Being a Second CEO

Les Trachtman specializes in what he calls being a “second CEO,” replacing founders to help grow and scale companies. In fact, he’s done it six times. As the CEO of The Trachtman Group, he also helps top organizations across the globe successfully navigate the founder/successor transition. He is sharing his expertise in his new book, “Don’t F**k It Up: How Founders and Their Successors Can Avoid the Clichés That Inhibit Growth.”

We had a great conversation about the different skills required by a founder CEO vs. a second CEO, what separates great CEOs from merely okay ones, and much more.

second CEO Les Trachtman

Les Trachtman

When did you first realize you wanted to be a CEO?

Les: The first time I acknowledged it to myself was when I was heading to college. Someone asked me what I wanted to major in, and at that time I had to think a little deeply about it. Most high school kids don’t think about that. I tried to decide what would be marketable and enable me to be successful in business. I ended up getting an engineering degree and then graduate degrees in business and law. I wanted to have everything that I thought you needed to run a company.

When did you get the first chance to apply all this knowledge to the CEO role?

Les: I was about 15 years into my career. I had meeting with a VC in Boston and he said to me: “So when are you going to be a CEO?” I was sort of startled by that and replied that I didn’t know. I wasn’t sure I was ready for that. He asked: “Why not?” From that day forward I decided it was time. It was somewhat serendipitous that about that time I was contacted by a small software company in New Haven, Connecticut, which ended up offering me my first CEO role.

What surprised you most the first month on the job?

Les: When you become the CEO you know you’re in charge. However, what you don’t perceive is that you are responsible for everything that happens in the company, even if you don’t control it. The buck stops with you.

Having total responsibility is something many CEOs are not prepared for. One of my favorite interviews I’ve done is with Jim Whitehurst, CEO of Red Hat. He went from being COO of Delta, managing 80,000 employees with 5,000 flights operations per day, to running a company of 1,500 people at the time. That first week he realized he was the man behind the curtain. The job was very different from what he thought and no easier than being COO of Delta.

Les: There’s no wizard anymore right? It’s funny that you say that. I had a mentor who was a VP in the first company I ever worked for. When I took that first job as CEO, I talked with him about it, and he told me, “You will find that being a CEO is so much different then being a VP. It’s the relative difference between being a janitor and being VP. That’s how different it is.” And boy was he right! One of the qualities of a great CEO is someone who’s really curious and always looking to learn. I’ve found the difference between a great CEO and just an okay CEO is this: Great CEOs know they don’t know how to do the job, and okay CEOs think they do.

That’s a good one! You’ve done the CEO gig a bunch of times. Most people don’t get to do the job often in very many situations. If you succeed as a CEO once, there could have been a lot of luck involved. If you become a CEO in a different situation, you may not have the same kind of success. What kinds of systematic things do you do now vs. what you did the first couple of times?

Les: I think every time I do it I get a little bit better at it or at least I hope I do! The things that you learn are things like the importance of culture. It’s so much more important than you can imagine. The first time as CEO you take that for granted. You come to realize that people are more important than systems and processes. It’s the characteristics of the people that matter. As I mentioned, people who are curious and have more desire are the employees that you should rely on. You go from the systems and processes, the really specific things, to realizing that you must focus on the softer stuff to do the job well.

second CEOYour book is about taking over companies directly from a founder. One of the reasons I keep founding companies is because that job sounds really hard to me! As I tell people, the Alabama coaching job is not the one that comes open very often. It’s always the Poughkeepsie State job where they went 1-13 last year. In the case of a successor CEO, there’s usually a reason the founder is stepping away.

Les: Founders do magic. I’m usually a second CEO and perhaps even do a good job at that. But founders create something from nothing. That is hard to do. The skills required to start a company, to create a company, to build something from nothing are very different skills from those required to scale a company. I have found that founder CEOs step down for one of three reasons: One, they self-select by deciding they are not the best person to lead the organization forward. Two, they don’t get really excited about the more mundane things required to do the build/scale part. Or three, their investors and board decide for them.

In the book you almost have a rule that states the founders really can’t stay around after they’ve decided to make that change. Is that right?

Les: It’s not quite a rule. In some unique cases the founder staying around can work. I worked with one who was really good at being the guy that stuck around and mentored the next guy. The hard part is that if you stick around, it’s really hard for the successor to have a boss looking over your shoulder and second guessing you. As a founder, you’re not going to sit there while a successor changes all the things you’ve done and say, “Wow that’s great!” That’s been proven out in a lot of situations.

When you inherit an executive team, it’s probably not full of superstars. You want to give people a chance, but on the other hand you have a limited time frame. Typically boards aren’t super patient. They expect you to make some changes and show some progress. How do you balance those two situations?

Les: I’ve done it wrong both ways, I can tell you that! The very first time I became a CEO, I was talking to a board member/investor and the conversation went something like this:

“Do you want to take on the role of CEO?” he asked.

“Sure, great!” I said.

“What do you think we need to do about sales?”

“I’m not sure we have the right guy running sales.” I replied

“Great! We knew you are a smart guy. What are you going to do about it?”

“We should replace the guy,” I responded.

“When?”

“Tomorrow?” I said.

“Good answer!”

So it goes from that end – which is probably not necessarily the correct or optimal way to do things – to giving people a chance. You have to make sure you allow people to succeed. Find out who might have been good at their job when the company was smaller. See if they are going to be able to scale themselves. Give them an opportunity. It’s different than when they were part of the founder’s team – where loyalty was perhaps even more important than being extraordinarily competent. I don’t mean that in a negative sense. But founders tend to be very good at what they do and while they don’t all micro-manage (many do!), they have a very expansive set of capabilities. That changes as the company scales. You need people who take on various specific functional roles to make those decisions themselves. That kind of responsibility is often not optimal for the original team members who founded the company.

