Imagine you just got appointed as the new CEO. Before your promotion, there was always someone with more responsibility. Now it's all on you. But what are the common pitfalls of first-time CEO's, especially in the context of SME and Private Equity-owned businesses? And what is the playbook for getting up to speed quickly?
Robbert Bakker is former CEO of online bank KNAB and Kinly, a Private Equity-owned audio visual communications supplier. Currently, Robbert is using his experiences to coach CEOs of Private Equity-owned and SME companies. We sat down with him to discuss his insights on the role of first-time CEO and what makes this role so complicated.
If a first-time CEO calls you for advice, what would you tell them?
I usually begin by asking a few diagnostic questions to get a sense of how a person manages him or herself, such as: ‘how do you manage your own schedule, set your targets and monitor your own progress?’. Because: If you can’t manage yourself, you can’t manage your company. Then, it's fairly simple: understand the P&L, understand the drivers, set targets on the drivers, make management explicitly responsible for the targets and make sure everyone in the organization knows how to contribute to the P&L target. Then create a disciplined rhythm to monitor progress and hold people accountable.
That sounds almost too simple. Why doesn't everybody do this intuitively?
Well, being a new CEO is like drinking water out of a fire hose. The company or the role is new, everybody wants to speak with you or is looking at you to give an answer or fix a problem. Within a week you are overwhelmed! Hence, as the new CEO, it is easy to fall into the trap of being reactive instead of proactively leading and steering the company. This situation worsens when there are no clear structure and responsibilities in the organization in place, because then all questions end up at the CEO’s plate. Making them more reactive. My advice, therefore, is to create that structure, with clear mandates & reporting to ensure you only need to take action where it truly matters.
In a Private Equity context, new CEO’s often succeed founders. What makes this transition difficult, and what is needed to successfully navigate it?
As a new CEO hired by a private equity firm, you need to realize that you're not the founder. After many years, or even decades, a founder possesses the fingerspitzengefühl: He/she has a deep understanding of the company, the industry, and has an intuitive sense of what will happen in the future and what the status of the company is. It is the type of CEO that looks into the warehouse and foresees how long the company still has inventory for. As a new CEO in the company you don’t have that legacy yet.
Also, when companies reach a size of 40 to 50 FTE, an informal entrepreneurial way of management is often insufficient to continue the companies' growth trajectory. This is a moment a founder can sell a part of the company to a PE firm, who brings in a ‘professional’ CEO. As this new CEO, you are not expected to know as much as the founder, but you are expected to bring structure and professionalize the business.
What advice would you give to CEOs of PE portfolio companies who feel tremendous pressure to perform in their first year?
I would not stress too much, unless the company is on the verge of bankruptcy or you are making abrupt layoffs. Your shareholders appointed you as CEO because they have confidence in your abilities. Issues encountered in your first months are often attributed to the previous leadership. I do believe that for CEOs of PE-backed companies it is crucial to look forward and have the courage to make tough decisions quickly in the first year because, when compared to the corporate context, decisions can be made much quicker.
Resultwise, the period after these first months are significantly more important: this is when you -and the PE- can assess whether your actions have been successful or not.
To what extent do you believe experience gained in corporate CEO roles can be applied in an SME business?
In the end, all businesses are quite similar. It’s all about understanding the company's P&L, its drivers and how responsibilities cascade through the organization. In a corporate setting, less time is however spent on actually making business impact. Stakeholder management is much more important and a considerable amount of time is spent on ‘politics’ and compliance. However, at its core, the essence of managing a business is not vastly different. And, with less time spent on stakeholder management, it is fun to focus on managing the business in an SME-environment. So I can truly recommend it!
How do you see your personal future?
For now, I continue to enjoy helping new CEOs to be successful. It is fun and fulfilling. But I can’t promise I won’t go back running a business, as it is so much fun to scale a company.