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(~12 minute read)<\/p>\n\n\n\n
—<\/p>\n\n\n\n
In my very first professional internship 18 years ago, I remember wondering, what does a CEO actually do? Sure, you often hear of the CEO job described with lofty responsibilities and one that entails making massively consequential decisions, but what are they REALLY doing? What does their calendar look like, what kinds of decisions do they make and how do they keep score of their unique impact?<\/p>\n\n\n\n
Over these past 18 years, I\u2019ve spent ~10 of those at a top-tier management consulting firm advising various departmental heads and some CEOs (mostly at Global 2000 orgs) on solutions to some of their most pressing top-line focused business challenges and opportunities. I also spent the last 6 years, working side by side with two CEOs (as their Chief of Staff, leading strategic planning and cross-functional execution) as we scaled the company by ~6x in revenue over this post-IPO period. As an avid reader, I\u2019ve also consumed dozens of the most popular business texts on CEO & executive effectiveness including the classic works of Peter Drucker, Andy Grove, Ray Dalio, Rich Rumelt, Roger Martin, Ben Horowitz, Jim Collins, Ram Charan, Charlie Munger, Lou Gerstner, Bob Iger, Marc Benioff and Frank Slootman. While there are several consistent themes that cut across these works, there are also some key differences and contradictions across them. Over the years, I\u2019ve tried to contrast and reconcile those key themes against 1) what I\u2019ve observed to be the most effective CEO traits across various experiences in a high-growth environment and 2) situations where the lack of CEO engagement yielded less than ideal outcomes. I will attempt to describe these activities and behaviors in this post.<\/p>\n\n\n\n
A CEO is by definition the highest-ranking executive manager in a company, so one way to approach the question of \u2018what makes a great CEO\u2019 is to ask, what defines success for a manager? For this, I\u2019ll borrow a definition from the great Andy Grove (the ultimate Silicon Valley OG and a personal role model). He defines a manager\u2019s output as the output of their organization + the output of the neighboring organizations under their influence. While the managers own work is important, that in of itself does not create value, their org does whether it\u2019s a small team or a large department. Grove\u2019s core thesis is that the best way for managers to maximize this output is by focusing on the \u201chighest leverage\u201d activities where their unique input can most impact their orgs collective output. Since the CEO’s \u201corganization\u201d is the entire company, to answer the question of what these \u201chighest leverage\u201d actives are, you have to answer the question of what fundamentally makes organizations successful. Though the answer to this question is complex, I\u2019ll borrow Larry Bossidy\u2019s (former CEO of Honeywell) simplified perspective which states that success in business ultimately boils down to three things: having the right strategy (knowing what to do and how to do it), effective operational execution (a tenacity and relentlessness to actually get the org to do these things despite the myriad of obstacles encountered) and great people (having the right folks in the right roles with the right incentives and with appropriate decision rights to exercise their judgment over their remit). A CEO’s highest leverage activities therefore entail the non-trivial task of ensuring these key things are done and done well.<\/p>\n\n\n\n
Every company is different and the strategic priorities and activities of the CEO are never going to be the same even at two companies that might otherwise appear similar. That said, I\u2019ve observed that there are five activities that are so universally high leverage in an enterprise that amongst other things, it is critical that they are directly led by the CEO of the organization. <\/p>\n\n\n\n
1 Establishing and communicating the vision and strategy for the organization<\/strong><\/p>\n\n\n\n No amount of effort or brilliant talent will lead an org to success if the value thesis, core objectives and path outlined to get there was flawed to being with. Said differently, if the company didn\u2019t set out to do the right things to achieve its desired outcomes, nothing else (effort, culture, etc.) will compensate for that. That is the essence of corporate strategy. Identifying and articulating a compelling North Star for the company, giving everyone a glimpse of the future state and instilling confidence in their collective ability to get there is something that only a CEO can do. This sets the context within which every employee finds their purpose and operates. Note, the CEO doesn\u2019t have to be the creator of this narrative, but they do need to be the chief guardian and communicator of it. It\u2019s a narrative they will have to believe in their core and repeat hundreds of times to a diverse set of constituents, so authenticity and consistency in delivery here is crucial to instilling belief and building a broad base of followership. If you believe in Dan Pink\u2019s mastery, autonomy and purpose model of motivation, articulating a compelling vision and strategy for the org is possibly the highest leverage activity for a CEO as it impacts the most immediately influenceable of these three dimensions: purpose.