Of all the characteristics of success for CEOs, the most critical is their domain expertise –whether it is technology, retail, green/clean or bio-tech. And that domain expertise should be specific to the product being built or the service being offered — software development, social media, SaaS, medical devices, bio fuels, and so on.
If the CEO does not have this precise domain expertise, then a full or nearly-full partner must have it, bound to the Company by significant incentives like stock ownership or vesting, a voting position in decisions, and so on.
I have worked with a CEO recruited into early stage software companies who came from the semi-conductor industry, and found myself educating them on the difference between intellectual property companies vs. chip companies – a difference that goes far beyond the cost of goods required. These two industries have different and sometimes conflicting world views.
Another time I worked with a highly intelligent and successful attorney, with legal experience in transactions of early stage software companies. Trouble is, nothing that trains an excellent attorney is the same as training an excellent CEO. Attorneys live in cooperative and mentoring environments. Until they are senior partners, they do not hire or fire, sell , market or handle complex budgets. They manage neither teams nor product development. They may understand the workings of an early stage company, but as attorneys they are always outside of it.
One client had deep domain experience in the end-to-end management of his industry. So he decided to accept an offer to fund the development of an enterprise software product that would replicate his experience. He even had an excellent reputation and a golden rolodex into which to sell the product (and an expertise in deal making). Trouble was, as he freely admitted, he knew nothing about either software development or the sales cycle of an enterprise product.
The learning curve for domain expertise is very long, and early stage companies do not have time for many errors. And, to lead, the CEO must be ahead of all learning curves, not catching up. Before taking the lead position, the CEO should have completed his or her “10,000 hours” (as referenced by Malcolm Gladwell in his book Outliers, based on a study by Anders Ericsson).
Operations, sales and marketing excellence can be hired — and of course, expertise in the Company’s niche is necessary here. But there are more candidates for these positions than for the CEO role. Even startup expertise can be hired as consultants (as long as they have completed their 10,000 hours).
Some of the CEOs in the descriptions above succeeded, some did not. The lesson here is that, if you are the CEO, build a product or service business directly in line with what you know. If you have founded a company, and it is time to add a CEO or replace yourself, look long and hard for the best candidate with the appropriate expertise, and additional experience in the growth stage of your company. And stay involved. Many successful startups fail upon this change in the CEO position.
And if you have domain experience but not the technology experience, find a partner with the appropriate expertise. Do not “hire out” your R&D to consultants, freelancers, or offshore talent in place of a significant partner, fully invested in the Company, clearly incented to stay for the long haul. From my years of helping CEOs start technology companies, I find that those CEOs who believe they can build technology without prior experience risk the highest failure rate.
Be careful starting out — early stage companies take longer to succeed (or fail) and more capital than you expect, and your deep domain expertise will keep you on the winning side.