A Masterclass On Hiring A CEO To Run Your Company (ft. Andrew Wilkinson)

Intro (00:00:00)

• Andrew Wilkinson is a guest speaker invited to share his expertise on hiring CEOs.
• Andrew has experience managing a portfolio of 40 companies worth $500 million, with CEOs running each company.
• Andrew will share his insights on interviewing, selecting, compensating, and managing CEOs.
• This masterclass is not for beginners but for those who have a scaling business and are considering hiring a CEO to take over the day-to-day operations.
• Qualities Andrew looks for in a CEO:
  • Strong leadership and management skills.
  • Ability to execute and achieve results.
  • Cultural fit with the company.
• Interview process:
  • Andrew conducts a series of interviews, including a phone screen, in-person interviews, and reference checks.
  • He asks specific questions to assess the candidate's skills, experience, and fit for the role.
• Key questions Andrew asks during interviews:
  • What are your biggest accomplishments as a CEO?
  • What are your biggest failures as a CEO?
  • How do you motivate and inspire your team?
  • How do you handle difficult situations and make tough decisions?
  • What are your thoughts on company culture and how do you create a positive work environment?
• Base compensation:
  • Andrew typically offers a base salary that is competitive with the market rate for CEOs.
• Variable compensation:
  • Andrew believes in incentivizing CEOs through variable compensation, which is tied to the company's performance.
  • Variable compensation can include bonuses, stock options, and other incentives.
• Equity:
  • Andrew offers equity to CEOs to align their interests with the company's long-term success.
• Onboarding process:
  • Andrew has a structured onboarding process to help new CEOs transition smoothly into their role.
  • This includes providing them with all the necessary information, resources, and support.
• Managing the CEO:
  • Andrew sets clear expectations and goals for the CEO.
  • He provides regular feedback and support to ensure the CEO is successful.
  • Andrew also encourages the CEO to take ownership of the company and make decisions independently.
• Andrew emphasizes the importance of hiring the right CEO for the company's success.
• He encourages entrepreneurs to carefully consider the qualities, skills, and experience they are looking for in a CEO.
• Andrew believes that hiring a great CEO can help entrepreneurs scale their businesses and achieve their long-term goals.

Why you need a CEO (00:01:46)

• Hiring CEOs allows for different problems and responsibilities compared to running a single company.
• Overseeing CEOs is suitable for individuals with a skill set for high-level, hands-off management.
• The ultimate level of delegation is hiring a CEO to manage the entire company, enabling quarterly or even annual communication.
• The decision to hire CEOs comes from a desire to delegate tasks and responsibilities.
• As companies scale, operating groups with their own CEOs can be formed to manage multiple businesses.
• Even with a smaller portfolio, hiring CEOs can be beneficial for managing workload and growth.

The third door: leave the business, keep the cash flow (00:04:47)

• Founders may lose interest in running their companies and seek alternatives like hiring a CEO.
• Hiring a CEO allows founders to delegate responsibilities and focus on aspects they find more fulfilling.
• As companies grow, the management role changes, and some founders may not enjoy or be suited for leading larger teams.
• Reading management books and taking courses may not be sufficient to overcome the challenges of being a great manager.
• Founders may consider selling their companies but face difficulties in finding suitable buyers or encountering unexpected issues during the sales process.
• The speaker learned about hiring CEOs from a book about Warren Buffett and gained valuable experience despite making mistakes in the process.
• The speaker stresses the importance of recognizing that the grass is not always greener on the other side.

Get back to your flow state (00:09:35)

• The most important skill set in business is copywriting.
• A curated document with the best copywriting tips, resources, frameworks, and templates from 500 podcasts is available in the link provided.
• Passion can turn into a business when someone is willing to pay for it.
• Building a large business can lead to delegation and a loss of hands-on involvement.
• The irony of building a machine to free oneself is that it often results in doing more administrative tasks.

Step 1: Are you ready to hire a CEO? (00:11:35)

• Before hiring a CEO, assess if your business has product-market fit, is scalable, and has a profit of around $300,000 or more.
• Consider the compensation structure, which may include a base salary plus bonuses tied to business growth, with the potential for significant financial rewards or a big payout if the business is sold or reaches a large scale.
• Reflect on your own readiness to step back and let someone else run the business, and whether you can emotionally detach from it and view it as an investment rather than a personal creation.
• Hiring a CEO is a significant decision, comparable to entrusting your child to a foster parent, and requires the ability to tolerate and cope with someone else managing your company.

Is this going to hurt my business? (00:16:05)

• Before hiring a CEO, consider if your business is big enough and if you are willing to fully empower the CEO.
• Understand that hiring a CEO may mean sacrificing some product quality, but the overall business health and growth will likely improve.
• Transitioning from a reluctant founder to a motivated CEO can significantly boost business growth.

Step 2: Find the RIGHT CEO (00:17:37)

• Look for someone who has successfully run a similar business that is double the size of yours.
• Consider candidates from your competitors or admired companies, especially those who have been eagerly awaiting a CEO position.
• Recruiters can be helpful in broadening the search, but be open to changing your opinions about their effectiveness.

Hiring a recruiter (00:19:07)

• Recruiters can save time by doing initial interviews and filtering candidates.
• Recruiters can help broaden the pool of candidates by reaching out to people you might not have considered.
• Recruiters can handle administrative tasks associated with the hiring process.
• Using a recruiter can be a worthwhile investment if they bring in qualified candidates that you might not have found otherwise.

Look for a #2 with the right hammer (00:22:30)

• When hiring a CEO, consider their industry experience and the channels they've used to grow companies in the past.
• Pay attention to their "hammer," which refers to their preferred approach to growth (e.g., marketing, sales, operations, or finance).
• Ensure they understand the customer base and sales channels of your company.

