As market conditions and capital availability change, it has become much more obvious which management teams and CEOs have been managing effectively and which have not (but have benefited from a rising tide). So, I thought this would be a good time to remind you how to be an effective CEO and improve your overall CEO skills.
The CEO has two primary roles: strategy + execution.
Strategy is the discipline of making good decisions.
Execution is making sure that the things you expected to get done actually got done.
If you make good decisions and your team executes well, you have a far better chance of being successful.
Questions to Ask to Improve Your CEO Skills
Listed below are five questions CEOs need to answer (in priority order for the CEO role specifically):
Let’s discuss each one in more detail:
What should we focus on as a company? This is the single most important question a CEO answers. Of the 100 things we could do, what is the one thing we want to focus all of our resources on accomplishing?
The mistake many less-experienced CEOs make is that they pick a generic goal as opposed to a strategic one.
A generic goal has no tradeoffs. It’s easy to agree to and requires no sacrifice.
“We want to get to $100 million ARR in five years.”
“We want to be a unicorn.”
These are financial and valuation goals.
A strategic goal is one where you decide what mechanism you will use to achieve your financial goal.
If your market has five customer segments, seven geographies, and four distribution channels available, which combination of customer, geography, and distribution channel will you use to achieve your financial objective?
If your answer is “all of them,” this is generic, has no tradeoffs, and is also not realistic (unless you happened to raise $100 million in capital, and even then, it is often not possible to do with only that amount of capital).
The key to making a good what decision is to focus on what I call a “winnable” war. You focus where you have a competitive advantage.
The market votes with its wallet. The market is merciless. It cares not about your personal sacrifices. It just wants what it wants. You would be foolish to ignore how the market votes.
If a particular customer segment really likes your company, figure out why.
If a different customer segment that you really want to pursue hates your offering, you need to figure out why.
Once you understand your company and the market, you need to place your bet. What will you focus on where you can win?
Who should you recruit or assign to achieve the company’s goal? In other words, who is going to get the what (that you just decided on) done?
If you pick the right goal but the wrong people, you will definitely fail.
This goes back to Jim Collin’s advice in the book Good to Great: “Get the right people on the bus.”
When I first read this decades ago, I remembered the phrase but didn’t appreciate it. Now that I’ve seen decades of “wrong people on the bus,” I’ve come to appreciate just how important the who decision is to effectively leading a company.
It is easy to be a CEO when you have access to unlimited capital. Any fool can deploy $1 billion in capital to make $10 million in ARR.
The hard work comes when you have a resource constraint… and you always have a resource constraint. You have a constraint in capital. You have a constraint in personnel. You have a constraint in time. You have a constraint in attention span and ability to focus.
You always have a constraint.
One of the key decisions a CEO makes is to sequence the objectives and the work needed to achieve the objectives.
If you decide a new product module makes sense, and going deeper into a particular distribution channel also makes sense, the question is when do you pursue the product investment versus the channel investment?
If you can’t do both, yet both make sense, when do you do each? Which comes first?
That is the when decision.
You ideally want to prioritize (from a sequencing standpoint) the one option that: A) Has the biggest impact on the business relative to its cost and risk; and B) Financially enables the other option.
The specifics of this are highly situationally dependent.
If going deeper in a distribution channel will provide the financial returns to invest in product expansion, then do that. If expanding the product footprint will enable a quick cross-sell to the existing customers and provide the return to fund expansion of distribution for new customer acquisition, then do that instead.
The key is to discern which decision is the first “domino” that, when tipped, automatically knocks down subsequent dominoes.
Why did you make the decisions above? This question is about providing a decision-making rationale. How do you know you made the right decision? If you have a strong board, your board will challenge you on your decision-making reasoning or rationale.
(And if you’re my CEO coaching client, I will challenge your rationale.)
Board members will not always know the right answer. But, they will quickly realize if a decision lacks rationale or has a flawed rationale.
