The chasm between seed and growth-stage companies is about more than just revenue. At the seed stage, you’re looking at fewer than 25 employees, a CEO that does it all and less than $2M in funding on average. By the growth stage, however, that team has often doubled in size, sales are increasing exponentially and capital is being invested into the business specifically to accelerate that growth.
It’s impossible to expect the same executive leadership team (ELT) to excel in both environments, and there are several points over the evolution of a business that the collective strength of once effective leadership team may wane.
That's why it's so important for CEOs to not only understand the full life cycle of their business -- from seed, to startup, to growth, expansion and maturity -- and know exactly where they are on that continuum at any given time. It’s also about making tough decisions in the moment and remaining laser focused on moving the company to the next stage in its development. Is ELT change inevitable at every high-growth company? Not necessarily, but pretty likely.
I spoke with Bob Farrell, Chairman and CEO of GlobalTranz (>$1B in 2020 revenue) and Milind Mehere, Founder and CEO of Yieldstreet ($178M raised through Series B), at our recent CEO Forum about when, why and how to up-level the leadership team at a growth-stage company.
Here are the top takeaways from their conversation:
The right team at the right time: For founders and ELT members, it’s important to understand what everyone’s strengths are and how those tie into what’s best for the company. Too often, founders focus on control and outcomes and overlook the real impact their actions are having on the company as a whole. That’s why it is so important to consider the life stage of the company when deciding what the right team looks like to execute at each stage. ELT change isn’t always inevitable, but every decision needs to be based on what’s in the company’s best interests, at that particular time and into the future.
Milind saw this in action at his previous company, Yodle, which grew to 1,400 employees over five rounds of fundraising, in the process outgrowing a number of Series A- and Series B-focused executives. As he explains: “When you are managing a 200-person organization as a VP of Sales, it's a very different ecosystem from your first VP of Sales who may be managing a 20-person organization.”
Culture over performance: It can be easy to assume that performance is the top criteria in determining the makeup of the ELT, but the reality is that the majority of executive changes have very little to do with performance. More often they are tied to culture fit or compatibility with the overall strategy. When a leader doesn’t fit into what the company is doing or where it is going, it’s on the CEO to recognize those shortcomings and make a rapid change. Top performance isn’t worth it when someone is hurting the company’s culture, stymieing its ability to get into new markets or making other team members feel overly uncomfortable. Archetypes most commonly found in growth-stage companies are featured in the chart below.
At one company where Bob was a director, for instance, the CEO’s performance came into question. In the course of that investigation, however, it came to light that he really didn’t know how poorly the individuals under him had been performing. That left it up to the board to force the issue, spend time working with him and asking tough questions to get the CEO and the company realigned with the customers in order to turn things around.
There’s no such thing as ‘too soon’: The CEOs that we spoke with were clear: You’ll never regret moving to change up the ELT too fast, but you’ll always regret taking too long. One of the clearest signals is when the board starts to ask pointed or more subtle questions about the makeup of the ELT. That is usually a sign that the directors are observing sub-optimal performance at the ELT level that the CEO isn’t yet seeing. Boards typically have an outside perspective that can often more objectively look at the situation than the CEO who is in the battle every day, side by side with their teammates.
Still, these decisions come with their own challenges, according to Milind. Even knowing that timing is critical, considerations like loyalty and budget play a role. It’s the job of the CEO to remain objective and not fall in love with his early set of leaders, but he also has to be practical and think about the talent he can attract with the budget he has today versus six months down the road. “It’s an interesting dichotomy,” he says. “I know I want to move fast, but can I move fast now with the constraints that I have?”
Want to listen to view the full session? You can access it here.