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Technology CEOs Report - Experience

CEO / General Manager Experience

PATTERNS DETECTED

Only 29% of companies have a current CEO with prior CEO experience.

CEO & GM Experience Distribution

  • CEOs at companies with revenue below $1 B were slightly more likely to have prior CEO experience, but still only 31% did so.
  • 34% of CEOs at companies between $100 M - $1 B in revenue had neither prior CEO or any GM experience. Most of these CEOs were founders (70% of 34% or 23% of all CEOs).
  • In companies with revenues over $1 B, 78% had GM prior experience only and 22% had CEO and GM experience.

Inversely, 72% of CEOs had General Manager experience, either at current or prior companies

GM experience distribution

  • All CEOs at companies with revenue over $1 B had GM experience.
  • However, in most cases, CEOs were experienced as GMs at other companies.
  • In companies with revenue over $1 B, CEOs typically have to prove their talent as GM in the current company: 56% of these CEOs had been GMs at their current company.
  • Only 11% of CEOs had GM experience at both their current and prior companies.

SO WHERE WERE THE DIFFERENCES?

Prior CEO experience correlates to higher median 3-year growth rates.

Company performance by CEO experience

However, the advantage is more pronounced at large companies.

company performance by CEO experience - no prior CEO experience vs. Prior CEO experience

Perhaps because they rarely bring in outside CEOs - only 1 in 5 large company CEOs had prior CEO experience - and when they do, the vetting process brings in best-in class-CEOs.

At companies between $100 M - $1 B - where 70% of CEOs are founders - CEOs with prior CEO experience outperform their peers, but by a smaller edge.

Company Performance by Ceo experience - company revenue $100m to $1b

General Manager (GM) experience initially appears to be detrimental to median 3-year growth rates.

company performance by CEO GM's experience

This can be partially explained because CEOs at companies with over $1 B in revenue are over-represented in the GM experience class – recall they all had GM experience - and their growth rates are slower than smaller companies.

In companies with revenues over $1 B, GM experience at the current company correlates with a significant edge for median 3-year growth rates.

company performance by CEO experience

As you might expect in these large companies, CEOs with GM experience at a prior company have significantly lower performance than those promoted from within. Especially in larger companies, a successful track record with the company’s technology, market, competitors, and culture might be a more significant predictor of success as CEO. This emphasizes the importance of having a solid succession and development plan in larger companies.

In addition to a solid succession plan, companies could benefit greatly from a talent management program, where the talent in their specific industry is tracked and nurtured over years. Potential successors are courted over years and relationships developed with key players and up and comers in the industry so that when they are needed they can be easily approached.

In companies with revenues between $100 M and $1 B, the highest median 3-year growth rate was associated with CEOs who lacked GM experience – 73% of these being company founders.

Company performance by CEO's GM experience

Among the CEOs with GM experience in smaller companies the result is the inverse of that found in larger companies: experience as GM in a prior company correlates to higher median 3-year growth rates than GM experience in the current company or both.

KEY TAKE-AWAYS

Prior CEO experience is more important to companies with revenue over $1 B.

In smaller companies, a very small percentage of CEOs have prior CEO experience.

GM experience is not a predictor of strong corporate revenue growth.

In larger companies, all CEOs have some GM experience. In this class of companies, experience as a GM in the current company is strongly correlated to higher performance, underscoring the importance of familiarity with the company’s challenges and options.

In companies with revenues between $100 M - $1 B, CEOs without GM experience – most of whom are founders – are the top performers. Companies with revenues between $100 M – $1 B are more likely to look at outside candidates with prior CEO than prior GM experience.

Strategy Role

PATTERNS DETECTED

Only 13% of CEOs in our study had held a Strategy role. All of these were in companies with revenues between $100 M – $1 B.

SO WHERE WERE THE DIFFERENCES?

Median 3-year growth rate was higher for those CEOs with Strategy backgrounds.

CEO performance by Background experience - no strategy vs. strategy

While the median 3-year growth rate was higher for those CEOs with Strategy backgrounds, this may be partly due to the fact that they are in smaller companies, which typically experience higher growth rates.

KEY TAKE-AWAYS

Both strategy and operational skills need to be present when selecting a CEO. Executives with strategy backgrounds can make a significant impact as CEOs if they are also skilled in operations, but this combination of talents is rare.

Succession planning committees thinking about future CEO candidates should be assessing executives with strategy backgrounds for operational potential – and where merited – giving them opportunities to develop and hone their operational skills through a series of progressive and meaningful roles.

Consulting Role

PATTERNS DETECTED

Only 8% of CEOs in our study had worked previously as consultants. All of these were in companies with revenues between $100 M – $1 B. Given that the companies in our study were product vendors, it is not surprising that only a small subset had a consulting background.

SO WHERE WERE THE DIFFERENCES?

Consulting experience correlates with higher median 3-year growth.

