Ep. 58 – The Puppet Startup CEO

NOVEMBER 15, 2021

If you follow the series A through E fundraising newstream for consumer brands, you will notice some patterns. One of these patterns is the occasional replacement of the founder with a “CEO” after private equity investment or soon after. Now in these situations, don’t assume this transition had been discussed upfront before term sheets got signed. Maybe, maybe not.

Yet, if a group of investors controls the board now, this reality is always, always a possibility. I don’t want to get deep into the dark world of investors’ smoke and mirrors, as they court founders with high growth or high potential businesses such as yours. But suffice it to say that not every founder is being truthful, in my opinion, and experience, who reports happily to the media after one of these events, that relinquishing leadership is just fine with them. Often they are dazed and confused and won’t know how they really feel for quite a while.

But when the board is stacked against you, and you signed, you let it happen. You don’t have a choice anymore. You’re on the ride, the PE ride. In most cases I’ve reviewed where a founder does get replaced, the PE firm installs, invariably installs a “CEO” with a big co-resume of some sort. And these are operators who worked at public firms and CPG, often in general management, marketing, or sales, and a little more rarely, in finance. Wall street LPs, limited partners who fund private equity, and venture capital firms just seem to love these public firm resumes.

I say resumes because as smart as some of these folks are, they almost never have early-stage brand-building experience. It is their supposed professional KPI-driven discipline that Wall Street likes. They seem to be from the right tribe, so to speak, and not, I repeat, not some crazy book-writing anthropologist with no finance background. Good God.

Okay, you can stop laughing. It’s a little hurtful. What’s interesting to me here is not that private equity firms continue to install “resumes” versus proven deliverers of growth much of the time when they replace founders. What’s interesting to me is how often I see very young resumes turned into startup CEOs with little to no early age experience in CBG at all, virtually none. Why would bankers bank, literally, on resume origin symbolism? That’s my new phrase. Such as, “I worked at General Mills or Kraft Heinz,” and not at least on resume experience from someone who just led another brand to some kind of double-digit growth, if not an exit. I mean, these investors are not dumb people, folks, the ones were writing the kinds of checks we’re talking about.

Well, one reason is that they can’t find anyone quickly enough who is that qualified early-stage serial entrepreneur, because you know what? Most of those guys have no interest in working with these folks right away. And they may be so rich, so they don’t need to. Or, as you’re about to find out, they’re available, but not exactly what specific investors really want installed in the CEO role.

Because what you’ll often discover, not all the time, but you’ll often discover that these big co resume installed CEOs, these out of depth folks who have no early-stage brand building experience whatsoever, they have textbook knowledge, they’re not actually running the business at all.

And instead, this resume is simply a puppet through whom the investors speak as very wealthy ventriloquists of sort, i.e., in some cases, it’s the intent of the investor to install said puppet, which is why the primary qualifications that they have are not that they have any independent strategic brilliance in the early stage world, but that he’s simply great at taking orders from behind some kind of black curtain of authority and passing them off below, literally, inside the startup as their own.

Being a ventriloquist puppet, folks, looks easy on children’s television, but if you’re a human being trying to do that, let me tell you it’s a theatrical skill that seasoned alumni of public firms are very, very good at. I have seen it many times live in person. It is an advanced political skill, and I do not aspire it to myself, as you can probably imagine. I would guess you probably don’t aspire to it either. And you know what, neither are the most serial entrepreneurs who are usually rich and very strong leaders. Now, when they partner with investors, it’s simply a different relationship.

The point I’m making by blowing the lid off the seldom disgusting practice is that you need really think about how you would feel if your company was now being run by a puppet CEO whose strings are being pulled by the investor masters, because you would be working with a puppet every single fucking day in your own company that you built. I would imagine you would find this quite infuriating, but it could just be me.

Look, there’s no need to find yourself in this position, but it’s often the result of folks who do not professionalize themselves, so they get typecast by institutional investors. And then the drama unfolds, and suddenly you’re working with a puppet CEO that they put there.

I don’t want to see that happen to you because it’s totally unnecessary. You can take institutional funding, folks, and retain control, majority ownership, and your title as CEO. And you can just do this, but you must professionalize yourself to the point where you can approach someone, like say, my friends at VMG Partners like Dan Lubetzky did with an eight-figure rocking business that doesn’t appear to need any executive replacement at all.

In other words, if you want someone to write a 15 million dollar check at the point in, say, phase three or phase four up the ramp, when you might actually need it badly, and you want to retain control, you need to earn that right my friends, like any other achieved status.

Or just don’t take the money; you can always walk away. Look, strong leaders just don’t wind up in this situation, working for a puppet who knows less about early-stage brand building than you, the founder, do.

True, but are you one of these folks? Are you the one who attracts investors who intend all along to replace you with an odd-faced puppet? Or are they going to actually allow you to retain control over your own business as you continue to ride up the ramp with the benefit of their investment?

That’s the choice that you get to make. That’s the decision I want you to wrestle with as you keep riding the ramp of exponential growth. 

That’s all I’ve got for today, folks. Be safe out there.