<\/p>\n\n\n\n At Alteryx, we defined this mission as enabling every knowledge worker to transform data into extraordinary breakthroughs without needing to possess an advanced technical skillset. That was the essence of the democratization or \u2018analytics for all\u2019 message that cascaded into a coherent set of product capabilities and corresponding distribution strategy.<\/p>\n\n\n\n Strategy is built on a foundation of knowledge that includes understanding \u201ccore truths\u201d and using those to select the best among a myriad of alternate futures. Therefore, all interactions a CEO has with customers, partners, investors and employees are first and foremost an information gathering exercise more than anything else to compound this knowledge base. It\u2019s why these activities consume a significant portion of a CEOs time. It\u2019s what gives them a rich and highly differentiated tapestry of data, knowledge and perspective with a wider aperture than almost anyone else to make critical decisions. Separating the signal from the noise and synthesizing the implications of the relevant trendlines is a foundational CEO skill and activity.<\/p>\n\n\n\n 2 Hiring a world-class team and ensuring the right involvement of the Board of Directors<\/strong><\/p>\n\n\n\n Organizations are living and constantly evolving organisms that need world-class executive leadership across a myriad of functional domains if they are to achieve ambitious and outsized outcomes. This is a difficult exercise and the skills needed here involve identifying the appropriate structure for the current & future state of the org, identifying key competencies for leaders in a diverse set of areas (many of which the CEO may never have overseen before), identifying high-quality candidates and motivating \/ convincing them to join the mission and keeping them engaged with an appropriate mix of oversight and input. It also entails recognizing when a given leader is no longer the right fit for a role and taking swift action to rectify that. Additionally, no matter how pure intentions are and how hard an organization focuses on creating a meritocratic culture, when the stakes are this high, complex power dynamics (a.k.a politics) are bound to come into play which inevitably leads to varying degrees of conflict. Furthermore, smart folks by definition have strong opinions which leads to disagreements amongst executives. While conflict and disagreements cannot be avoided, there are right ways and wrong ways to manage executive conflict and it\u2019s only the CEO who is in a position to effectively manage these conflicts in a productive manner that puts the organization first while deftly managing big egos. I can say from first-hand experience that there are few things more detrimental to the morale, culture and performance of an organization than having an overtly dysfunctional relationship between execs that\u2019s devoid of trust and which isn\u2019t attended to in a timely and appropriate manner. It was unfortunately this dynamic that resulted in a broad turnover of the first executive team at Alteryx that I worked with when the founding CEO retired and was succeeded by the next one.<\/p>\n\n\n\n In addition to assembling and steering the right executive team, the CEO must actively manage the Board of Directors. This entails ensuring that there is an appropriate degree of information sharing, trust building, and solicitation of advice from each BoD member in their domain of expertise such that the Board\u2019s collective oversight and governance responsibilities are effective. Doing this well makes subsequent decision-making on large and consequential topics significantly easier and is something that only the CEO can do. <\/p>\n\n\n\n 3<\/strong> Understanding the limits of growth and the underlying growth equation for the company and making the appropriate bets on maximizing that growth with the right unit economics<\/strong><\/p>\n\n\n\n There are four fundamental ways to create value in an enterprise: 1) Increase revenue, 2) Reduce costs, 3) Improve asset efficiency, 4) Increase financial leverage. The first three of these are operational levers while the last one entails financial engineering.<\/p>\n\n\n\n The technology sector, particularly the software vertical, is by definition an asset-light and high gross margin business model. The incredibly low upfront capital requirements (made possible through cloud computing infrastructure), low marginal costs to produce and replicate a unit of value (driven by multi-tenant architectures and digital distribution) and a steady predictable stream of recurring revenue (enabled by SaaS) is what makes this a supremely valuable business model and perhaps the most competitive sector in the economy. It\u2019s why VCs invest hundreds of billions of dollars a year in this space at ever increasing revenue multiples. It\u2019s also why seven of the top ten companies in the S&P 500 (ranked by market cap) are technology companies with a significant software-driven component to their business model and value proposition.