CEO Performance by Background experience - consulting vs. no consulting

As with strategy backgrounds, consulting experience correlates with higher median 3-year growth rates, but these folks are in a minority (8%) and found only in companies with revenues between $100 M – $1 B.

KEY TAKE-AWAYS

Executives with consulting backgrounds can make a significant impact as CEOs and should be considered but only if they also understand the product side and can operate a business.

Succession planning committees thinking about future CEO candidates should give executives with consulting backgrounds opportunities to demonstrate their operational abilities.

Engineering Role

PATTERNS DETECTED

29% of CEOs had held engineering roles, with almost all of these (91%) in companies with revenues between $100M – $1 B. In this smaller company set, they constitute 39% of CEOs. Only 11% of CEOs in companies with revenues over $1 B had engineering experience.

SO WHERE WERE THE DIFFERENCES?

Median 3-year growth rate was higher for those CEOs with prior engineering functional roles.

CEO Performance by background experience - engineering vs. no engineering

Again, while the median 3-year growth rate was higher for those CEOs who had held engineering functional roles, this may be partly influenced by the fact that most (91%) of these CEOs are in smaller companies, which typically experience higher growth rates. Even in the smaller companies, however, CEOs with engineering experience correlate with superior median 3-year growth rates.

Because the maximum, minimum, and median numbers are the same for all companies as for companies in the $100 M – $1 B range, we only show the latter, more relevant, chart.

KEY TAKE-AWAYS

We recommend that while candidates with business backgrounds need to be considered, a good grounding as an engineering executive should be considered a positive indicator of success. When paired with strong business acumen, experience in engineering can broaden a CEO’s perspectives on the potentials of the technology and help with the strategic orientation and nimble repositioning of the company based on changes in market and competitive conditions.

Some search committees do value the engineering functional experience as a real asset, because deep understanding of the technology fundamentals, paired with a good business mind is a decidedly strong indicator for performance.

Sales & Marketing Roles

PATTERNS DETECTED

Most CEOs (66%) did not come from a Sales & Marketing background.

CEO background distribution

This was consistent across the different company sizes. Of those with sales or marketing backgrounds, roughly half were likely to have a combined sales and marketing background. 80% of the CEOs with combined sales and marketing experience were in the smaller companies.

SO WHERE WERE THE DIFFERENCES?

The top performers were CEOs with marketing rather than sales backgrounds.

CEO performance by background experience - sales and marketing

Executives with sales experience and executives with marketing experience outperformed executives with neither.

Interestingly, all companies whose CEOs had both sales & marketing backgrounds performed the worst.

When sales and marketing are combined, the tendency has been to give the role to a strong sales executive, who focuses on field marketing as opposed to strategy and product management / marketing.

KEY TAKE-AWAYS

Many technology company search committees focus heavily on sales backgrounds. Marketing backgrounds tend to be considered less frequently, especially in the B2B sector. It may be that marketing positively correlates to performance only when the executive has had strategic marketing experience. Understanding how to focus the company and targeting it to the right buyers may be more valuable than tactical sales execution. Clearly, both marketing strategy and sales execution are required for the functioning of a company, but the question here is who is at the helm and what bias they bring to the thinking of its strategy.

Finance

PATTERNS DETECTED

16% of CEOs in our study had experience in finance, with the majority (83%) of these CEOs in companies with revenues between $100 M – $1 B. CEOs with finance experience constitute 11% of CEOs at companies with revenues greater than $1 B and 17% of CEOs at companies with revenues between $100 M – $1 B.

SO WHERE WERE THE DIFFERENCES?

In companies with revenues between $100M – $1 B, CEOs without finance experience produced significantly higher 3-year growth rates.

Company performance by CEO experience - finance

CEOs without finance experience produced significantly higher median 3-year growth rates than CEOs with finance backgrounds in companies with revenues between $100 M – $1 B. However, the highest performing CEO had a finance background, so there are exceptions to the rule.

KEY TAKE-AWAYS

Financial acumen, including a clear understanding of performance measurements, is a vital requirement for an executive, especially in this era of higher regulation. Financial executives tend to be well prepared for the top role because they have access to the boardroom at very early stages in their careers.

Perhaps the correlation between prior finance roles and lower corporate growth rates is because financial executives tend to be selected in turnaround or financial re-engineering situations that have measures of success other than revenue growth.

Venture Capital or Private Equity

PATTERNS DETECTED

Only 8% of CEOs had venture capital or private equity experience and most of these were in smaller companies.

SO WHERE WERE THE DIFFERENCES?

As with strategy backgrounds, VC and investment experience correlates with higher median 3-year growth rates, but these executives are in a minority (8%) and found mainly in companies with revenues between $100 M – $1 B.

Company performance by CEO experience - VC and PE

KEY TAKE-AWAYS

Venture Capital and Private Equity often attract the best and brightest. In our sample, the performance by CEOs with experience in VC or private equity firms was superior to their peers. As with consulting or strategy backgrounds, when VC or private equity experience is paired with operational capability, it can become a very potent background for a CEO.

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