The ABC of being and hiring a successful external CEO.
When it comes to hiring an external CEO, many founders face difficulties. In the interview with Christoph Jost, co-founder of FLEX Capital, businessman and entrepreneur Michael Shangkuan not only shares his insights on what makes up a successful CEO but also what to look out for when hiring an external CEO.
CEO of Lingoda
Mike is an EdTech entrepreneur, fitness fanatic, and polyglot, speaking six languages, namely English, German, Spanish, French, Chinese and Japanese. As a pioneer in language learning, he is the CEO of Lingoda GmbH, Europe’s leading online language school, where he is in charge of the company’s strategy and daily business. Previously, he held the position of CEO of Terra Education, a B-corp offering life-changing service learning summer programs to teens in Africa, South America, and Asia. Mike has lived in six countries across four continents. Less known, he is a former natural bodybuilder and competed at several international competitions. He is a graduate of Yale University, and he holds an MBA from Harvard Business School.
Managing Director of FLEX Capital
As a serial entrepreneur and co-founder of FLEX Capital, Christoph Jost founded the online job-exchange Absolventa and built it into the market leader in Germany. He also developed the online listing group Passion 4 guestrooms. He successfully sold both companies to the FUNKE media group.
Mike, thanks a lot for taking the time for this short interview in the FLEXperience series. Maybe, for a start, give our audience and the readers a little bit of background information on your personal career so far.
Michael: Sure. First, Christoph, I want to thank you for inviting me to this interview. I am really excited to be able to talk to you about this topic. To give you an overview of my background: I am an EdTech CEO with Fortune 500 experience, and I can divide my career into three parts.
In the first part, after I had graduated from university, I worked in investment banking at Goldman Sachs. Here, I learned the fundamentals of finance as well as the investor’s mindset.
I then went back to business school for a career change and got into brand management: B2C marketing at Procter and Gamble. I figured if I can sell soap for $10, then I can basically sell anything. What I learned here was how to run a business, how to grow sales, and how to build processes and structure in an organization.
At that point, I realized I wanted to take a turn and I got into education tech. First, I was the CEO of Terra Education, a start-up offering educational travel programs for teens and adults. I came in as the non-founder CEO, and it was a hugely successful experience: we turned it profitable in the first year, we doubled the sales and then six times the investor returns without raising any additional capital.
Now I am with Lingoda, Europe’s leading online language school. We offer online live
classes in English, German, French, and Spanish, that are available 24/7. The Berlin-based company was founded in 2013 by two German entrepreneurs from Cologne, Fabian and Felix Wunderlich. I have been with the organization since the end of 2017, when I came in as
Managing Director, in charge of Marketing and Finance. In 2018, I became the CEO. So far, we have increased sales by 10 times without burning virtually any cash.
We have increased sales by 10 times without burning virtually any cash.
The topic we want to dig into today is what do founders have to keep in mind when they think about bringing in an external CEO, but also what should CEOs think about when taking such a position. What have been your success factors?
Michael: Sure. I would summarize it along three different avenues.
The first thing as an incoming non-founder CEO is to understand whether the founders want to be “king”, or they want to be “wealthy”. This is a concept taken from The Founder's Dilemma, a book by Noam Wasserman, a long-time Harvard Business School professor.
You either want to be “king” so you optimize for control in the company. You have the vision, the desire to build a company, you must run the company. Or you are driven by wealth, meaning you are optimizing for financial return. In the end, the founder does not care what their role is, as long as it is successful. The important thing in a good relationship from the very beginning is to know what is driving the founders: if the founders are driven by the wealth and not the idea of being king, then it is a place to start. If they are driven vice versa, it is very difficult and unlikely to work.
The first thing as an incoming non-founder CEO is to understand whether the founders want to be “king”, or they want to be “wealthy”.
. . . You either want to be king, so you optimize for control in the company. . . . Or you are driven by wealth, meaning you are optimizing for financial return.
The second thing, when I think about the secret sauce, is to be humble and willing to prove yourself. What do I mean by that? You want to listen and seek to understand because the founders have a clear vision, and they are successful for a very good reason.
So, before you get your hands dirty, you want to understand what is really going on and what is working. Then what you do after you have assessed the situation is to be very hands-on. You do not want to be sitting in the ivory tower, you want to go in and do things to learn about the business: Get on sales calls, sit in on an advertising meeting, use the product and talk to customers.
