‘Tis The Season To Change The CEO

December is the month when (venture backed startup) boards tally up performance for the year and compare it to the plan (er…fantasy) you gave them back in December of last year.  If the actual is some small percentage of the promised and this is the second or more time this has happened, then the board is seriously trying to figure out what to do.  And odds are that replacing the CEO is at the top of the list.

Why is that?

Well, from the board’s perspective (particularly the VCs on the board), what else can they do?  There are basically only two remedies that startup boards have to any particular problem: (1) invest more money or (2) replace the CEO.  That’s it.  The first time the company misses plan, they are implicitly agreeing to invest more money.  The second time they often decide to do both.

So what can you do if you’re facing this scenario? Well, in my view you have four options (pardon the war analogy):

  1. Cower in your foxhole.  This is the do nothing strategy…basically you are biding your time waiting to get shot.  Most often when I have seen this happen is when the CEO is unaware of what is going on.  It could be he/she is working 20 hours per day trying to make the numbers or it could be they just don’t understand the board’s responsibility.  In either case, inaction is a decision to put your fate in someone else’s hands.  In this case you probably get a pity-payment and a neutral future reference.  My only advice in this case is to not be surprised.
  2. Jump on the grenade.  Similar to what you imagine, this is the scenario where the CEO proactively goes to one or more board members with a message of, "I’ve lost my footing and here’s what I think we should do."  And that suggestion is to replace the CEO and probably transition himself or herself into another role within the management team or to do an orderly transition out of the company.  Depending upon the personalities involved and how much water has gone under the bridge, this is usually one of the best outcomes: the company avoids trauma, the management team remains motivated and everyone has hope of strong future financial returns.  And despite the title, sometimes the CEO lives to fight another day.  Overall, you’ll end up with a positive reference for future fundraising.
  3. Banzai charge.  In this scenario you basically go nuts, charge the lines and hope to take out a few of the "enemy" in the process of getting killed yourself.  I’ve seen this go down when there is too much water under the bridge…basically the board and the CEO have drawn two lines in the sand and they have burned all their bridges.  Usually lawsuits (or threats thereof) fly back and forth.  The bummer about this scenario is that it is the worst on the company and the team.  As CEO, you might get some greenmail out of it, but you damage the company and you end up getting a crap reference (i.e. it’s hard to raise money again).
  4. Recruit new troops and organize a counter attack.  I have seen this work, although it is very difficult to pull off.  Basically, you need to hire some strong, seasoned second-level managers (C-level folks) and put together a plan that is ultra convincing.  Another angle is to pull off some super-big deal (investment, partnership, sales, etc.) that gives hope of achieving next year’s plan.  Done well, you keep your seat, the company thrives and everyone makes money.  I make this sound easy, but in reality you have to break some eggs and bully your way into this because the "easy path," particularly for VC-stacked boards, is to pull the rip cord.

Anyway, that’s the scoop.  Good luck!