Find out how to plan a profitable management succession at a start-up

How to plan a successful leadership succession at a start-up

When founders determine it’s time to maneuver on after nurturing their start-up right into a profitable enterprise, years of arduous work can shortly come undone in the event that they don’t plan the management transition nicely. Steve Melhuish, cofounder and former CEO of PropertyGuru, spoke to McKinsey’s Tomas Laboutka concerning the painstaking transition course of he and his cofounder put in place to make sure the success of the corporate and its new CEO.

Key perception #1: Enterprise founders want to acknowledge when it’s time to show management of the enterprise over to another person.

Tomas Laboutka: There are quite a few success tales of start-ups dealing with management succession nicely, but in addition numerous examples of failures. When do you know it was the proper second to usher in a brand new CEO for PropertyGuru?

Steve Melhuish: It was a private choice. My cofounder, Jani, and I bootstrapped the corporate, constructing it from scratch right into a regional market chief in ten years. It was a grueling and relentless time, as we labored seven days per week, with out trip and with little wage, for many of that interval.

As my twin youngsters approached their third birthday, I noticed I’d missed a lot and was scared that I might miss their youth except I took motion. So I made a decision my priorities wanted to vary and promised my spouse I’d hand over operations of the enterprise by the point the children had been 5 years previous.

I mentioned it with Jani, and he was reaching an analogous conclusion, having just lately had a son. We knew it could be a fancy, difficult, and prolonged transformation and transition course of, so we set the wheels in movement early.

Key perception #2: Laying the foundations for a profitable management transition can contain a number of years of planning.

Tomas Laboutka: How did you talk your intention to your traders, companions, and workers?

Steve Melhuish: We introduced our proposal to the board in 2014 by explaining that each chief must plan for an eventual succession. The shareholders at that stage had been understandably involved, since they’d invested in a founder-led enterprise for 2 years and labored alongside us.

As well as, whereas we already had a presence in 4 international locations at the moment, 96 p.c of our revenues had been generated in Singapore, primarily by Singapore real-estate brokers. And choice making throughout the firm was nonetheless largely concentrated with me and Jani, so we lacked depth in our regional management and center administration.

So we agreed to a three-step plan centered on income diversification and professionalizing the group earlier than figuring out and transitioning to a brand new CEO. We made a dedication to the board to execute this plan over the following three years.

To help income diversification, we closely elevated product, crew, and advertising and marketing funding in Indonesia, Malaysia, and Thailand. We additionally added a fifth nation to our portfolio by buying Vietnam’s market chief. And we acquired two corporations centered on serving real-estate builders, to boost our price proposition to those worthwhile shoppers.

We employed the corporate’s first CFO, CMO, CTO, and CHRO and invested in new IT techniques and processes underpinning these features. Moreover, we invested in coaching and growth to assist enhance our middle-management functionality.

9 months after beginning this transition course of, we efficiently accomplished PropertyGuru’s largest spherical of funding. We made it clear to the potential traders proper on the outset that we had been in the midst of a transition that will hand over management of the corporate to a brand new CEO in roughly 18 months. However at that stage, we didn’t but talk our succession plan to workers, since we wished the entire crew laser-focused on our enterprise priorities: diversification and organizational growth.

Key perception #3: Taking the time to decide on a brand new CEO who matches a rigorously thought-about candidate profile can scale back the danger of ‘organ rejection.’

Tomas Laboutka: Discovering a alternative for cofounders who helmed the corporate for a decade couldn’t have been straightforward. How did you design the CEO choice course of?

Steve Melhuish: Bringing a brand new CEO right into a ten-year-old, founder-led enterprise is clearly a high-risk proposition for the founders, firm, and shareholders, all who fear whether or not the brand new CEO will slot in and improve, or harm, the corporate. It’s additionally excessive threat for the incoming CEO, who worries whether or not the prevailing firm tradition is an efficient match for her or him and whether or not the founders will really step again to let her or him do the job unencumbered.

The method we designed was geared toward not solely figuring out the perfect CEO but in addition minimizing the danger of “organ rejection.” The candidate profile we developed positioned a heavy emphasis on tradition, values, and expertise growth, in addition to expertise in constructing fast-growing companies. We aligned with and acquired help from our board members after which employed an govt search agency we’d had success with up to now putting a few of PropertyGuru’s CXOs.

We had been stunned on the high quality of the shortlist and the way shortly it got here collectively. Lots of the candidates had been well-known senior executives main massive Asia Pacific or Southeast Asia groups for Fortune 100 tech companies. We had been bowled over that expertise of this caliber would wish to be a part of a a lot smaller, earlier-stage non-public tech agency.

Nonetheless, it grew to become clear through the interview course of that some candidates had been annoyed by paperwork, politics, sluggish choice making, low Asia funding, and the shortage of great “face time” with stakeholder administration again at headquarters. Given their lack of decision-making authority inside their massive organizations, candidates had been attracted by the prospect of proudly owning the complete P&L, features crew, and technique in a smaller firm.

