They over-value their performance. They try to do too much themselves. They revert to their comfort zone rather than evolve to the next level. They become over-whelmed and depressed. This is often the first time the founder actually has to be a real CEO with true CEO responsibilities.
|Studies also show that as job difficulty grows, job enjoyment can slow or even regress. Sometimes, people get overwhelmed by the job. The follow curve shows what happens when someone is overwhelmed with their role. This happens a great deal to first-time CEOs and this is why they regress. Many people get overwhelmed at Stage 4 and simply crack. They develop a fear of being found out or what is commonly termed “The Impostor Syndrome”.|
They don’t want others to find out that they really don’t know what they are doing and are struggling in the role. But they also do not want to give up control of “their baby”.
The right thing to do is to seek guidance. But what most people do in this circumstance is hide.
The problem is that the transition from stage 3 to stage 4 is the one that requires the greatest leap in skill, knowledge and experience. It is like going from playing checkers with kids to playing chess with grand masters.
Often, the first-time CEO will offer the dilemma of false choice. For instance, they might say “What do you want? I can either sell product or do board reporting. I can’t do both.” Well you signed up to do both. If you can’t then maybe you are the wrong person for the job.
As pointed out earlier, often first-time CEO’s regress to what they are comfortable with and away from Stage 4 leadership. In this case the company limps along and never really achieves the desired success.
And, as one VC put it recently, often first-time CEOs are blissfully ignorant of the reality of the situation that they are in. This is not good for the investors, the employees or the CEO.
The solution to this problem is not simple. However, there are things that the early-stage CEO can do. One, is to spend time understanding Stage 4 and preparing for it. The other is to find mentors, advisors or consultants who have been through this before and can provide guidance. This doesn’t mean a person from a large company. This means a person who has actually gone through the transition himself or herself. But the key to this is to make sure that the CEO has a trusting relationship with this person and that you will follow the guidance provided and not to ignore it. The most critical aspect of this is understanding that building a product and getting your first few customers are pre-requisites to success, they do not ensure success. Achieving scale is not defined simply by the number of customers that you get, it is defined by revenue, profitability or cash-flow positive status. Success is normally (not always) achieved once an early-stage company can get to $1.0M in recurring revenue. It is harder to kill a company with $1.0M in recurring revenue since expenses can always be cut to achieve profitability and positive cash-flow status. But you need to properly set your sights on what minimal scale means to you and understand all of the factors required to get to that point.
What happens in the CEO evolution is that many people struggle with Stage 4 and the job becomes a chore. It is not fun anymore because it has become too difficult. Therefore, people tend to go back to when the job was more fun. However, this means that many or most of the things that need to get accomplished simply do not get accomplished and this is where the company stalls. It isn’t a market problem. It isn’t a product problem. It is a leadership (CEO) problem that causes the stall.
The good news is that once you become successful as a Stage 4 CEO, the learning curve for the future is less exponential. Keeping a competitive position in the market and fending off competition is much easier than the challenge of creating that market position. However, many people with the entrepreneurial spirit get bored with stage 5 leadership and want to go back and do it all over again in a different company.