<\/p>\n\n\n\n In an asset-light, high gross-margin business model with a large addressable market, the best way to create value is to drive top-line growth if the underlying product has a differentiated value prop with a strong, demonstrated market fit. That is why there is (rightfully) such an extreme obsession with \u2018growing fast or dying slow\u2019 in Silicon Valley. With such high gross margins and a recurring revenue stream, there is a rational willingness to accept spending >$1 to acquire <$1 of quality net-new ARR as long as the LTV\/CAC ratio over time makes sense. It\u2019s also why software companies are valued on a multiple of revenue and why adjusted GAAP metrics, while controversial, are acceptable and perhaps even more relevant to investors than GAAP metrics. Note, I will go much deeper on \u2018LTV\/CAC\u2019 in a future lesson.<\/p>\n\n\n\n Driving value-added growth in a software business comes down to executing on various growth levers while minimizing COGS, (typically <20% of revenue and mostly a function of platform architecture and scale) and more importantly, managing OpEx. Within OpEx, Sales and Marketing expenses tend to be the biggest outlay (30-60%), followed by R&D (15-25%) followed by G&A (8-12%). Managing the unit economics of a software business entails identifying the primary growth levers of the business, understanding how they can be actioned, translating the impact of incremental investments in each of these areas on the overall growth trajectory and ultimately making the right prioritized bets on how much gas to pour on each bet to collectively maximize long term value<\/u><\/strong>. Said differently, this decision entails coherently answering the following seemingly straightforward question: \u201cwhat is the right growth rate for the company and what investment level does that require\u201d? This is an incredibly foundational yet complex question with enormously consequential ramifications.<\/p>\n\n\n\n The factors that go into answering this question at a minimum include the size, growth, penetration levels and competitive dynamics of the addressable market, the level of differentiation of the product suite, upsell and cross-sell potential across customer segments, geo and channel expansion potential, the marginal return of incremental investments in each facet of go-to-market, the attractiveness of market adjacencies and the R&D orgs\u2019 ability to serially innovate, non-incrementally, beyond the core value prop (i.e. striking gold again). It\u2019s also dependent on exogenous factors that are out of management\u2019s control. Said differently, answering this requires having a sophisticated and comprehensive view of all the levers of growth of the business and an intellectually honest perspective on the org\u2019s maturity and ability to execute. Answering these questions in fluid, rapidly evolving and amorphous markets makes this a highly ambiguous and challenging exercise that involves blending science and art and one that requires a tremendous knowledge base, analytical horsepower, structured thinking and most importantly intellectual humility to tackle effectively. <\/p>\n\n\n\n The CEO with the widest aperture view of the business must lead this exercise and bring an appropriate mix of unconstrained non-incremental thinking, intuition and evidence-based decision-making before betting valuable resources on driving incremental growth. If you underestimate this potential, you will end up leaving value on the table and give competitors oxygen and space to flourish despite your superior position to capitalize on the market opportunity ahead of you. If you overestimate this growth potential (a far more common error), you will end up over-investing and making investments with poor returns that degrade the unit economics of the business and erode shareholder value. It\u2019s a fine line to tow and at Alteryx, we\u2019ve been guilty of being on the wrong side of this line in both directions at various points in time. In 2018\/2019, we underinvested relative to the market opportunity when we had solid unit economics and the white space was greater and conversely in 2022\/23, we over-invested relative to the market potential which hurt our sales efficiency. It\u2019s also important to note that calibrating the plan and allocating resources isn\u2019t a one-and-done exercise every year. The most strategically agile and well-managed organizations are constantly looking for ways to experiment to measure the relative contribution of all significant investments and are monitoring leading indicators to determine if the returns are indeed as expected, whether they should wait and let things play out, or cut their losses and move on if the business case isn\u2019t likely to materialize as anticipated. Yes, it\u2019s the CFOs org who will do a lot of the heavy lifting to support this decision but it\u2019s the CEO who must make the call on how aggressively to bet here which involves much more than just the obvious financial considerations. <\/p>\n\n\n\n 4<\/strong> Architecting and championing the company\u2019s culture<\/strong><\/p>\n\n\n\n As a left-brained, highly analytical individual who spent my formative business years honing problem-solving skills in the ultra-objective management consulting industry, I have to admit that my natural predisposition has historically made me wary and a bit uncomfortable with discussions about culture. I somewhat understood this amorphous concept at the intellectual level, but felt it was a bit too fuzzy to worry about at the practical level. I could not have been more wrong.