Within the remaining stage of the hiring course of, the highest three candidates introduced their development plans for PropertyGuru throughout a two-hour interview with Jani, me, and the board. The CXOs had been concerned and performed background checks, together with by way of again channels with crew members, prospects, and suppliers. We finally chosen Hari Krishnan, who had efficiently constructed and was main LinkedIn’s Asia Pacific enterprise. It turned out to be an amazing choice.

Key perception #4: Easy management transitions require meticulous planning, transparency, and persistence—earlier than, throughout, and after the handover.

Tomas Laboutka: How did you guarantee your new CEO match throughout the tradition of PropertyGuru? How did you forestall “organ rejection”?

Steve Melhuish: We carried out a three-step course of to scale back this threat, which included teaching, a pre-handover comfortable touchdown, and post-handover founder help. We created a brand new chief enterprise officer function, which owned all business facets of the corporate, for Hari for the primary 9 months. Hari, Jani, and I additionally met weekly, and thru this course of we had been in a position to speed up studying and information Hari on any historic or personnel points.

This enabled Hari to speed up his onboarding, ship some wins, construct credibility internally and with the board, and decide whether or not PropertyGuru was match for him. On the similar time, Jani, the board, and I had the chance to observe progress towards expectations, assess the cultural match, and reduce threat earlier than handing over the keys to the corporate.

We additionally employed an govt coach for the primary 4 months of Hari’s tenure with PropertyGuru. This concerned particular person teaching for me, Jani, and Hari to assist us handle any particular considerations and expectations. We later moved to group teaching periods to convey out and tackle any larger points. It was a extremely uncomfortable however extremely worthwhile course of.

After 9 months, I introduced my handover of the CEO function to Hari by way of a reside broadcast to all PropertyGuru workplaces, adopted up by an e mail and reside city halls with all three of us in every of the 5 international locations the place the corporate operates.

We additionally reassured the crew that Jani and I remained dedicated to the corporate and would proceed working throughout the group, in addition to on the board of administrators and as shareholders.

Over the subsequent 12 months, I moved to the again seat, handing over duties and choice making as Hari, Jani, and I continued to fulfill weekly to evaluate progress and points. By January 2018, I had handed over all operations and was in a position to shift right into a half-time function engaged on technique, M&A, and a few key shopper relationships.

The transition course of took three years and was extremely easy, due to a well-managed and phased strategy, sturdy board help, in addition to empathy and openness between Hari, Jani, and me.

Key perception #5: Planning a profitable management transition additionally consists of contingency plans for failure.

Tomas Laboutka: The management transition appears to have labored out fairly nicely. You latterly reported sturdy development figures, and PropertyGuru is worthwhile. What if the transition hadn’t labored out? Did you’ve got a contingency plan?

Steve Melhuish: Enterprise momentum has continued all through the method, and we just lately reported sturdy annual outcomes, with 24 p.c income development, 64 p.c EBITDA development, and an elevated market management place throughout the 5 international locations the place PropertyGuru operates. The succession was a hit. Hari and the crew have finished an amazing job constructing on the inspiration created by Jani and me over the primary ten years.

As with all plans, although, success is rarely assured. Our contingency plan in case of failure was for Jani and me to step again into the enterprise. Underpinning this doable situation was the phased course of over a three-year interval, which included working full-time alongside the brand new CEO for 15 months after the formal announcement. After the CEO transition announcement, we remained totally engaged within the enterprise. We had been concerned in management conferences and social actions with the CXOs, engaged with the broader crew, held weekly conferences with the brand new CEO, and maintained full visibility of key priorities and challenges. This minimized the dangers and in addition enabled Jani and me to imagine management once more at brief discover, if obligatory.

Key perception #6: Reducing the wire to a enterprise you’ve poured years of your life in to constructing will be painful but in addition opens up thrilling new alternatives.

Tomas Laboutka: Wanting again, what was probably the most troublesome facet of the management transition and the way did you resolve it?

Steve Melhuish: I’m grateful the transition course of went easily, and the outcomes communicate for themselves. Probably the most difficult facet of the management transition was really on a private degree. Regardless of initiating and driving the succession plan for greater than two years beforehand, I struggled with turning over the reins, and it took me near a 12 months after the announcement to regulate to this new actuality. I noticed it was arduous to only change off and step again after ten intense years of constructing a enterprise. I additionally found that I had an ego. I loved main the corporate, calling the photographs, and being interviewed by the media. I missed social interactions with the crew as nicely.

I struggled emotionally, had a disaster of confidence, and suffered from lack of function. It was throughout this time that my spouse remarked, “You’ve achieved all you got down to do, however you at the moment are extra depressing than I’ve ever seen you. Would you like the CEO function again?” My reply to her was an emphatic “no.” My priorities had shifted, and I used to be decided to spend extra time with my household, whereas fascinated by “what subsequent?” This began the method of my transitioning right into a extra optimistic mode.

Fortunately, I had wonderful help from my spouse and my Entrepreneurs’ Group colleagues. I additionally acquired teaching from some fellow founders who’d been by means of related experiences when exiting their start-ups.

I started meditating, exercising extra, happening holidays, reengaging within the regional start-up scene, and investing money and time within the local weather and social-impact area. Two years later, I’m having enjoyable. My final ten angel investments have all been within the sustainability area, and I’m working with some inspiring start-ups, founders, traders, and organizations.

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