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"Back to the Future Again!"©
by Frank Moscow, President
The Brentwood Group, Ltd.
featured in the High Tech Advisor
We have returned to reality. New trends in attracting executive talent look suspiciously like the "old" trends. Some firms have been able not only to receive funding in the past six months, but also to achieve significant step-ups in valuation.
The pundits and historians will have the last word on our collective folly and "irrational exuberance" over the last few years. The big question for those who are building companies now in a down market is, "What's working today and what can we learn from those examples?" We have observed three trends in executive search that make a real difference in both the likelihood of funding and the level of future investment valuation.
Trend #1 - REVENUE - To focus on revenue, hire a world-class vice president of sales. The old cliché is true - "Nothing happens until somebody sells something." There will never be a path to profitability or anything resembling bottom-line performance without the top line.
A small emerging-growth enterprise software company in Seattle had five salespeople on its team. None of those five, including the manager, had ever closed a major enterprise software deal. Great technology and no revenue yielded a common result in this market - a company struggling for its next round of financing.
Contrasting the above company with Tripwire, Inc. (a Brentwood Group client) is illustrative. Tripwire raised $24 million in December 2000 at a 5x step-up in valuation from a previous round concluded less than 12 months earlier. While the two companies had some similarities, the biggest difference was that the Tripwire CEO and founder, Wyatt Starnes, made the hiring of a world-class vice president of sales a top priority. This VP of sales had significant leadership experience building successful teams (in a sales model like Tripwire) that closed multimillion-dollar enterprise software sales.
Mr. Starnes commented, "The CEO of a pre-profit company must keep a vigilant eye on financing activities. To enable this focus, it is crucial to have an experienced senior sales leader in place. This allows a parallel process to occur where the CEO can focus on raising money at maximum valuations, while the sales leadership executes against the plan and expectations that were set. The key factor in the success of this funding round was meeting sales expectations while demonstrating bench strength of the management team."
The message is clear-while great products, branding, and positioning are all important, the ability to drive revenue is the critical element in achieving an initial funding or follow-on investment.
Trend #2 - EXPERIENCE - Gray hair is great! "I want a CEO who has successfully and profitably grown a business," lamented a Seattle venture capitalist, "not a 'twenty-something' founder who has never managed through tough times or made a profit."
The medical mavens explain it this way - they can teach someone how to take out an appendix in 30 minutes, but the eight years of medical school are essential to knowing what to do when something goes wrong. What are boards and CEOs looking for? In a word, EXPERIENCE - knowing what to do when something goes wrong; the ability to evaluate different options, make tough decisions, and manage the business for growth and profitability. They want a CEO with maturity and a track record of success who will hire proven vice presidents in their functional areas. They demand the battle scars, knowledge, and confidence gained from successfully overcoming major obstacles and soft markets and still finding a way to win. After a three-year anomaly, the traditional skills and experience of leading and scaling a business are back in high demand.
Trend #3 - MATCH THE CANDIDATE REQUIREMENTS TO THE REALISTIC BUSINESS NEED. Accomplish this by asking "why?". Why demand to hire a CEO who has IPO experience at the pre-revenue stage? Why require a CFO who has gone public when the likely exit strategy is acquisition? Why hire a VP of sales, marketing, or engineering without success as a senior leader (VP or director) in his discipline?
Too often, the specifications on the candidate requirements don't match the realistic business plan. This seems obvious, but you would be surprised how many pre-revenue early-stage companies required a CEO and CFO who had IPO experience and at the same time hired a VP of sales, marketing, or engineering who had little appropriate senior leadership experience in his/her functional discipline.
The early stage companies that are following these principles are the firms receiving investment dollars today. This isn't anything new - just solid business fundamentals applied to your executive search strategy that make a real difference.