Thank goodness for the so-called ‘unicorns’ of the knowledge economy. They’re the ones powering innovation, transforming markets—or creating entirely new ones—and helping their CEOs become ultra-wealthy rock star business luminaries along the way. But sometimes when their companies grow quickly, those magazine cover-worthy leaders run smack into an insurmountable wall of managerial challenges. That’s when their acumen, or lack thereof, is put to the test. At that point, they face an agonizing decision: proceed by hiring the right C-suite help, or fire themselves to avoid impeding the organization’s growth (or collapse)?
Now you’re beginning to understand the predicament that faced Adam Neumann, the former CEO and co-founder of the transformative co-working office proprietor (and investor darling) WeWork. He’d managed to achieve otherworldly status as one of those C-suite shining stars. His company—recently valued at a cool $47 billion—is the largest single office lease holder in Manhattan, as well as other leading business capitals. His vision was to turn WeWork’s parent We Company into a force for change, not only in how people interact in the workplace, but in everyday life. When he spoke, people listened.
Apparently his board of directors didn’t like what they were hearing.
Adam Neumann ousted
Because now they, with the support of his once-enamored investors, have jettisoned the young leader in favour of co-CEOs who presumably have the managerial chops to take the company from balance sheet basket-case to bottom-line success story. News of this slow-boil mutiny comes after the company fabulously flubbed its recent initial public offering. It turns out many savvy retail investors balked at the WeWork’s valuation. Why? The company reportedly holds more than $18 billion in long-term leases, but can’t manage to turn a profit. In fact, it’s losing hundreds of millions of dollars each year. Worse, it relies on two-year commitments from its SME tenants and has poured about $13 billion into improving its properties.
Investors don’t mind operating at a loss for a while. But if they can’t see a break in the financial clouds, they will lobby for change. At some point, the proverbial adults in the boardroom realized they needed someone with more expertise, more executive substance, to lead their company.
Owners of fast-growing, medium-sized businesses sometimes arrive at the same fork in the road. While many have the financial and operational prowess to usher their business to maturity, they often lack what it takes to go the extra mile alone. Maybe you’ve found yourself at just such a professional impasse.
With rapid growth comes fast-mounting challenges
Even entrepreneurs, who have taken tremendous personal and professional risks to start and grow their businesses, need to understand that taking a business from small to medium to large in size (perhaps even public) requires the help of a team of experienced leaders. A top executive team can implement the kind of corporate governance structures that sophisticated investors need to see during their due diligence process. They simply won’t invest more until they’re confident that a reasonable return awaits.
Don’t need extra capital, or care what a potential investor thinks of your balance sheet? That’s fine, but simply managing a much larger company requires an entirely different skill set, from human resources compliance and financial risk management to sales and marketing strategy. Virtually everything is different. Sweat equity and keen entrepreneurial instincts won’t usually cut it when you’re managing the growth of a company of 100 people or more.
Addition by subtraction
While it may sound counterintuitive, that’s why all but a small handful of CEOs need to know when to fire themselves. Maybe not from the company, of course, but as its operational leader. Perhaps that means taking on a different role, such as chairing its board of directors, then handing over CEO duties to someone else. Or maybe you simply enlist outside professionals such as an experienced CFO to help manage key financial or other functions to supplement your expertise.
The point is that visionary entrepreneurs need to continue growing as individuals as their business achieves new levels of success. The epitome of managerial maturity is acknowledging when you can no longer do it all alone. Or, that you don’t necessarily have the skills to drive your business forward. In the end, it seems Neumann reached that level of maturity in his waning days as WeWork CEO. Reports indicate that he ultimately voted to remove himself as leader of the company he founded.
We’ve worked with many top business owners over the years who have made this tough decision and watched their businesses achieve excellent growth as a result—even without them handling day-to-day decision making. In most cases they were still deeply involved in the business, keeping a close eye on the books and helping to set (or at least approve) the strategic vision. But they were all careful to follow the advice of their leadership team, the ones who had done it before and could repeat those past wins.
Investment comes with opportunity, but also pitfalls
As WeWork’s Neumann found, investor dollars always come with strings attached. An experienced board of directors will ask hard questions: Didn’t hit your quarterly revenue targets? You’d better have a good explanation why. Recession putting a damper on growth? Tough—find a way to keep the party going. Exhausted by the demands of running an even faster-growing business? Too bad. If you can’t hack it, they’ll find someone who will.
In other words, investors bring a whole other level of corporate scrutiny as compared to when you were the sole owner and operator. That’s why the decision to take on investor capital is one that shouldn’t be taken lightly. Investors won’t hesitate to make managerial changes if they think the CEO isn’t up to the task—even if that CEO is also the company’s founder. Just ask Neumann.
Of course, shareholder agreements are typically structured to ensure the founder retains control of the corporation. But that won’t mute a skeptical board’s prying strategic inquisition. It also won’t stop those same investors from turning off the cash spigot when they become disenchanted. Hiring professional executives to run the company can help buffer that scrutiny and assuage investor concerns.
Your interests may evolve (and that’s OK)
A funny thing sometimes happens en route to the entrepreneurial promised land. Some business owners tire of their own business. They may love the people, the customers, the rush of growth and success, but the grind wears them down. Others become financially successful and dabble in side businesses or philanthropic pursuits that eventually consume their attention.
Take those aforementioned rock star CEOs. Some of them morph into philanthropists or entrepreneurial gurus who spend more time talking about their businesses or their preferred social causes, than actually running a company. Neumann, Twitter CEO Jack Dorsey and others of their ilk have been criticized for allowing their focus to shift from their core entrepreneurial pursuits.
The very best leaders know when to have a conversation with themselves to determine whether running their business is really what they want to be doing. Finding out that it’s not is perfectly acceptable—even preferable. At that point they can either choose to sell, hand the reins to family members through a comprehensive succession plan, or take on a figurehead role after hiring professional managers to handle the rest.
Having that awareness and being committed to understanding your personal goals, ambitions and professional limitations is just as important to business success as making smart strategic decisions. Maybe more so.
Marshall Egelnick, Managing Partner