<\/p>\n\n\n\n It’s not feasible or desirable for leaders to constantly observe employees and make every decision for them. As successful organizations scale, most CEOs want to empower their employees to hire the right kinds of individuals on their teams, make difficult decisions the way top leadership likely would and generally embody the principles that have made the company successful in the first place. That\u2019s what culture is. It\u2019s the set of norms, expectations, and rituals that govern and dictate behaviors amongst employees of an organization especially when there is no direct supervisory oversight.<\/p>\n\n\n\n Yes, explicitly defining and codifying these elements into a substantive and discrete collection is an important first step. However, what is even more important is for leadership and the CEO to demonstrate these values in their day-to-day actions and behaviors from seemingly trivial things like how they speak with their admins and approach business expenses to more substantive decisions like ensuring that the behaviors of the people that get promoted are consistent with the values the company espouses.<\/p>\n\n\n\n Here\u2019s a small example. During my new-hire orientation at Alteryx, we got the usual talk on expense policy and how we should be thoughtful and treat the company\u2019s money like our own. This was pretty standard stuff that I didn\u2019t think twice about. In my first few weeks, I traveled a fair bit to our different locations. On one of those flights to Denver, I observed the founder and CEO (who had a 10-figure personal net worth) sitting towards the end of the plane next to what looked like an 8-year-old kid. Though surprised, I figured it was probably a last-minute booking or a switch he needed to make. The next day, I was standing at the checkout line at the company\u2019s cafeteria during lunch with the CEO just ahead of me. He had ordered a sandwich and the cashier had accidently charged him for a meal which I believe was a buck fifty more. Despite the rush hour line starting to grow behind him, he politely asked her to refund the difference back to his corporate card and waited patiently for a minute or so as she did that. In that moment, I took note. Witnessing that seemingly trivial act ensured that during my next ~6 years with the company, I approached business expenses with the same thoughtfulness that I did my personal expenses and much more so than I had done during my years as a management consultant operating on faceless client budgets. That is the power of culture and demonstrating it as a person of influence.<\/p>\n\n\n\n Every move that CEOs make \u2013 no matter how significant or trivial – is observed and scrutinized by employees. Explicitly codifying the behaviors and values they desire from employees and ensuring that they embody and live those values on a day-to-day basis is an incredibly high-leverage activity that has the potential to pay exponentially compounding dividends.<\/p>\n\n\n\n 5<\/strong> Overseeing operational execution, at minimum in the “transformation zone<\/strong>“<\/p>\n\n\n\n Few topics evoke a more polarizing perspective from senior leaders than the relative importance and interplay between \u2018strategy\u2019 and \u2018execution\u2019. Since definitions here tend to be inconsistent, let\u2019s for the sake of this section (at the risk of oversimplification) define the former as \u2018identifying the right things to do and how to do them\u2019 and the latter as \u2018getting things done\u2019.<\/p>\n\n\n\n While I\u2019ll avoid wading into the debate of relative importance, requisite skillset and merits of combining the role and decision rights of strategists and operators, here is the simple unavoidable truth. No plan, however grand and comprehensive as it might be, is ultimately worth the page it\u2019s written on unless it is actioned effectively. This makes effective execution foundational to the success of the company. While the relative importance thresholds of \u2018doing the right things\u2019 vs. \u2018doing them right\u2019 are contextually dependent, it really comes down to simple math. 80% * 1 = 0.8 while 100% * 0 = 0. This was the impetus behind Facebook’s early corporate value: \u201cDone is better than perfect\u201d. It\u2019s a relatively simple concept to grasp.<\/p>\n\n\n\n While they both acknowledge the immense criticality of formulating the right corporate strategy, two of the most hardcore proponents of the \u201cExecution is the major job of the CEO\u201d argument are Frank Slootman (former CEO Snowflake) and Larry Bossidy (former CEO of Honeywell). Larry defines execution as \u201cthe systematic process of rigorously discussing how\u2019s and what\u2019s, questioning assumptions, tenaciously following through on progress and ensuring accountability\u201d and furthermore states that the \u201ctop dog should not be exempt from needing to get their hands dirty from the details of actually running things\u201d.