This process is known by a lot of colloquial phrases, such as “poke holes in your thinking” or “stress test” the proposed decision. Under stress and in a vacuum, it’s easy to make decisions with poor rationale. If your decision-making process is always the echo chamber of your own mind, it’s easy to have blind spots in your perceptions, judgments, and rationale.
A third of my CEOs are hyper-aggressive and have weaknesses in recognizing and managing downside risk.
A different third of my CEOs are way too conservative. Their profit margins are too high (and they get yelled at by me for this), and they under-invest in top-line growth.
CEOs with engineering backgrounds want to solve all business problems with code.
Sales-oriented CEOs want to solve all business problems by hiring more salespeople.
Neither approach is universally true all the time.
My role as a CEO coach/mentor is to be the opposite of my CEO’s default decision-making orientation.
A good enough product with stellar go-to-market distribution and execution wins far more often than a perfect product with zero distribution.
Attempting to double and triple sales when your product has a fundamentally unscalable, unstable, and flawed technical architecture (because your original premises were wrong and you never focused on resolving the tech debt you inadvertently created) will also cause your company to fall apart.
Being an effective CEO requires cross-functional breadth. There is a time, place, and role for every functional area. Don’t try to solve an engineering problem with salespeople. Don’t try to solve a financial management/mismanagement problem with better branding.
In short, if your decision-making rationale sucks, it’s very likely the decision you’re about to make sucks too.
The final decision a CEO makes is the how decision. To be more precise, the final decision the CEO is responsible for (but doesn’t always make) is the how decision.
There are often multiple ways to achieve an objective.
If you want a particular product capability, do you build it, buy it, or license it?
If you want more top-line sales growth, do you invest in more marketing, more sales, more partners, or some combination of the three?
If you’re under $5 million in ARR, you’re likely making most of these decisions yourself. If you’re in the $20 million to $50 million ARR range, your direct reports often make proposals for how they want to accomplish a particular outcome you assigned to them.
This is what a strong VP or C-level officer should be capable of doing — proposing a how to the what you assigned to them during the who staffing process.
The mark of a good CEO in the $20 million to $50 million+ ARR is someone who can stress test, poke holes in, and otherwise challenge the rationale of the proposals from direct reports.
Now, what do you do if your company is in the $5 million to $20 million ARR range? This is an interesting time for a SaaS company.
I call it the puberty years of entrepreneurship. You have the needs of a bigger company but can’t quite afford it. Different parts of the business grow at different rates. It’s an “awkward” stage of growth.
For example, at $5 million, you could really benefit from a full-blown executive team… yet business economics rarely allow you to afford it when you’d ideally want it.
You’re often taking directors and seeing if they can rise to the occasion to be VP-level executives. One of the best ways to provide professional development opportunities for your staff to become more senior leaders is to have them make decision-making proposals.
Keep in mind that a big part of being an effective executive is making good decisions. Yet, it’s hard to get good at making decisions without having the chance to, well… make decisions.
Here’s how you close that gap.
Rather than making a decision and telling them what task to do, assign them an outcome and ask for a proposed plan.
The key to becoming a “good decider” is to be a “good recommender” first.
This is how you grow and develop high-performing individuals to become future executives.
In addition to having up-and-coming managers make more proposals, the role of the CEO changes. Under $5 million ARR, the CEO has a hand in pretty much every decision.
In the puberty years of scaling (roughly $5 million to $20 million in ARR), the CEO has to shift from making all the decisions to being an evaluator (and coach) of other people’s proposed decisions.
If every major decision requires 100 hours of aggregate work to fully research, analyze, and decide/recommend, a good CEO can review four major decisions within two hours. That’s 400 hours of complex work done by others and resolved at the CEO level in under two hours.
This is how you scale as CEO. You encourage, enable, and ask others to propose how they recommend a goal be accomplished.
If you’d like to work on your CEO skills by working with me, here are a few options.
If your company is over $5 million in ARR (or will be shortly), feel free to contact me for a complimentary assessment.
If you’re under $5 million in ARR, submit the form below to be on the notification list for classes, workshops, and training programs to help you become a more effective CEO.
How to Become a More Effective CEO