My first rule of entrepreneurship is: Know Thyself.
After founding and leading Advanced Diamond Technologies as CEO for seven years, I realized a few years ago that it was time for me to go. My commitment to my cofounders was to put the company first, and I told them that if the day ever came when it made sense for someone else to run the company, they could count on me to do what was right.
The many factors that led to the decision for me to step aside built up over a period of years. In late 2008 we closed our Series C round just in the nick of time—during the week of the Lehman Brothers melt down. Had we not closed the round then, we would have failed. There’s no way, in my opinion, that our investors would have done the deal even a few days later given all of the uncertainty in the capital markets. Nice though that was, the reprieve was brief. By early 2009 we needed to think about raising money again.
The first half of 2009 was the worst time in 35 years to be raising money. By then I had exhausted all of my personal contacts and had contacted every VC I knew. Our largest shareholders were not reinvesting which created a strong headwind in addition to the awful economic landscape. We engaged a firm that exposed us to new investors, and thanks to their introductions the round closed in July 2009. I remember the feeling of total elation at having pulled off what, a few months earlier, appeared to be an impossible task.
Just a few months later, in December 2009, while walking out of a meeting with the executive sponsor at our most important customer—a global manufacturer—he said something to the effect of, “We see the value in your technology. We’ve tested the hell out of it, and it works. We want to go to market. But before you can be a vendor to us, you have to improve your business operations in a very significant way.”
In the five year history of our company, this was the pivotal moment we had been waiting for. I walked out of that meeting and instantly realized that our business needed to change. We had reached the inflection point where we needed to transition from being a development-stage company, with a heavy emphasis on technology, to one that was focused on business operations and product excellence. On-time delivery, quality control, ERP systems, shipping, receiving, order taking, ISO 9001 certification, customer service—we hadn’t invested in any of these things. In other words, the culture of the company needed to change and sometimes it’s easier to cement a culture change by bringing in an outsider.
The need to change was motivated by positive developments, but I knew it would be a painful transition. We had a skills gap on the management team, and to bring in the talent we needed,a reorganization was highly likely. I never doubted my ability to navigate the waters, but I also knew that I’d get resistance from some of the members of the management team. Plus, due to pilotingthe company through 2009, I was fried to the point of being catatonic, and I wasn’t relishing what I had to do next. One of my board members, seeing the exhaustion and stress written all over my face, said, “What is wrong with you?” He actually encouraged me to take some time off, but by the time I could get away, it was nearly Q2 of 2010, and then again I had to think about raising money. My “restorative time off” turned out to be a four day weekend in Los Angeles at a conference. I came back to face the familiar wall of money worry.
I always thought like a shareholder, not as an employee—something I learned at Microsoft MSFT -0.45%. After ruminating for a while I went to our board of directors and said something to the effect of, “Unless we change, we’ll fail. If you think that bringing in a new CEO is a more effective way of making the needed changes, I am more than happy to step aside.” Plus, I knew that if my board members knew how I was feeling, they’d realize that it was time for me to go. As a member of the board myself, I was telling me that it was time to go. After seven years I was ready for a change of scenery.
The board deliberated for a while and then they came back and said, “We think it makes sense to look for a new CEO.” I had no problem with this decision, and I was committed to sticking aroundfor six months to recruit and bring on board a new CEO. One of my board members said to me privately, “When a CEO says that he’s willing to leave, it’s time for him to leave.” We hired a search firm to recruit the new CEO. The story would have ended there happily except that during the transition period we received a term sheet from some Asian investors. This was an unambiguously positive development that wasn’t anticipated at the time it was agreed that I should leave, but it also wound up creating a ton of problems with the transition. That’s a story for another time.
Being a startup CEO is so taxing emotionally (plus physically exhausting too) that if you’ve lost the fire, the passion, it’s time to go. You’ll know this long before anyone else senses it. You can try to masquerade it, or believe that it will blow over, but at some point if you know yourself you realize the accumulation of issues are too hard to get out from under. It is far better to do the right thing and act in the best interest of the company than to focus on your own situation. Put your interests as a shareholder in front of your interests as an employee. In the long run, investors will recognize that you’re able to make good business decisions, even while under stress, and not ones borne of anxiety or fear. Hopefully if entrepreneurship is in your veins, you’ll have the chance to fight the good fight again.