<\/p>\n\n\n\n Look, at the end of the day, I can tell you that every CEO ostensibly has some type of management control system in place to track and monitor organization-wide execution, be that weekly meetings, operational reviews, QBRs, etc. as they are accountable to a board of directors for these outcomes. The core question is how much time should<\/strong> CEOs spend on getting into the details of operational oversight vs. delegating those out. As with many things, the answer is \u2018it depends\u2019. As a highly detail-oriented person, a core belief of mine is that \u2018details matter\u2019 (see post<\/a> on execution and KPIs). That said, I\u2019ve seen both approaches work and believe the answer to this question depends on the scale, org-structure and peace-time vs. wartime context of a company. For larger, multi-BU orgs that have a COO overseeing core operations or are operating in a \u201cpeacetime\u201d context (i.e. operating in an environment with strong moats and healthy market expansion), the CEO does not need to wade into detailed oversight of most initiatives. For smaller, scale-up, single-BU orgs or those that are operating in a \u201cwartime\u201d context (i.e. facing existential risks), the CEO MUST take a hands-on approach to captaining the ship. As Ben Horowitz says, \u201cin wartime, the company has a single bullet and must at all costs hit the target \u2026. it\u2019s the CEO who needs to ensure focus and singular adherence to the mission\u201d. The CEOs intimate involvement in all facets of execution needs to be their primary focus in these situations. <\/p>\n\n\n\n The one exception to the \u2018it depends\u2019 rule (i.e. where a CEO must always<\/strong> drive execution in a hands-on manner) is on efforts that the author Geoff Moore describes as \u201cTransformation Zone\u201d initiatives in his phenomenal \u2018zone to win\u2019 management framework. A transformation zone, according to Moore is where a disruptive product or business model goes to be scaled to material size, typically at least 10% of company revenue. The organization’s long-term success depends on catching a next-gen technology wave or a new product cycle as it\u2019s entering the growth phase and the trajectory of it almost always follows a J or S curve where metrics typically go south before they go north. Success here requires massive change management, org process re-engineering, driving urgency, reinforcing vision when convictions waver and making appropriate exceptions to controls in order to expedite outcomes. I can confidently state from first-hand experience of seeing both sides at Alteryx that leading from the front on such efforts is one the highest leverage activities a CEO can and must engage in. Major product launches that had direct CEO operational oversight scaled to $15M in ARR faster than those that didn\u2019t. Similarly, the success rate of acquired assets being integrated into the core platform and driving incremental value was significantly higher with hands-on CEO involvement vs. when there wasn\u2019t.<\/p>\n\n\n\n —<\/p>\n\n\n\n In conclusion, I\u2019ll reiterate the following. Every company is different and the responsibilities, top priorities and type of decision judgment required by the CEO is unlikely to be the same even at two different companies that might look similar from the outside. That said, I\u2019ve observed that these five activities are so universally high-leverage that delegating them out to others either isn\u2019t possible or doesn\u2019t yield anywhere near the same results compared to when they are directly led by the CEO of the organization. <\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" (~12 minute read) — In my very first professional internship 18 years ago, I remember wondering, what does a CEO actually do? Sure, you often hear of the CEO job described with lofty responsibilities and one that entails making massively consequential decisions, but what are they REALLY doing? What does their calendar look like, what…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-258","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/actionableinsights.online\/index.php?rest_route=\/wp\/v2\/posts\/258","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/actionableinsights.online\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/actionableinsights.online\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/actionableinsights.online\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/actionableinsights.online\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=258"}],"version-history":[{"count":31,"href":"https:\/\/actionableinsights.online\/index.php?rest_route=\/wp\/v2\/posts\/258\/revisions"}],"predecessor-version":[{"id":491,"href":"https:\/\/actionableinsights.online\/index.php?rest_route=\/wp\/v2\/posts\/258\/revisions\/491"}],"wp:attachment":[{"href":"https:\/\/actionableinsights.online\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=258"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/actionableinsights.online\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=258"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/actionableinsights.online\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=258"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}