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Technology CEO's Report - Internal vs. External hire

PATTERNS DETECTED

39% of all CEOs were founders. However, all the founders were in companies with revenue between $100 M – $1 B.

CEO distribution - internal vs. external hire

  • Founders constitute 52% of CEOs in companies between $100M – $1B.
  • 14% of these founder-CEOs were co-founders who were promoted into the CEO slot.
  • 37% of all CEOs were internally promoted, including 67% of CEOs at companies with revenue > $1 B.
  • 24% of CEOs were recruited externally.

SO WHERE WERE THE DIFFERENCES ?

Founders turned in the best revenue growth rates, partially because they are all in smaller companies.

Company performance by CEO origination - founder vs. non-founder

Founders and externally hired CEOs both had an edge over internally promoted CEOs in terms of 3- year median growth rates.

The performance difference between external hires and internally promoted executives is significantly greater (3x greater) for companies with revenues > $1 B than for companies with revenues between $100 M – $1 B.

CEO performance by background experience - internally promoted vs. externally hired

In companies with revenue between $100M – $1B, founders outperform all other CEOs, but they have only a slight edge over external hires.

Company performance by CEO origination

Founders who can scale in management skills as the company grows are able to apply their in-depth knowledge and passion to drive higher growth rates.

KEY TAKE-AWAYS

Entrepreneurial founders are passionate and intimately knowledgeable about the products and markets they serve. There are many founders that have the ability to scale their skills as the company grows and deliver superior performance in companies up to $1 B in revenue.

It was surprising that external hires outperformed internal hires even in larger companies, where you’d expect greater bench strength.

In spite of this, 75% of CEOs in the larger companies were internal promotions.

There may be a bias to bet on the ones you know intimately when internal and external candidates are each a close fit for the CEO role. Conversely the bar for external candidates may be slightly higher.

Companies with a strong succession planning process give internal candidates opportunities to develop their skills and vie for the CEO slot. But these companies go with outside candidates when the external candidates are clearly a better fit than anyone in the internal pool. Even when they select an external CEO, the internal talent pool is typically strengthened as a result.

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