Some CEOs fail because they like to live in survival mode. You should learn to identify these CEOs before you work with them, invest in them, or take any risk with them.
They are often charismatic, with a successful history of sales and business development behind them prior to becoming entrepreneurs. Sometimes this talent helps them to close investment capital, sometimes only deals.
They seem to listen, and even agree that cogent advice is correct, but they rarely act on these valid suggestions.
So beware. And ask yourselves these questions before you commit to them:
- How long has it taken to launch the product, or to close the first customers for a service business?
- How much does the CEO seem to enjoy the drama of the struggle?
- When the CEO points out that his mortgage is in default and he hasn’t taken a paycheck in months, watch to see if there are any direct consequences from these conditions (see Being Darth Vader http://bit.ly/dwDNIh), and wonder if these comments can be true.
- How long has the staff been underpaid?
- How clear has the CEO been to his underpaid staff about the financial conditions of the company? Has his optimism outweighed his clarity in his communications to them?
- What tangible business results can be listed, and how quickly did each of these results occur in sequence?
- Does the CEO understand his financial situation? Is he able deliver quick answers to simple questions about burn rate, run rate, cost of customer acquisition, break even, profitability, and the current condition of the cap table?
- Does the CEO say he must work on the financial projections, or is working on them, but you never see them?
- Has the CEO paid his required payroll and corporate taxes? If not, how long has he been in arrears?
- Does the CEO ever brag about beating the system, or end-running some law, or dismiss the importance of any compliance that can shut down the company?
There are some very intelligent entrepreneurs out there who actually cannot make a timely decision about focusing on a target market for their product development, and take years to launch. They can live hand to mouth, with a long-suffering staff, for years. They can raise capital, but usually lose control of the company early on. The newly invested money starts a new cycle of optimism, and adds more folks believing in the vision and hanging on to a company that cannot gain traction, or scale.
The warning is this – you can get involved (as an employee, consultant or investor) in these businesses and with these CEOs, and lose many years of opportunity for involvement with successful other ventures, appropriate compensation and ROI. Careful due diligence will help keep you away from this trouble.
My thanks to my colleague VG for the idea for this posting.