So I thought I would expand on the list in a series of posts that explained better why each rule existed in the order they were presented.
Rule 1: The company has to have a real leader/CEO. If its a first time CEO, do I think s/he can handle the rigors of building a business.
Startup CEOs are a rare breed. They usually dont get into startups because they have a large desire to manage or lead a large group of people. Usually, they are technologists, dreamers, visionaries that have an idea and think other people would pay to be part of the idea.
By definition, they are usually soloists that focus on building their idea and have little to no business experience.
Then either their product or service begins to generate revenue (like Current Wisdom did for me) which required more people than one to grow, or someone offers the founder investment to grow the business.
In each case, the product turns into a company, which is often what the founder wants, but has no idea what “it” means.
Suddenly, there are people that the founder needs to be responsible for, not just an idea. Those people ask for things that often the founder has no idea how (or cares) to handle. Quickly, the realization of what a CEO REALLY is sets in.
A real CEO is an administrator who can rally the troops and get everything moving in the same direction.
Notice there is little discussion of product vision or business development. While both are part of the job, the primary function of a CEO is administrative. And for most founders, that stinks.
Sweaty Smell: Does the CEO look like he has busted his ass to get his product/service to a point where other people want to pay for the product/service or its development (investment). More importantly, is the sweaty smell from hard work or from the stress of hard work. If its stress, then I wonder if the CEO can handle the rigors of building and running a business.
Mothball Smell: Does the CEO have age? Not necessarily in terms of actually years, but in maturity. If I invest in the CEO, will he take my money and make a strategic hire or buy brand new furniture from Ikea? When I started Current Wisdom (and for four years) we sat at $60 desks and $90 chairs (we wanted leather) from Office Depot. Strangely enough, our work never suffered.
Burnt Smell: Has the CEO ever failed? Has she skinned her knee? Did she learn from that? What did she learn? A person can masquerade as a CEO and do most of the right things, but unless she has experienced true failure (professionally or personally), she will never have the ability to be a GREAT CEO.
Brimstone Smell: Can the CEO make a decision that could be viewed as evil or shady? Not as a general course of business, but when its necessary. Can she fire the popular developer because he isnt performing well? Can she fire clients or partners? Can she get her hands dirty while not compromising her morals and values if thats what the company requires?
Rosy Smell: Often this smell is the one that seems to blind most investors. “Wow the CEO’s site has a really cool feature that the investor just loves!” Or the CEO has been successful at his last two companies therefore even though the investor doesnt “get” the idea, they still make the investment. But, more importantly, does the CEO know what success really smells like? And how much do they crave smelling it again? Do they attract people because they smell like success? People like to back, and work for, a winner.
These five criteria (“smells”) are what I look at in a CEO. Its such a rare combination, which is why I think so many companies fail, and why it seems a small group of CEO-types continually get investment and start companies. On the converse if someone is missing these criteria, then I look at the team around them. Sometimes, these smells of a startup CEO can exist in multiple people.
Can you get investment if you are missing one of these criteria. Probably. From me, no chance.