As an example, at Terra Education, my last start-up, I travelled as a sales agent across the country to meet with local clients. I worked the emergency lines at two or three o’clock in the morning when there were problems in different countries. Those are the kind of things that really helped me understand how the business works and also the founders to see that I really cared about the business and wanted to understand it.
The second thing, when I think about the secret sauce, is to be humble and willing to prove yourself. . . . You want to listen and seek to understand because the founders have a clear vision, and they are successful for a very good reason.
Then the third thing, I would say, is to be a chameleon. What do I mean by that? It is about being flexible with different work styles and cultures because the companies culture started by the founders will be different from your own and likely different from the last company you ran. For example, the last company I ran was started by a Stanford MBA from Africa. Lingoda was started by two brothers from Germany. So, this ability to be a chameleon and to recognize what is your work style and what is other people's work style is extremely important. I, personally, call it CQ, cultural quotient. It is the next evolution of EQ (emotional quotient), which is that you are aware of how different cultures work. And the culture naturally affects also the way in which people work.
Then the third thing, I would say, is to be a chameleon. What do I mean by that? It is about being flexible with different work styles and cultures because the companies culture started by the founders will be different from your own and likely different from the last company you ran.
Let us step deeper into the topic. A founder has decided that now is the right time to bring in an external CEO, and they want to hire someone. What should they look out for when scanning the profiles?
Michael: This is incredibly important, right? You hire the right person and things can go extremely well. You hire the wrong person and things go left field. I think the first thing is for the founders to look deep within themselves and to be honest and say: “Do you want to be “king” or do you want to be “wealthy”?”
If you want to be king, I think there needs to be a come-to-Jesus moment. You must be comfortable with potentially giving up control. By either staying in the company and choosing another role, or even considering stepping down and doing something else. That is actually quite common because what makes most founders good is starting a company versus running and scaling a company.
The second thing is, be clear about what you are looking for. Just like for any hire, you want to make sure you know what you are lacking in your team, what your goals and visions are, and what the skills and experience are that you need and you will not compromise on.
The third thing is to hire someone who has done it before. Coming in as a non-founder CEO, you have to work very well with the founders, and you have to work well with the culture. At the same time, you need to deliver numbers. So, hiring someone who has done it before is important.
Just like for any hire, you want to make sure you know what you are lacking in your team, what your goals and visions are, and what the skills and experience are that you need and you will not compromise on.
If you are looking at a job opening as a CEO of a founder-run business, what should you look out for? What should be your decision criteria whether to take the job or not?
Michael: I think that is an interesting question. What I would have answered 11 years ago would be quite different from what I say today. As I have learned through two different jobs, this is my advice: I summarize what I call the three E’s. E for envision, E for engage and E to enable.
The first E, envision, is all about vision. So, what is the promised land? Why are people here? Where do we all want to go? The strategy, the vision, the mission.
It is the big picture. That is the first thing that the CEO should do.
Then the second E is about engaging. That means hiring the right people at the right time and invest in their growth and development. The right people at the right time will make all the difference in the world.
Then, once you have the right people, and they are engaged, you need to enable them. Set them up for success by creating just the right number of processes, communicating clear goals and expectations. Giving constructive feedback, saying what is going well. And being clear about the boundaries of where they play.
To sum it up, it is not very different from whether you are coming in as a non-founder CEO, or just coming in as a CEO because your role is fundamentally the same.
I summarize what I call the three E’s. E for envision, E for engage and E to enable.
Obviously for us as a private equity investor, we are confronted quite often with the topic of bringing in a new CEO if the shareholder’s board agree that this is the right step. Do you have any final remarks on this topic you would like to share?
Michael: I have now had two experiences in which I have helped to take a successful enterprise to the next level. I do think that this requires a somewhat specific skill set.
As said above, being a founder and starting a company is a specific skill set, while running it and scaling it requires another skill set. Each of these things are different. And what I invite people to think about is, do you want to be “king”, or do you want to be “wealthy”?
If you decide on the latter, it is the right thing to find an external CEO. It is a process that certainly takes a lot of time because I think you must find a match along so many different levels, for example in terms of the qualifications you are looking for and in terms of the company culture to help you scale.
But it can be a decision that changes the whole dynamics of your company. And I hope that Fabian and Felix Wunderlich and the founders of my last company would say that taking that decision of bringing me into the company made a difference.
Being a founder and starting a company is a specific skill set, while running it and scaling it requires another skill set.