Yes, if you have someone who’s an expert, they just need doers who follow their directions. I’ve never been an expert at anything, so I tell everybody I’d be a bad VP! I need good people around me to do all that stuff. In the early days when you have five employees, the founder being able to do a lot of stuff is hugely valuable. At 100 people that loses a lot of value quickly.

Les: I use the analogy of a snake molting. It’s a natural process for a snake to molt, and grow.  It’s the same with an executive team: You probably need to shed members as you grow. It doesn’t mean these execs are bad; they are just not the right people at this time of the company’s maturity. One of the responsibilities of a second CEO is to make sure those people are treated well on their way out.

When you build a company over time you develop deep sources within the organization for information. You know whom to trust. I’ve grown companies into hundreds of employees but still had relationships throughout the company to get information. When you come in as a second CEO, how do you get reliable information about what’s going on?

Les: It’s a real challenge for a CEO at any point. Many founders find that their teams tell them what they want to hear. You have to figure out how to cut through that. I have a couple of techniques. One major theme in getting people to tell you the truth is just to make yourself appear human. I’m not saying CEOs aren’t human, but people like to see that even though you are the boss, you are fallible. I do things like play golf with people. I’m a bit of a hacker. When I get on the golf course, it’s very hard for me to act like a CEO. You make yourself very human when you do things like that. People start to trust you and are more apt to tell you the truth.

I also do things like lunches where we have up to eight people at a time. We start out with icebreakers. It’s like a kid’s game where we ask each person to say something unique about himself or herself that nobody knows. I say things like I went to high school with Dee Snider, lead singer of the 80s band Twisted Sister. When I tell people my hair was longer than his back then, they say, “Wow, you mean you used to be that way?” It helps to form relationships. It’s also helpful to find a set of people you trust who become your eyes and ears. You should use anything you can to get to the truth. It’s a battle that every CEO has: relentlessly seeking the truth and making adjustments based on that.

I’m sure when you go into in a situation like that, people are anxious to hear what your job is. How do you respond when people ask how you are going to approach the job vs. the founder?

Les: I tell them I’m going to listen, because something great happened before I got there. There is never a successor to a founder unless the company is doing well. It’s kind of counterintuitive, but more CEO founders get replaced because the company is successful than not successful. So first, I tell everyone that I’m not there to further my own my agenda. I’m going to leverage the good things that happened in the past.

Second, I always make sure that I honor my predecessor. I don’t care if we don’t see eye-to-eye. I don’t care if he or she hates me. They did magic that I couldn’t do myself. That tends to help and establish credibility. Third, I let people know that it may not have been this way before, but the company is now a meritocracy. It’s often more of a family when I come in: They’ve been through wars and worked in the trenches together. Camaraderie is good, but what you give up in lack of camaraderie you gain in opportunity. You may not be able to be best friends with colleagues, but you can be friendly with them. I tell people they now have the opportunity to grow their wallet, their title, and their capabilities in return for giving up some of their familial relationships. That’s what you give up when you move into a meritocracy, but it’s also about what you gain.

When it comes to the culture, people, and vision, where do you start when you walk into a company? Where are you thinking you’ve got to work first?

Les: I think you always have to start with people. You have to have the right team. I’m a big believer that a flawed strategy can work with a great team, but a flawed team can’t work with a great strategy. Whatever your strategy is, it’s going to fail somewhere down the line when you encounter a competitive situation. “No strategy survives first encounter with the enemy.” Unless you have great people who can make those adjustments, it will be at best a short-term success and at worst a disaster. You need to make sure your employees know how to do their jobs and again, are curious enough to discover new things as your market and competition change.

What caused you to write the book?

Les: I’ve been a second CEO six times now. I saw some very clear patterns emerge in myself, in the founders I replaced, and in the organizations I led. I thought if I could put those down in a book, I could save people a lot of time and agony. It was a bit of a death wish: I had to get it written down in a way that people would understand it. You wrote a book so you know the agony. When I went back and read it, I thought this actually does tell the story that I meant to tell.

What’s your status? Are you looking for the seventh and eighth one? Or are you retired on the beach?

Les: I don’t think retirement will ever happen. I’m fully entrenched in number six right now. We’re about 15 employees and growing fast. I’m getting to exercise all the things I talk about, including making sure you have a successor. I’m a year and a half into the gig, and I’ve already hired my potential successor. I’m giving him that runway.

Is there anything you are seeing in your industry that you think CEOs in general would be interested to know?

Les: We’re a tech company, so I’m very focused on tech. What CEOs need to know the most is this thing we call the cloud. A lot of people talk about it. As a CEO you need to realize that if you are going to be or grow into a multi-location environment, which most successful companies end up being, you should consider putting your apps into the cloud sooner rather than later. It’s more important than I ever imagined.

My company Khorus is a similar size to yours. We did an inventory one day and discovered that we have 52 cloud-based apps of one form or another and wondered, “How can that be?”

Les: The difference between the cloud and keeping things local is that you have a closet full of stuff to maintain that is probably not your core business. When you give it up to someone else, you can focus on the core aspects of your business. It’s an important lesson in every business but definitely in IT.

For more information about Les, see the case study Harvard Business Review wrote about his career titled “Les is More, Times Four.” 

 

 

 

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