How to Be an Effective CEO

This is one post/chapter in a serialized book called Startup 101. For the introduction and table of contents, please click here.

First-time entrepreneurs are usually also first-time CEOs. When you look at your first business card that says CEO, don't forget that it is not necessarily telling the truth. You earn the title of CEO through your actions and your results. You still have your training wheels on. Fortunately, there is probably more advice available on how to be an effective CEO than almost any other subject. This chapter gives you a quick guide, but do invest the time to read the classics, particularly:

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• "The Effective Executive," by Peter Drucker,
• "The 7 Habits of Highly Effective People," by Stephen Covey.

These are timeless classics. Their authors do not attempt to create any modern theory or expound on any particular business or market trend. The books work because they are based on observation. The authors observed effective people to find out what they did right.

The Effective Executive, by Peter Drucker

Drucker's "Effective Executive" was written in 1966. It is a slim tome and easy to read, even if the language sounds a bit dated. Drucker focuses on how to allocate time, because you can get more of almost any resource except time. His advice to find time for uninterrupted work is particularly relevant to today's multi-tasking world. He is also very clear about the need to allocate enough time for people. If you need an hour with someone, don't think you are being efficient by rushing through the meeting in 15 minutes.

CEOs allocate resources. The first resource they need to allocate is their own time.

One popular book today is "Now, Discover Your Strengths," by Marcus Buckingham. Drucker was a big proponent of accentuating a person's strengths rather than managing their weaknesses.

The 7 Habits of Highly Effective People

"The 7 Habits of Highly Effective People," first published in 1989, is a self-help book written by Stephen R. Covey. It has sold over 15 million copies. Drucker observes the following habits in effective people:

Habit 1: Be proactive
Change starts from within. Most people react to external forces. To lead effectively, you have to overcome that natural tendency.

Habit 2: Begin with the end in mind
You cannot lead unless you know where you want to get to.

Habit 3: Put first things first
This is similar to what Drucker recommends. You need to have a very clear view of what is important, so that you know what to spend time on. Note that this often means leaving your comfort zone by acting on tasks that you don't naturally like or feel competent in performing.

Habit 4: Think win/win
Seek agreement and relationships that are mutually beneficial. In cases in which a win/win deal cannot be achieved, accept that agreeing on "no deal" may be the best alternative. In developing an organizational culture, be sure to reward win/win behavior among employees, and avoid inadvertently rewarding win/lose behavior.

Habit 5: Seek first to understand, then to be understood
First seek to understand the other person, and only then try to be understood. Stephen Covey presents this habit as the most important principle of inter-personal relations. Effective listening is not simply echoing what the other person has said through the lens of one's own experience. Rather, it is putting oneself in the perspective of the other person, listening empathetically for both feeling and meaning.

Habit 6: Synergize
Through trustful communication, find ways to leverage individual differences to create a whole that is greater than the sum of its parts. Through mutual trust and understanding, people can often solve conflicts and find better solutions than would have been obtained through either person's own solution.

Habit 7: Sharpen the saw
Take time out from production to build production capacity through personal renewal of the physical, mental, social/emotional, and spiritual dimensions. Maintain a balance among these dimensions.

Three Things a CEO Has to Do Well

This is all you need to do as a CEO:

1. Set direction and milestones (resisting the temptating distraction of juicy diversifications). The ability to clearly say, "No, we are not doing that," is very important.
2. Allocate resources (both financial and human, starting with your time).
3. Hire and fire the top team (we have devoted a separate chapter to hiring an A-Team because this is much harder to say than do).

Making the Transition from Entrepreneur to CEO

Your average entrepreneur would probably say, "Yeah, right!" if told that they have to do only three things. The reality of a startup is that you usually have to do a bit of everything. You have to be product manager, if not actual coder and designer. You become the chief marketing officer, chief financial officer, chief of just about anything that needs to get done.

This, of course, is unsustainable. You have to work out a transition plan that allows you to hire people to take over all the jobs that you currently do except the three CEO jobs.

Here are five tips for managing that transition:

1. Record how much time you spend on these tasks. Understand the process. You cannot hire for, outsource, or automate a task unless you understand it yourself. Look at this "chief of everything" phase as your chance to learn.
2. Recognize the reality that you are not an expert in these tasks. So K.I.S.S.
3. Understand the difference between "core" and "context" in your business. Core is what you have to do really well and do in-house. Everything else you can and should outsource.
4. Hire, outsource, and automate in proportion to the growth of your business. If you can manage five clients with everything else you are doing, and your two-year plan calls for 20 clients, hire someone who knows how to win and manage 20 clients (not someone who managed 1,000 clients at their last job). When you finally get the resources, there is a huge temptation to over-engineer.
5. Pay particular attention to hiring the person to do the one job that you love and that you are totally competent to continue doing (whether that is coding, designing, marketing, selling or finance). It is hugely tempting to hold onto this one job, your comfort zone. It is a huge mistake that will prevent you becoming an effective CEO.