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Knowing When to Leave May Be the Key to Startup Successs

February 26, 2000

STANFORD GRADUATE SCHOOL OF BUSINESS—Knowing when to step aside and hire a CEO to run the company may be one of the most important things an entrepreneur can do agreed participants at the Stanford Business School’s fourth annual Entrepreneurship Conference.

In 1993 when he and five Stanford classmates were starting Excite “We all had the drive to be successful,” recalled Joe Kraus, “but it was clear that I wasn’t going to be the CEO.” Today he serves as senior vice president.

In the current climate, successful entrepreneurs can expect to be involved in multiple startups during their careers, several panelists agreed. They must park their egos at the door, think big, believe fervently that their companies will succeed, and be prepared to step aside when the time comes. The role of the entrepreneur is to create the company, not to grow it to maturity.

When hiring CEOs for companies they back, ONSET Ventures asks “if they want to be king or want to be rich,” said partner Susan Mason. “If you can’t tell us ‘I’ll do whatever is needed to make this a great company, including step aside,’” you’re not the right candidate, she said.

The annual conference, held Feb. 26, drew more than 500 attendees for a series of workshops on topics including funding new ventures, launching a new firm, strategy, and hiring and retaining top management teams.

Success often depends on assembling a founding team of top managers at breakneck speed in a climate so competitive for top talent that corporate search firms are finding it difficult to get executives to return their calls. Panelists advised following gut instinct when deciding who to hire, but being willing to act quickly when it becomes obvious a new hire isn’t a good match. They also advised drawing from as many disciplines and backgrounds as possible to form a founding team to get the necessary advice to make good hires as the company grows.

While stock options are still important, the speakers agreed, they are generally not the key to being able to hire a good candidate. “The first job is to screen out people only motivated by money and by a sense of entitlement. You want to know if they have a hunger for scale, if they strive to build something bigger than was ever built before. Silicon Valley is the biggest video game on the planet. It’s full of adrenalin and scale junkies,” said Joe Kraus of Excite@Home.

Once people are recruited, the next challenge is to keep them on board. “People don’t burn out because of work, but because of chaos,” said Munjal Shah, co founder, president and CEO of Andale, a company that helps online sellers automate their business processes. The chaos that wears on people is not the work load or the ever changing demands of a startup environment, but rather an internal structure where key players don’t understand their roles and the company’s goals. Employee loyalty is more often to a team than to a company. Losing one key person may mean the loss of other who worked with him or her.

Keynote speaker Meg Whitman, president and CEO of online auction site eBay was hired two years after the firm’s founding. In its last quarter eBay, that describes itself as the world’s largest online personal trading community recorded over $900 million in gross merchandise sales.

Since joining eBay, Whitman has faced difficult decisions such as banning the sale of firearms “I felt the risk was just too high,” and policing the items offered for sale. Late last year, Whitman took one third of the company staff away from other duties and focused them on issues involving trust and safety in the online community. “I think it saved the company,” she said, instituting features including insurance for customers and an escrow system.

In June, when the site was knocked out of operation for 22 hours, “I stepped aside as CEO and became CTO,” she said. “I spent three nights a week on a cot in the office where work was going on. I don’t know a lot about technology but I do know about leadership and I had to send a message to our employees, our customers, and our vendors that this was an important issue.”

When eBay became one of the sites attacked by hackers who blocked access, they worked closely with one of their competitors, Yahoo! to find ways to stop the hackers. “By working together it became easy. The third time we were attacked we stopped them in two minutes,” she said.