By Mike Reid, Managing Partner of Frog Capital
Building a successful tech business is tough. Very tough. The start-up phase is challenging, but scale-up is even more so. Anyone in doubt should read Ben Horowitz’s Hard Thing about Hard Things, which describes his journey building Netscape.
Any CEO wanting to scale their business needs to ask themselves: “Am I good enough to make this transition?” Similarly, any potential employee, investor, partner and acquirer needs to ask “How can I tell the difference between a great CEO and someone who may prove not to be?”
Most people rely on gut feeling when it comes to these judgement calls. “He’s a great guy”, “She’s a strong leader”, “He hasn’t got what it takes” etc. In these judgements, there’s an illusion of instinct, experience and wisdom all aligning perfectly. Daniel Kahneman’s book Thinking, fast and slowmethodically reveals how unreliable one’s instinctive judgements can be, however smart or wise you may be.
Mindful of the element of human errors of judgement in investment decisions, when launching Frog Capital, we looked deeper to understand what 50 years of private equity and VC experience showed. There isn’t much proper academic research on the subject, but there is some. NVCA (North American VC Association) 2001 & 2010 and Kaplan 2012 are the best pieces of work.
There are six key takeways:
1. Being a Scale-Up CEO demands skills across a broad range of areas. It is a far broader and much more challenging role than it is at the early stage. The transition from start-up phase to scale-up CEO is substantial as outlined in a previous blog of mine. Part of the reason why we call ourselves the CEO’s VC is to send the message that we have the time, experience and methodology to support scale-up CEOs at this testing time.
2. The attributes shown in the table accompanying this post are the key attributes that matter, according to Kaplan. After working with this framework at Frog for many years, it IS a good list.
3. A good CEO needs to be pretty good at ALL these things. You can’t be great at some and completely useless at others. It doesn’t work.
4. The number one attribute is ‘Hiring (and motivating) A Players’. Your most important job. Number two is Holding people to account and removing underperformers. Number three is being ‘Open to criticism’.
5. Comparing CEOs who were very execution oriented and those who were very interpersonally oriented, the Execution focused CEOs performed better. Which leads to an unnerving reflection by investors that the best presenters are not necessarily the best CEOs.
6. There is no one perfect model. We all know that. With the vital element of self-reflection, good teamwork and the ability to adapt, Europe is developing an excellent cohort of Tech CEO talent. Together with Frog’s Scale-Up Methodology and being the CEO’s VC, we look forward to developing even more.