How Do You Know It Is Time To Go: When Should You Consider Stepping Down as CEO?

 
Let’s get uncomfortable and get you out of your comfort zone by asking just one question: Are you still the right one to be running your software or technology company? 
 
This is a question that some of you ask every day (especially since you're thinking about what comes next). For others, you've maybe never asked this or even thought about it. I’m sure that there is a link between the number of members that are on your board and the frequency that this question gets put on the table. For some of you, it likely is the elephant in the room. We get it. 
 
 
The beauty of M&A is that the CEO and their executive team are brought under the microscope in ways that, you as CEO, probably never imagined. In addition to being a game that you may have never played before, selling your software company will shed a spotlight on your business and you as a leader that will challenge you. If you want to maximize the value of your company, take a look in the mirror and put a team in place that you’ll listen to. Please. 
 
Let’s roll the conversation back and take a look at some of the signs that may indicate that it is time for you to step aside. 
 
  1. Sales are flat or in decline. Software and technology companies are by their very nature subject to being disrupted. If your business is not growing, then are you losing market share or is the market shrinking due to other products and technology? As CEO, if your sales are flat, it may be a sign that you’ve not invested in the right areas or hired the best sales and marketing team. This is another significant issue that some CEOs aren’t built to tackle. You may be a technologist by nature and don’t understand how to get a product to the market and build the revenue and scale. I hear this a lot. “Sales isn’t my strong suit.” Hopefully, you are getting good traction with your product in the market and you are growing revenue despite a lack of sales and marketing know-how. At some point in your company’s lifecycle, though, you’ll need to make an investment in sales and marketing to grow or sustain growth. If you don’t think this is the case for your company, it may be a sign that it is time to step aside. 
  2. Recurring revenues and the number of customers are decreasing. I talked to a former CEO recently that replaced himself when he saw a few quarters of stagnation on the company's recurring revenue line. This was a smart move helping to ensure that the company is able to continue or kick-start revenue growth. Furthermore, losing customers and understanding your churn will be a critical factor in the eyes of an acquirer of your business. What you do when you lose a customer will be scrutinized by a buyer. Do you know why you are losing customers today? If not, it could become a risk factor when you are selling your company and damage your credibility when a buyer assesses your ability to manage your business. 
  3. Your playbook isn’t working and you don’t know why. This is quite a scary scenario. This could mean that there are market dynamics and/or internal factors driving the lack of growth in your business and you don’t what it is attributed to. Your strategy that you put in place twelve or eighteen months ago isn’t working and you aren’t certain why. On the other hand, you don’t know what is driving your growth. While strong revenues can mask problems with the business, why you are winning (and losing) is a critical metric for determining the long-term sustainability of your business. Buyers will assess this when they look at your churn. While it’s great to be lucky and have a great product that is doing well in the market, it is imperative to understand the drivers in your business. If you don’t, you run a risk of making mistakes in your go-to-market strategy if you are not measuring or aware of the key performance indicators in your business.  
  4. You are trying to be a CEO for multiple companies. This rarely works. Being the CEO of a private company is hard work. A full-time commitment and focus are necessary. Your business requires your complete attention. (Unless you’re Elon Musk or Jack Dorsey.) While you are likely a highly motivated person and a great leader, trying to run multiple companies at the same time is a daunting task. The problems here typically show up when you lose your first customer or your largest customer and you simply don't know why. 
  5. You don’t know where the market is heading. All of the four signs above highlight the necessity of possessing an intimate knowledge of your market. Your competitors, regulatory risk, tangential risk, financial risk, and human capital risk are all components of the equation that you need to monitor to continuously assess the long-term viability of your company. Keeping track of these factors while trying to run the day-to-day business is hard work. If you are not in touch with the market forces, you could find yourself in a dangerous position at some point in your company’s evolution. What competitive trends are you monitoring? Has one of your competitors been acquired and has the acquiring company changed the go-to-market strategy of your competitor that could weaken your market position or caused a paradigm shift in the market? I have a client that should have been in the market five years ago for sale but they knew that the one big deal would come. It never did and the market consolidated around them with the larger companies acquiring smaller competitors and bundling the product and giving it away for free. Hard to compete with free. 
 
In summary, you don’t know what you don’t know. You’ve been building your business for months, years, a decade or more. Have a team around you that can help you think about these signs above and give you honest feedback on whether you are the best person suited to continue to scale your company. Understand that the software and technology markets require a deep understanding of all aspects of your business by you, the CEO – and embrace that this is a game of growing fast or dying slow. 
Posted by , Senior Vice President on 14 August 2018
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