Be a collector of people (00:24:23)

• Constantly network and keep a list of potential CEO candidates.
• Share this list with your team and keep an eye out for promising individuals within your own companies.
• Prioritize meeting and connecting with people who are smart and capable.

Step 3: Diligencing the candidate (00:25:21)

• Recruiters are often used in the hiring process, but only 20% of the time do they bring in the successful candidate.
• The more experienced and successful a person becomes, the more likely they are to develop a "hammer" or a preferred approach that they try to apply to every situation, regardless of whether it's the right fit.
• Hiring a CEO with a hammer that doesn't match the company's needs can be a mismatch, even if they have a track record of success.
• Andrew Wilkinson, the speaker, admits to having a "hammer" focused on finance and operations, which involves identifying simple changes that can give a business leverage.
• Wilkinson acknowledges that this focus on the practical and financial aspects of business may not be as exciting as product design, but it is often more effective in driving growth.
• Wilkinson gives the example of Aeropress, where he identified the opportunity to improve online marketing and e-commerce as the key to growth.

Green flags, yellow flags, and red flags (00:28:16)

• When hiring a CEO, ensure alignment in strategy, vision, and values.
• Trust your instincts and assess if you would trust the candidate to babysit your children.
• Avoid candidates prioritizing low-risk cash guarantees over long-term alignment.
• Consider cultural DNA fit and be wary of flashy candidates from big companies who may prioritize personal gain.
• For smaller companies, avoid candidates from large corporations as they may lack the adaptability and hands-on approach needed.

2x not 20x (00:33:33)

• Avoid hiring people from big companies.
• The ideal candidate should have run a company 2x the size of yours, not 20x.
• Different skills are required at different stages of a company's growth.
• The founder of a company may not be the best person to scale it up.
• CEOs are usually effective for 5-10 years before they need to be replaced.
• Even exceptional CEOs like Mark Zuckerberg have help from others to focus on innovation.

Step 4: First 100 days (00:35:55)

• Transitioning to a new CEO can be emotionally challenging, but it's important to let them take charge.
• Clearly communicate the change to your top executives and emphasize that the CEO is now in charge.
• Stop responding to texts and emails from executives and let the CEO handle things.
• Check in with the CEO regularly, but avoid micromanaging or undermining their authority.

Don't poison the water (00:37:51)

• A competent CEO should be able to quickly grasp the business and take charge.
• Avoid providing too much guidance or transition materials, as the CEO should be able to learn on the job.
• Gradually reduce the frequency of check-ins as the CEO settles in.
• Refrain from bypassing the CEO and communicating directly with lower-level employees, as this can undermine their authority.

Flesh wounds not mortal wounds (00:39:29)

• Assess the CEO's mistakes or misses based on the difficulty of the business and the reasons behind them.
• Allow for some mistakes, but not critical ones that could harm the business.
• Set clear boundaries and expectations, such as seeking approval for significant expenses.

Meet them in person (00:41:22)

• In-person meetings are preferred for better assessment of the candidate.

More on diligencing: Trust but verify (00:41:48)

• Trust your gut feeling as the first screening method.
• Introduce the candidate to other trusted individuals for their assessment.
• Conduct thorough background checks using professional services or former CIA personnel.
• Verify all information provided by the candidate, including education, work experience, and reasons for leaving previous companies.
• Check for any criminal records, unpaid bills, or legal issues.

The DIY path (00:44:06)

• For lower-budget businesses, follow the same process but cast a wider net to find candidates.
• Avoid calling references provided by the candidate as they may be biased.
• Use the "scuttlebutt" method by asking mutual connections or former colleagues about the candidate.
• Send emails to former colleagues or the previous CEO, indicating that a lack of response will be interpreted as a negative experience.

Step 5: Negotiating and structuring compensation (00:46:20)

• Always make the first offer.
• Scale compensation up or down based on the candidate's experience.
• Use total compensation to align incentives.
• Example:
  • Business profit: $300,000
  • Affordable CEO base salary: $150,000
  • CEO worth: $300,000 - $400,000
  • Offer: $300,000 total compensation
  • $150,000 base salary
  • $150,000 bonus if profits reach $600,000
  • Aligns incentives between the CEO and the company.

Uncapped bonuses vs equity (00:48:08)

• Never offer a fixed salary plus a bonus without discussing the total compensation.
• Use capped bonuses to incentivize performance.
• For example, if the target bonus is $600,000 and the CEO achieves $1.2 million, consider doubling or tripling the bonus.
• Equity is challenging to manage.
• Stock options are not ideal as they are often seen as a lottery ticket with a binary outcome.
• Prefer giving equity to those willing to invest in the company.
• Discuss equity in terms of its cash value and create scenarios for shared downside.

Myth: Is a founder-led business always better? (00:51:34)

• Hiring a CEO can be beneficial for companies that have reached a certain size and complexity.
• Founders should consider their own personality and motivations when deciding whether to hire a CEO.
• Successful CEOs often have a strong track record as a number two at a similar-sized company.
• It's important to pay for quality reference checks and recruiters to ensure a thorough hiring process.
• Once hired, CEOs should be given the autonomy to make decisions and run the business, while still providing regular updates to the founder or board.
• The speaker has created a PDF checklist as a resource for those considering hiring a CEO.
• The PDF checklist covers topics such as assessing readiness to hire a CEO and the hiring process.
• The PDF checklist will be available on the speaker's website, never.com, through their newsletter.
• The link to the PDF checklist will be provided in the description of the podcast episode.