In this series, we address some of the thorniest challenges founders face over the course of the company-building journey. This month, we’re sharing some of the toughest questions our investment team was asked in 2023, along with the insights most relevant as we head into the new year.
“This year, my company focused on efficiency rather than growth, and the same will be true next year. We’ve started bringing in new talent with different skill sets, but our leadership team has stayed the same. How do I know when it’s time to do the hard thing and make changes at the executive level? And how should I approach it?”
At one point or another, nearly every company confronts the question of whether its original founding team can scale along with the business. In positive macro conditions, it's easier for this question to take a back seat. Growth can reduce scrutiny and lessen the pressure to perform. But tougher economic times and slower growth can magnify the challenges of managing a business. Efficiency, rigor, and results become paramount—which can spell change for your mandate as a leader. It’s no longer enough to be a visionary—you have to become an operator, too. For some companies, that shift can be difficult and dramatic.
Our guidance for founders is to think holistically. You can’t simply replace one executive with another; you have to change the culture of your organization. Articulate how the company needs to evolve, then ask yourself what type of leadership will help you achieve that goal. Keep the big picture in mind as you go through each step of the process, from making your initial decision to hiring new leaders and navigating the transition with your team.
Making the decision
Founders and CEOs are intimately familiar with their businesses, and they should direct where the organization is heading. Investors are not in the business day to day, so it’s not our place to make strategy decisions. Instead, we help leaders guide their thinking, so they can focus on what they’re trying to achieve and what’s holding them back. Below, we’ve listed some of the questions we ask founders who are grappling with an executive change. Use these prompts to assess yourself first, and don’t shy away from asking yourself tough questions—this can help you cultivate a more objective point of view. Then you can assess other leaders on your team.
Are you set up to defy the odds? Every venture-backed company must beat the odds to succeed. This is an innate and defining characteristic of our industry, and it means that you and your leadership team need to maintain confidence, stay focused on your vision, and keep defying the odds to build an enduring company. At every stage of company development, ask yourself: Is this the team that will help me achieve the improbable? Or do we need different leadership, given where we want to go?
Is your team ready to perform? There’s a learning mentality in startups—a shared sense that you’re figuring things out as you go. That mindset serves you well in the early days and tends to hold up as long as the business is doing well. But when times get harder, the window for learning is tighter, and that learning needs to be complemented by action and results. You need people who will meet performance targets, and you need leaders who will set realistic goals and hold their teams accountable.
Do you have enough data? Startups are messy and progress is nonlinear. You aren’t going to make a leadership change after a single quarter of missed targets. But at a certain point, you need to be able to take an objective look at the data, hear input from involved parties (whether at the board or operating level), and potentially make tough decisions. Maybe you haven’t hit your sales quota for a number of consecutive quarters, despite adding and ramping reps. It’s time to start probing into why. You might ask questions like: “Do we have the right sales org and/or incentive structures? Is there enough communication between the sales and product teams for us to know that we’re selling what our customers want and need? Are we sure we have the right sales leadership? How are salespeople being held accountable?” Start an open and ongoing dialogue with your leadership team based on the information you have. The more objective the targets are, and the more consistently you can reference them, the clearer the outcome will be.
Hiring
Once you’ve decided to make a leadership change, think strategically and honestly about the skills, experience, and qualities you’re looking for. There’s no playbook for this—you need to rely on first principles, starting with the question of where you’re trying to go and who will help you get there. Here are four things to keep in mind as you hire.
Pattern recognition is dangerous. What worked for one company isn’t going to work for others. Be wary of anyone who’s imposing other companies’ experiences onto you. (For example, if you have a board member tell you something like this, proceed with caution: “I invested in a company where sales slowed down. They hired a CMO who knew how to do performance marketing, and that hire changed the trajectory of the business.”) Even if the scenario seems similar, and the advice seems relevant, companies are different, and you need to consider the nuances of your organization and strategy.
“Best-in-class” isn’t always best for your company. If your company is still at a fairly early stage, you don’t need a leader who’s worked at a huge, well-known company. You need someone who’s done the specific job your company needs at this moment in time. Be brutally honest about what you need and figure out what, exactly, you’re trying to get out of this change. Then hire for that profile. While a high-profile candidate can draw positive attention, they can have misaligned expectations and perspectives, and unwinding these hires can be very draining for an organization.
Tap your board for connections. Your board members shouldn’t tell you who to hire, but they’re the right people to ask when you’ve developed a strong idea of what you need in a leadership role and have begun sourcing talent. They can then connect you to people in their network and help with interviewing and closing high-priority candidates.
Be real with candidates. When you’re interviewing potential hires, be open about the challenges you’re facing and what you’re doing to address them. You want someone who’s aligned with your priorities, who understands the mandate of the job, and who’s motivated by what you’re trying to achieve.
Navigating leadership changes with your team
Steering your team through an executive leadership change is the hardest part of the process. It’s also the most important part to get right. Remember that these decisions impact the whole organization. Don’t underestimate the thought and work required to get ALL stakeholders aligned.
Ask existing leaders to examine their roles. The most difficult reality of leadership changes is saying goodbye to some of the longstanding leaders who have created so much success for the company. Often, people know when things aren’t working, and as much as possible, you want to help them reach a decision rather than pushing them out.
So, instead of saying, “You’re not the right person for this role,” or “Your team isn’t performing,” you might ask, “What are your superpowers? What are your biggest challenges? Do you have the opportunity to spend time in the areas where you’re adding the most value?” Asking these questions can open a conversation about how best to align their talents with the changing needs of the business. At the very least, their role will change; at most, they’ll move on from the company. Either outcome will be for the best, both for them and your organization. Try to find a path that enables this win-win outcome. This is often achieved by keeping these conversations open and fluid over time, and not waiting until the last minute to express concern over someone or constructive feedback on the job they are doing.
Think holistically about the impact of leadership changes. It's essential to consider how a leadership change impacts the company as a whole, not just immediate team members and direct reports, and not just the operations and results of a company. For example, if you’re hiring a new sales leader and instituting a different structure in the sales organization, what does that mean for marketing? For finance? What will it say about the culture of the organization and how might it impact people’s perspectives and work? Huddle with the leaders of those functions to align on what’s changing and how those changes will affect the way they work. It’s also important to consider a communication strategy that emphasizes the “why” and “so what” of changes.
Change the culture, not just the leaders. Leadership changes will only be successful if you’re shifting the broader culture. Perhaps you’re changing sales leadership and bringing in a leader focused on metrics, systems, and rigor. If you haven’t changed the culture of your organization, that transition will surely fail. It might also feel like a bait-and-switch.
Talk to your team about what’s changing and why. For example: “In this environment, efficiency is important, and we’re going to focus on key metrics and shift to OKRs this year. Everyone has three performance goals which we’ll track quarterly and there will be accountability functions to ensure we all stay on track.” You can then communicate leadership changes in the context of those cultural shifts.
Finding thought-partners and confidants
When making big changes, lean on your network for support. Your board members will have a broader perspective and can help you think big-picture about your leadership team. We also encourage founders to talk to mentors and peers as much as possible. Find other founders who have been in the trenches and can relate to your challenges. If you’re not already connected to folks who can share this perspective, ask your board for introductions.
At General Catalyst, we help founders work through their toughest challenges and most uncomfortable topics. If you're looking for a thought partner as you build the enduring change you want to see in the world, please reach out.
