Do CEO’s Overcompensate for Their Strengths?

As I sit in the Seattle airport waiting to board my delayed flight to Anchorage (Dear Alaska Airlines: Since it’s a “mechanical delay”, please feel free to delay it as long as you want until you are absolutely sure the airplane works), I was pondering a conversation I had at the very end of Gnomedex with an entrepreneur that I’d met for the first time.

We had a good chat about his business (definitely interesting stuff) and then he asked me a few questions.  One of them was something like “what are the characteristics of the best CEOs that you’ve worked with”?)  This was in the context of him currently being a CEO, but feeling like he should ultimately be the CTO and was starting to think about bringing a CEO into the company.

While answering this question, I commented that the “not so great” CEO’s often “overcompensate for their strengths.”  I guess this was either a good sound bite or an incomprehensible comment because he stopped me and asked me to tell me more about what I meant.

CEO’s of entrepreneurial companies tend to come from five backgrounds: (1) random, (2) engineering, (3) sales, (4) finance, and (5) operations.  Forget about random, or the first time entrepreneur / CEO – let’s just focus on the experienced CEO that is hired into a company or is a first time CEO, but multi-time entrepreneur.  Let’s also talk only about the “not so great ones.”

In these cases, the weakest part of the leadership of the organization is often the CEO’s strength.  So – a CEO that used to be a VP of Sales often does not hire a strong VP of Sales.  Same with the ex-CFO – his CFO tends to be less experienced.  The engineering oriented CEO does better, but often ends up with several “engineering leads” rather than a super strong VP Engineering.

Now – this doesn’t always translate into a weak organization below the leadership.  For example, while the sales oriented CEO might hire a weak VP of Sales, he overcompensates for this, spends a lot of time “leading sales”, and ends up with an effective sales organization.  However, the CEO neglects other parts of their organization because he spends to much time on sales, and as a result is a less effective CEO.

I’ve experienced this a number of times.  I amusingly recall a discussion I had with a first-time CEO of one of the companies I had done a first round investment in.  He was a very experienced COO / CFO of two previously successful startups where he was a founder.  This was the first company that he’d founded as a CEO.  For the first six months, the financials were extraordinarily well analyzed, the board packages were beautifully done, and the processes within the company were rock solid.  However, we were making less progress than we would have liked on the product, the strategy, and the early customer relationships.  At some point, we had a hysterical conversation in a board meeting where I said something like “dude – the financials are irrelevant – I know you have $1.5m in the bank and are spending $150k / month ramping to $200k and I can figure out the number of months left before you slam into the wall.  Ok – that took 15 seconds.  Let’s spend the next 1 hours, 59 minutes, and 45 seconds talking about what we are going to do to make this business great.”  Fortunately he immediately got what I was trying to say.  The last two years with him at the helm of the company have been very satisfying.

If you are a CEO, step back and think about your historical background / strengths. Then – think about the person you have in the VP of Your Strength role.  Is this person an absolute superstar?  If so, get out of her way and spend most of your time on the other parts of the business that you might be less comfortable with.  If not, go get a rock star for this position so you can stop overcompensating.

  • http://briorealty.com Jonathan Washburn

    What a great post! Sure to become a classic.

  • sigma

    NICE observation. Quickly observed — from what some relevant
    fields would call ‘participant observation’ — from a
    relatively small sample size, e.g., less than thousands,
    crisply formulated, and clearly described.

    Likely the observation could be made still more precise, e.g.,
    quantitative, and carefully tested. People who work in
    ‘organizational behavior’ and/or ‘public administration’ might
    like to hear about the observation, do the quantitative
    ‘modeling’, gather more data, and test the model.

    It may be that you have rediscovered something already well
    studied in the literature of organizational behavior and
    public administration, and I do not know those fields well
    enough to say. My knowledge of those fields is just by
    ‘osmosis': My wife got her Ph.D. for her research on a
    problem in ‘organizational behavior’ of leaders of
    organizations; my brother’s Ph.D. is in political science, but
    he has taught ‘public administration’ at the graduate school
    level.

    You have a nice observation.

    For more, assuming that good modeling and testing do not
    reject the observation, (1) what are the ‘reasons’ for this
    CEO behavior and (2) what should CEOs and superstars do?

    For (1), a first guess would be ‘CEO ego’.

    For (2), setting ego aside, knowing just what to do is not so
    easy:

    Suppose the CEO’s field of specialization is field X. Suppose
    that the value of the company is heavily dependent on the
    CEO’s own work in field X, work likely proprietary to the
    company. To be interested in the company at all, we have to
    assume that this work by the CEO really is likely powerful and
    valuable.

    So, the CEO tries to hire an “absolute superstar” as SVP of X.
    The superstar candidate might ask himself: (1) Generally the
    CEO doesn’t need my help in field X. (2) Specifically, for
    the CEO’s work in field X crucial to the company, that work is
    already done, accepted as powerful and valuable, and key to
    the company, and the company does not need superstar
    contributions on that work. (3) I need to build my career,
    make superstar contributions, become a crucial, valuable, key
    player in a company, get stock options, etc., and how am I
    going to do these things in this CEO’s company? If I just
    pursue various small topics in the CEO’s work in field X, then
    I will not be seen as making superstar contributions or as a
    key player. If I pursue other work in field X, then I will
    have to be talking the company at least into adding to,
    necessarily in some sense changing, the focus of the company
    where the company has already accepted the work of the CEO as
    being the focus. This effort promises to fail and also leave
    me not seen as making superstar contributions.

    The CEO may say to the superstar candidate: “You have an
    excellent background, are clearly a well-trained expert in
    field X, also with good practical experience, have shown a lot
    of energy and initiative, and have done powerful creative work
    in field X. What would you think about making your career
    here a concentration on the part of field X we have decided
    is the focus of our company?”

    Both the CEO and the superstar may conclude that there is not
    a good ‘fit’ for the superstar as SVP of X at the CEO’s
    company.

    Again, knowing what the CEO and superstar should do is not so
    easy.

  • http://www.rebeccalaing.ca/ Toronto Home For Sal

    Now – this doesn’t always translate into a weak organization below the leadership. For example, while the sales oriented CEO might hire a weak VP of Sales, he overcompensates for this, spends a lot of time “leading sales”, and ends up with an effective sales organization. However, the CEO neglects other parts of their organization because he spends to much time on sales, and as a result is a less effective CEO.

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    It may be that you have rediscovered something already well
    studied in the literature of organizational behavior and
    public administration, and I do not know those fields well
    enough to say. My knowledge of those fields is just by
    'osmosis': My wife got her Ph.D. for her research on a
    problem in 'organizational behavior' of leaders of
    organizations; my brother's Ph.D. is in political science, but
    he has taught 'public administration' at the graduate school
    level.

  • http://www.rebeccalaing.ca/ Toronto Home For Sal

    Likely the observation could be made still more precise, e.g.,
    quantitative, and carefully tested. People who work in
    'organizational behavior' and/or 'public administration' might
    like to hear about the observation, do the quantitative
    'modeling', gather more data, and test the model.

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    Both the CEO and the superstar may conclude that there is not
    a good 'fit' for the superstar as SVP of X at the CEO's
    company.

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    It may be that you have rediscovered something already well
    studied in the literature of organizational behavior and
    public administration, and I do not know those fields well
    enough to sa

  • http://www.realestatebrothers.ca Toronto Homes

    The best CEO's know where their strength's and weaknesses are. Even when they are strong in an area, they should be hiring people that they think are BETTER than they are. It's all ego driven.

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