Founder Transitions & ‘The Second CEO’: Key Lessons in New Book
Authored By Eric Walczykowski
The second CEO to lead a company is a unique kind of leader, in a unique situation. There have been thousands of books written about starting a business as a founder, or being a CEO. But until now there has never been such a guide for navigating the unique challenges of succeeding a founder.
I recently sat down with Matt Sharrers (Managing Partner, ETJ Advisory) to discuss his new book “The Second CEO: Accelerating Scale When Following the Founder.” Released this month, it offers a detailed roadmap around respecting the founder’s vision while establishing one’s own culture and adding value.
You can get a copy of Matt’s book here: https://a.co/d/02lRPLig
You can see the full interview with Matt in our Tailored Talent vodcast series, here: https://www.bespokepartners.com/tailored-talent-private-equity-talent-trends-interview-archives/
Below is a summarized Q&A of my conversation with Matt.
Eric: Congratulations on the publishing of your book, “The Second CEO.” Tell me, what does it mean to be a second CEO?
Matt: The impetus and the passion behind this were there had never been a piece of work published that looked at being the second CEO of a business. When I took over for Greg Alexander, who was the first CEO of SBI, there wasn’t an operating manual that said, “Here’s what you do when the founder leaves. How do you think about culture and the way to leave your personal stamp?”
I witnessed so many conversations where I didn’t feel like the transition’s sensitivity was being considered. So, between my personal experience, and what I saw from a consulting standpoint, I felt like there was an opportunity to address a gap in the market. I spend my time now working with folks like you, Eric, who have done it multiple times. I think founders are the most amazing entrepreneurs, because nothing gets done without them. And when you are tasked with carrying on a vision, that is almost like them handing you one of their children. It’s a very, very significant responsibility.
Eric: When would you say is the right time to consider that founder transition?
Matt:
There are a few triggers that seem to be the most common.
- Founder exhaustion and fatigue:
The founder has been the person to lay out the vision, drive the strategy, recruit the people, and get it to a certain point. And as a result, they’re fatigued. - Recognition of not wanting to continue
as a CEO by default:
Self-awareness of not necessarily being the professional manager who is going to run a disciplined strategy, have a set of KPIs, think more objectively and functionally about the business, but the one who enjoys crafting a business. - Wanting a well-deserved break:
After going all in and driving hard for years, they’ve now earned the opportunity to maybe take a breath, sit back, but also be their natural self and reassess their next move.
You can see the full interview with Matt in our Tailored Talent vodcast series, here.
Eric: Talk to me about the mindset of the founder to take on all of this. Followed by your best practices as you go about your founder transitions.
Matt:
There are a couple of use cases that can happen. You have a founder transition where the founder is self-aware and says, “I think we need someone else to take this business to the next step.” Then, as a board, we are purposeful in making sure we find someone we feel can come in and be successful.
This is opposed to a transaction where the founder says, “I’m going to be the CEO for the next five years with the private equity sponsor.” Private equity sponsor responds, “This isn’t what we bought.” That transition is very different because you see this investor who typically has a majority stake trying to nudge the founder out gracefully and with empathy. And that’s a very different transition.
For founders, it’s the recognition of just because you are not in charge doesn’t mean your original vision and the impact you want to have on the world can’t come to life. In fact, it might be able to come to life better if you focus not on who’s in charge, but what can get done.
For founders, it's the recognition of just because you are not in charge doesn't mean your original vision and the impact you want to have on the world can't come to life.
Eric: Talk to me a little bit about some of the mistakes that sponsors and founders might make in either selecting a CEO or the actual transition themselves.
Matt:
I don’t think people do a thorough enough job of recognizing the future back value creation strategy. Very often they think present forward, getting the business from $100 million in ARR to $400 million. But they don’t consider that step change with new aspects like going international or needing new sales channels. When you think about that future back and you write out a $400 million ARR business and what that work chart looks like. Then with that awareness, you can look at a potential CEO candidate and say, “Can this person and the team we put around them actually be that team sitting around the table at the end of this next chapter?”
Let’s assume the selection goes well.
Potentially 75% to 100% of the direct reports of the second CEO in the first 18 months will change.
Not because the people that were there were the wrong people, but because we are going in a new direction that’s going to be different than the one we just went on. That needs to be kept front of mind as well.
Eric: What aspects of the mission and the culture are important to keep, and what isn’t – So employees you want to keep stay on the journey?
Matt:
The company’s purpose, strategy and values change. They go through an iteration for this next run for the second CEO. It’s taking the best of what got us there and then taking a new view relative to the future. A founder-led business operates with an ethos that the founder is all knowing and powerful. So, you oftentimes don’t get decentralized decision making or autonomy. You see a lot of people seeking approval and trying to be in good favor with the founder. You need the businesses to run not in a sterile environment, but very outcome-driven because you have shareholders and employees that are expecting a return for their time or money. And that’s a big change culturally.
Eric: This decentralization of decision-making is critical to scale a business.
And one thing I often find as the second CEO is that you need to spend a lot of time communicating with key people that you want to take with you to the next level. Well, fantastic, Matt. When I think about the importance of founder transitions to private equity, particularly growth equity firms, I know it is such a hot topic. What a great thought to get this in the market and expertise at an important time.Bespoke Partners Named in Top 10 of the “Top 49 Retained Executive Search” 2-Years Running by C-Suite CV Secure.
About ETJ Advisory
ETJ Advisory enables highly driven executives to achieve uncommon goals that alters their personal trajectory. Matt works with a select group of CEOs who are founders or second CEOs by not only enabling them to thrive but significantly accelerating the scale of their leadership team.
Connect with ETJ Advisory to learn more:
About Bespoke Partners
Bespoke Partners can help companies seize emerging opportunities by staying ahead in the software and SaaS leadership market.
Connect with Bespoke Partners to learn more:
Author:
Eric Walczykowski
Chief Executive Officer
Eric is passionate about building high-performing teams that value doing their best, working together, overcoming adversity and learning.
As a proven growth executive, Eric has served as CEO, President, Board Member, Investor and Advisor for technology companies that achieved over $4.5B in successful exits.
Eric brings to Bespoke Partners significant professional services experience from Deloitte and Andersen, as well as the high-growth client executive perspective for private equity-backed technology companies.
Eric earned an MBA from the Kellogg School of Management at Northwestern University and a BS in Business from Fresno State University.
Outside of work, Eric enjoys spending time with family, coaching baseball, travel, attending live events and sipping good wine.
Featuring:
Matt Sharrers
Managing Partner
ETJ Advisory
About Matt
Matt is the Managing Partner of ETJ Advisory, and author of the newly released book, “The Second CEO: Accelerating Scale When Following the Founder,” released June 11th. Ordering is available here: https://a.co/d/8vjnfU8
Drawing from firsthand experience and mentoring, Matt provides actionable advice and key insights to help aspiring and incoming second CEOs drive growth and successfully transition into their roles.
Share this article: