Hiring the layer below the CEO

In a growing company the founder's calendar fills up first. Then the people who report to the founder become the limit. They were hired, or promoted, to run a team of twenty. Now they are asked to run eighty, with new customers, new systems and new people to hire. Often nobody asks whether the role they have is the role the company now needs.

Why growth stalls here

McKinsey & Company looked at why start-ups that have already built a product still fail to scale. Of the start-ups in its source data that launched and developed a product, about 80 percent failed to scale it fully. Investors attributed 65 percent of their portfolio company failures to people and organisational issues.¹

McKinsey's conclusion is that scaling is less about raising money than about restructuring fast enough: building a structure for growth, developing talent, and making sure the founder and the top team are aligned.¹ Most of that work lands on the layer below the CEO.

Inside or outside?

The common answer is to promote from within. People know the business, and it rewards loyalty. The research is more mixed. Matthew Bidwell of the Wharton School studied personnel records from an investment banking division between 2003 and 2009. External hires were paid 18 to 20 percent more than people promoted into similar jobs, received lower performance ratings in their first two years, and left at higher rates. Those who stayed beyond two years, though, were promoted faster than their internal peers.²

That study is about banks, not private companies, so we read it as a caution and not a rule. Outsiders bring experience and need time. Insiders bring context and may not have grown with the role. Neither is right by default.

The first eighteen months carry the risk

Research by the Corporate Executive Board, cited by the World Economic Forum, found that between 50 and 70 percent of executives fail within their first 18 months in a new executive role. Only about 3 percent fail spectacularly. Nearly half quietly struggle.³ In a separate ten-year study of Fortune 1000 executives, 55 percent reported minimal ongoing coaching and feedback, and 45 percent said they had understood little of the challenges ahead of them.³

In other words, a good hire can still go wrong if nobody helps them through the first year.

How we build the layer

We treat the layer below the CEO as a design problem, not a series of vacancies. Together with management we:

• Write each role for where the company will be in three years, not where it is today.
• Look inside first, and search widely at the same time, so the choice is a real one.
• Speak with people who have worked for each candidate, not only the ones they name.
• Agree a plan for the first year, with a clear brief, a point of contact on the board, and regular honest feedback.

Key takeaway: the team that built the company is not always the team that can scale it. Check, and plan the first year, before the gaps show.

If you are not sure the layer below you is ready for what comes next, we would like to hear about it.