By Ankit Mahadevia, former CEO of Spero Therapeutics, as part of the From The Trenches feature of LifeSciVC
The right leaders in the right structure can power companies to great things. The general consensus is that all companies need a CEO and full team at the helm (see here for several posts we’ve written on this topic) to thrive. However, many emerging companies do not have a traditional structure, as I’ve noticed across my Board, venture, and company building experience. These include, for example, companies too early for a CEO and those undertaking the (usually long) process of finding full scale leadership. These teams may be led by a Board Chair, the senior R&D person, or by a group of equals.
While as a Board member I can empathize with the sentiment to find the right full time CEO as soon as possible, this is not always appropriate. Alternative leadership structures can and do deliver great results if constructed correctly. There’s a healthy debate among boards about how to construct leadership and when is the right time for a traditional CEO led management structure. These are also important questions to ask as an individual looking to join an emerging company.
A framework for non-traditional leadership structures
I’ll fully admit that most of my good ideas have outside inspiration, and in this case the tech world’s range of leadership structures has been instructive. In his book The Innovators, Walter Isaacson notes that game-changing tech companies (Intel, Qualcomm, etc.), were successful early on at three core activities and that these were often led by different people on the team– inside leadership, outside leadership, and decision-making. I’ve also found this to be extremely useful when evaluating the quality and timing of leadership structures.
- Inside leadership: This component is table stakes because companies that don’t execute don’t survive. The “inside” hat of leadership executes the strategy, makes decisions to solve problems, and leads resource planning. Equally as importantly, inside leaders communicate progress to the Board and look after the people required to deliver on the mission.
- Outside leadership: Outside leadership means interacting with the world to create opportunities, provide strategic context for decisions, and secure resources (people, capital). It’s the sometimes more glorified work of company building.
- Decision-making: This component is often understated but has consequences that last for years. For example, a leadership team may need to decide where a technology platform should make its first clinical bet, whether to take a partnership deal that’s on the table, and when to make a change in the leadership structure.
Applying the framework – questions to ask of a leadership structure
Leadership construction – what’s the minimum viable construct?
In many cases, a company is not ready to recruit a full leadership team yet, based on stage of pipeline, cash position, or a key inflection point that needs to happen. Especially in these circumstances, I’ve found the framework helpful. As you might expect, inside leadership to ensure execution is the first priority. At any stage, the most effective companies I’ve seen have at a minimum a full time person with some experience that’s accountable for delivering the workplan. For example, many early stage companies sometimes start with a CSO or an experienced, mid-career head of a key function. Those that don’t invest in full time inside leadership risk inefficiency given the dilution of focus.
The profile of the inside leader drives how a Board might complement them for outside leadership and for decision-making. For example, a leader who has been through external discussions may only need Board support on key decisions; others may need a full time business professional, or a member of the Board committed to rolling up their sleeves. My observation is that a part time outside leader can be effective; a minimum time investment is required to be systematic, capture nuance, and be nimble when it’s time to tell your story to the world. Decision support is the least likely to need someone full time in house. I will note, while this role often defaults to a Board, that the boardroom is typically a suboptimal to process a complex decision from first principles. It’s often helpful if one director dives in with the team to drive a recommendation for the Board to consider. Otherwise, decisions can be slower, risk group think, and default to the obvious rather than the optimal. We practiced this recently at a company I advise, where a specific member of the Board dove into choice of first indication of a platform, which led to a more productive discussion and a clear decision.
When to hire a CEO – balancing risk and opportunity
Boards appropriately focus on the risks of not having a full time CEO. If a nontraditional leadership team has gaps, it’s indeed a real risk to the business. There are also risks to jumping the gun on full time leadership. First, CEOs are market participants. The most qualified have the opportunity to ask for more (more capital, more data) before they jump in. Pushing for a CEO too early may mean constraining your options. Choosing the wrong candidate from an artificially limited pool is ultimately disruptive and risks imprinting the wrong habits in the company’s DNA. Second, at a certain phase of the company, there may not be enough outside leadership required to justify the investment. For example, an established company undertaking a CEO search may need a key clinical study to read out as that widens the candidate pool and affects the profile of the right leader (e.g. a commercially oriented vs. R & D oriented leader). Searches cost money and take time away from already lean teams; it pays to make that investment when the workplan can make best use of a CEO’s skill set. Indeed, getting a nontraditional leadership structure right is incredibly strategic because it mitigates the risk of a premature hire and opens up options to find the best team for the long run.
Other applications of the framework – established companies
I’ve found this framework helpful not just for new technology companies, but also in more mature companies. From my time as a CEO and public company director, this framework helped me think about transitional leadership, whether of a key company function or of the company itself. For functional leadership, inside leadership takes on outsized importance, as the broader management team can provide strategic context and decision-making horsepower. The right candidate to be interim head of function can execute through their domain knowledge and relationships (inside leadership), has a proven ability to communicate upward, laterally, and to the team about the function (outside leadership), and within certain parameters is comfortable making important tactical calls (decision making). When I’ve applied this test as CEO of Spero Therapeutics (for example when we made a transition in clinical leadership many years ago), the framework helped me consider candidates for the interim position I might not have otherwise, and think hard before anointing candidates that on the surface seemed obvious. The qualifications for an interim CEO can also benefit from this framework. The more mature the company, the more the interim candidate will need proven skills across all three domains of leadership. Further, their inside leadership will need to expand beyond just execution to ensuring the health of the culture and a unified understanding of the company mission. How Boards can best support such a candidate for an extended period when they’re not in the succession plan for CEO could be the subject of another blog post.
Non-traditional structures: Can they last for the long term?
The potential effectiveness of a nontraditional leadership structure does raise the question of whether these structures can be effective for the long run. My own opinion (religion more than science) is that they can’t and that for the vast majority of companies finding the right CEO is the right option. My rationale is that as the complexity of a business increases, the entropy and risk of ambiguity created by distributed leadership outweighs any of the potential advantages such as more bandwidth and retaining key executives. As a counterexample, Feigen and colleagues make the case in Harvard Business Review for the co-CEO concept. That said, much of the literature and shared experience suggest a nontraditional structure is practical only in rare instances. Perhaps tautologically, I note that if it worked better, more companies would do it.
Every emerging company is unique, and a range of leadership structures can work well until it’s time for a full scale CEO and team to take the reins. Using a simple framework can help ensure that all the key bases are covered, and give the company the ability to deliver on its mission and grow no matter the circumstances.