When The Board Wants A New CEO - And It Isn't You

You're still nursing your hangover from the funding celebration party, thrilled that your startup is flush with cash after months of scrimping and scraping. Now the financiers want to beef up the executive team. First order of business? A new CEO. Hey, wait a sec—that's your job. Well, maybe it is better for the company's future to have a seasoned CEO, but why wasn't this discussed in the financing process?

Oh, yeah. It sorta was. They did allude to "hiring the A-team" once the funding round was closed, but you didn't think that meant bouncing you. Here's what's going to happen.

Deal with Your Grief

You'll probably follow the famous five-stage Kubler-Ross model:

1. Denial. "This isn't happening. It's just an off-the-cuff comment. Must've pissed someone off at the board meeting. Everything's cool. I'll work this out."

2. Anger. "They think they're getting rid of me? Oh, really. Heads are gonna roll, baby, before I'm outta here. I don't need their stinkin' financing anyway. I'm calling my lawyer—time to kick some financier butt."

3. Bargaining. "Hey, um—we can work this out, right? Look at all we've been through together. Due diligence coulda killed either of us, but no, we hung tight because we're a terrific team. Yeah, we need each other. Don't we?"

4. Depression. "I will never work again. I will never get a good table in the hot restaurants. I am a loser. No one likes me. It's over. Good-bye, cruel world."

5. Acceptance. "You know, Chairman is a pretty rockin' title. That could work. I could be O.K. with that. No direct reports? Awesome. I hate managing anyway. I'll just park here until I find something better."

Secure Your Compensation Package

Hopefully, you obsessed over the terms of your compensation package prior to closing the round, so you know exactly what you'll get. First, figure out if you're being constructively terminated. This means you're being stripped of power (and often direct reports) and put out to pasture. The financier's goal here is to get you to quit, so you'll lose a hefty chunk of your package. You aren't going to do this. No thanks, you'll stay in the game unless they offer something more compelling. If signs of constructive termination are afoot, hire a killer employment law attorney—now. Regardless, make sure you know the difference between being fired for cause and without cause. This will radically affect your stock package.

Get Involved in Recruiting

Your compensation is solid, so now you'll be the helpful CEO emeritus that the board always knew you'd be. You need to dive deep into recruiting, because it's likely a solid chunk of your future net worth tied up in this company. And the new CEO will significantly affect it. Your board will bring some candidates to the table, you'll work your network, too, and then you're likely going to have to retain a recruiter. Because for the most part, exceptional CEOs are already employed. Make a list of your top picks, and let the raiding begin! Make Attila the Hun proud.

Screen Like Crazy

You've got some candidates, now you're going to vet those candidates like they've never been vetted before—without them knowing, of course.

Start with reference checks. We all know references given are the glorious ones. We also know that "off-list" references are always the best. So here's what you'll do: Check out the candidate via your network on LinkedIn, seeking out people who worked at the companies they worked at or partnered with to see how effective they were. Ask references for three off-list sources to contact to see if they can dig up a little dirt.

Once you've whittled your candidates down to a realistic pool, run each through the Four Tests. No. 1, ask yourself, will this would-be CEO crack under extreme pressure and go nuts? Don't laugh. I've seen it happen again and again. I call this the Psycho Test. Now it's time for No. 2, the Pathological Liar Test: Does the CEO have a track record of promising far more than she can possibly deliver? Find out. Then administer the Happy Ears Test—does the candidate only hear what she wants to hear? Pay attention, because this unfortunate quality will mean sales won't close, deals won't get done, products won't hit release dates, and staff issues won't get resolved.

Finally, it's time for the Spineless Test. Will the CEO hand off the tough stuff to someone else? Make sure you know. You don't want your company to suffer because your CEO can't take the heat. In the thick of negotiations when a deal was about to go south, a CEO I was working with disappeared and had the CTO take over the process. Needless to say, we immediately dropped the deal.

Now check for the Fab Four. Can the candidate say "please," "thank you," "I'm sorry," "I don't know?" If I can't get a CEO to say "I don't know," I won't invest.

Should you stay or should you go? It depends. If a significant portion of your future net worth is tied to the company and you can still make a significant contribution there and the new CEO is cool and not ego-crushing, then yes, stay. If you answer no to any of the above, go!

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