The Five Temptations of a CEO

The graduation from Seed to Series A is a milestone that few founders experience. As we described in our earlier blog: Crossing the Chasm - from Seed to Series A, only 1 in 7 startups make this step. Current market conditions have narrowed these odds even further.

This graduation is uniquely difficult because it incorporates multiple 'transitions' that must occur at the same time. These involve the company, its customers, and its people.

For the company, this is the transition from the 'experimentation' phase to the 'growth' phase. It also signals the transition from initial product/market fit with the early adopters to more robust product/market fit within the mainstream market.

Less obviously, this is also a critical period of transition for the CEO/founder and the leadership team. At the core, this is a behavioural transition that underpins their capability to now transform the startup into a market-leading business of enduring value.

In other words, business growth cannot occur unless accompanied by the personal growth of the CEO/founder and their team. This is becoming an ever-greater aspect of investment due diligence, extending beyond the classic attributes that investors seek.

If certain behaviours are in evidence, they will help cement the Series A. If they are in question, this can undermine any future round of funding.

Five Temptations framework

As a framework for thinking about behavioural traits, Patrick Lencioni's book, The Five Temptations of a CEO, provides a perfect reference. Often quoted by leading investors (some even provide copies to all their portfolio companies), it captures the behaviours that are so difficult to master yet are crucial for success.

Lencioni's research illustrates the importance of self-awareness and personal growth in leadership. By recognising and addressing 'five temptations', CEOs can cultivate a more effective, accountable, and results-oriented leadership style.

These temptations are often unconscious behaviours and apply to CEOs of all companies. To make them more relevant to startup CEOs we have captured below some specific observations that are most frequently highlighted by VCs and other investors.

Temptation 1: Choosing Status over Results

Lencioni argues that many CEOs prioritise personal status and career advancement over organisational success. Leaders often become more concerned with maintaining their position and reputation than with achieving measurable results. This temptation leads to a lack of accountability and a focus on individual accomplishments rather than team performance.

The startup example: A classic sign of trouble is the focus on 'vanity metrics'. These are metrics that typically measure 'effort' rather than 'results'. Many can also be manipulated (e.g. MAUs for an app) such that they do not reflect the true trajectory of the business. They can keep improving but are not necessarily a sign that the team is creating a business of enduring value.

As there are so many different 'go to market' strategies and business models, context is clearly very important. In all cases however, the team must be able to explain why certain metrics are key value creation indicators for their specific stage. Investors want to see a deep sense of intellectual rigour and first principles thinking, not just what a founder might expect an investor to be generically interested in.

Metrics that provide clarity on how value is being created for customers are the most prized. For example, in the early stages of a SaaS business, retention will be more important than revenue. If there is high churn - even if revenues are growing strongly and being measured in $Ms - then enduring value is not being created. i.e. It may look like product/market fit has been achieved but in reality, it is still elusive.

Temptation 2: Choosing Popularity over Accountability

CEOs may avoid difficult decisions and tough conversations to maintain harmony and popularity amongst their team. Lencioni stresses the importance of holding employees accountable for their performance and making decisions that benefit the organisation, even if they are unpopular. True leadership requires a commitment to the company's long-term success, not just short-term approval from colleagues.

The startup example: When building out the leadership team (often coincident with Series A), a founder might not recruit the right level of experience. Instead, they may rely on promoting many of their earlier hires. This may push some beyond their individual capability. The CEO prioritises being liked over being effective.

Experienced founders (and the investors who back them) say that two thirds of the leadership team need to be 'pulling the company up' with them. They must already have the experience to know what is required several stages hence.

Fast moving startups do not have the luxury of being able to 'push up' such a large cohort. It's fine for the core 'culture carriers' to be there, but they need to see what 'great' looks like. They then benefit though osmosis, by working alongside the larger, more experienced group.

Successful CEOs must quickly demonstrate that they can attract top talent - leaders that stand above them in functional competency and can help drive the business to the next level.

Temptation 3: Choosing Certainty over Clarity

Leaders often delay making decisions until they have complete information, which can lead to missed opportunities and indecisiveness. Lencioni encourages CEOs to embrace clarity and decisiveness, even in the face of uncertainty. Clear direction and timely decisions are crucial for driving the organisation forward and maintaining momentum.

The startup example: Clarity is often elusive at the most critical moments. For example, when crafting the investment proposition, how many iterations of the investor pitch are necessary to ensure the key messages are being conveyed? How long does it take to create a simple description of what the company does and why?

Experienced founders make sure there is zero ambiguity between what they think and what they say. They are clear-headed and authentic in how they describe their vision, their plan, and what they need to make it happen. This is especially critical with investors.

This frankness will be more likely to polarise opinion, but it is also more likely to quickly filter out the time wasters.

Temptation 4: Choosing Harmony over Conflict

Avoiding conflict to preserve harmony within the team can hinder innovation and problem-solving. Lencioni emphasises the value of healthy, productive conflict in fostering creativity and addressing issues head-on. CEOs should encourage open dialogue and diverse perspectives to drive better decision-making and continuous improvement.

The startup example: Great leaders are typically not consensus builders, but they do create unity of purpose. As we said in our earlier piece on breakthrough founders, they are often 'disagreeable'. These founders fight all the odds to pursue what they are obsessed with. Fulfilling the mission is more important than fitting in.

It's not that disagreeable founders are argumentative or won't listen - quite the opposite. They are unusually keen to listen and synthesise. They may ultimately dismiss someone's input, but they create an environment where this doesn't get personal. They have the courage to be disliked but their authenticity and commitment means they are respected.

Andy Grove, former CEO of Intel, famously espoused the principle of 'disagree and commit'. He would encourage the team to disagree when making an important decision - he wanted opinions openly voiced, not kept quiet. But whatever final decision was made, he expected the team to do everything possible to implement it - even if they disagreed with it.

Dissent was not tolerated, and everyone knew the rules.

Temptation 5: Choosing Invulnerability over Trust

Many leaders fear vulnerability and are reluctant to admit their mistakes or weaknesses. Lencioni advocates for building trust within the team by being open, honest, and approachable. Demonstrating vulnerability fosters a culture of trust and encourages employees to be more engaged and committed to the organisation's success.

The startup example: When founders appear invulnerable, it can create an atmosphere where employees also feel pressured to hide their own mistakes or concerns. This lack of openness stifles communication and hinders problem-solving. Employees might become less willing to take risks or innovate, fearing repercussions if they fail. In contrast, a founder who shows vulnerability fosters a culture of trust and transparency, encouraging everyone to share ideas and concerns without fear.

Startups regularly face significant challenges and setbacks. A founder who projects invulnerability may struggle to rally the team and navigate these crises effectively. By contrast, a founder who is open about difficulties can better mobilize their team, leverage collective problem-solving, and foster resilience. This approach builds a shared sense of purpose and commitment to overcoming obstacles together.

In summary

The graduation to Series A is uniquely difficult because it incorporates multiple transitions that must occur at the same time.

To cement investor confidence, founders must demonstrate a behavioural transition that underpins their personal capability to build a market-leading business of enduring value.

The 'five temptations' capture the behaviours that rarely come instinctively. That's why they are so difficult to master yet are so crucial for success.

By recognising and addressing these temptations, CEOs can cultivate a more effective, accountable, and results-oriented leadership style that is sought by top investors.

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