What Makes a Great CEO: Part III | Executives Bill Clendenen & Michael Burcham on Building a Winning Team

Anderson Williams: Welcome to Bigger. Stronger. Faster. the podcast exploring how Shore Capital Partners brings billion-dollar resources to the microcap space. This episode is part of a series in which I talk with Shore Executive Partner Bill Clendenen and Shore’s Chief of Strategy and Talent Development, Michael Burcham.

So far in this series, Bill and Michael have shared their own experiences and journeys to help define what makes a great CEO. We followed that by thinking more particularly and specifically about what makes a great CEO in a Shore Capital portfolio company.

In this episode, we want to focus on that critical function of a CEO that really is the make or break of their ability to scale their business, building a team.

Michael and Bill, welcome and thanks for sitting down with me today.

 

Michael Burcham: Thank you, Anderson.

 

Bill Clendenen: Great to be here.

 

Michael Burcham: Pleasure to be here, buddy.

 

Anderson Williams: Just to frame our conversation, Michael, we’ll start with you. Will you clarify in your terms what we’re talking about when we say team? Who is the CEO’s team?

 

Michael Burcham: In the most practical answer, the CEO’s team is the individuals who directly report to the CEO.

That’s how we classically think about it in private equity circles. The Chief Financial Officer, Chief Marketing Officer, Chief Operating Officer, Head of Business Development. Could be others, depending on the type of business, including a Chief Technology Officer. But in most of our vernaculars, those who directly report to the CEO.

 

Bill Clendenen: And in Shore’s parlance, we call those N-1, so N being the CEO, N-1 being the direct reports, and N-2 being their direct reports, direct reports.

 

Anderson Williams: How does that equation, in terms of who the CEO is thinking about as their team, change and evolve Bill as the company grows, or how does it change and evolve as the company grows?

 

Bill Clendenen: In my experience and what I’ve seen at other Shore companies is really at the beginning, the organizations tend to be flatter, right? CEOs may have up to 10 direct reports. As the company grows and scales and you move from being more of a generalist as a leader and a manager to more specialization, the CEO’s direct reports N-1’s get fewer, really typically, you know, five to seven.

Anderson Williams: So when you first get started, Michael, how do you think about the first hire? So you haven’t built out that whole team. You’ve just started a platform at Shore. Who do you think about bringing on first? And how do you strategically think about that when you can’t just bring on a fully developed team all at once?

 

Michael Burcham: I would say in thinking of this through the lens of Shore Capital, the first hire is going to always be a CFO. There’s rare instances where that may not be the case, but that would be the first hire because the types of financial reporting required, the preparation for board meetings, it’s a lot of work.

And in order to do that well and for the CEO to have leveraged time to do business development, build other members of the team and the other millions of detail duties they need to think about, they’re gonna need someone beside ’em making absolutely sure everything is financially buttoned up.

So I think the very first hire is A CFO after that. It varies highly by type of company and type of industry, and I think it’d be fun to hear some of Bill’s views, and he and I can opine about various types of things we’ve seen and what worked really well. When you go beyond the CFO. What do you think, Bill?

 

Bill Clendenen: I would completely agree that the CFO is probably the CEO’s most critical hire, and the sooner you can get that person, that right person to the seat next to you will help you drive the growth of the business. And so I completely agree CFO is your most critical hire.

You know, the second thing I would, I would challenge the CEOs is to really understand yourself. So. Who are you as a CEO? What are your strengths? What are your weaknesses? What are your blind spots? I think CEOs often maybe not self reflect enough to really understand what they need in that role to make them successful. So I think that’s the, you know, once you figure out you’re gonna hire the CFO, who do you need in that seat next to you?

But then beyond that, what is the growth strategy of the company, right? I think, you know, types of companies, the industry, if this is an organic growth strategy, probably a Chief Growth Officer, Head of Sales, Head of Marketing will be most important. If it’s an inorganic growth strategy, right? Head of BD.

If it’s a healthcare related provider roll up, who’s your Chief Medical Officer? Because you need somebody to go out in the field and recruit other physicians to join your practice. And so I think, you know, the three things are one, get the CFO in the seat. Second thing, know yourself so you can build the team to support your blindspots. And three what’s the growth strategy?

 

Michael Burcham: I agree with Bill’s comment of knowing yourself as a CEO. We have CEOs who are very good at business development and want to make those first acquisitions themselves directly, and in that case, they may need a very different person than a head of BD. They may need operations or analytically minded individuals to help while they’re doing business development.

We have other CEOs who the idea of business development is probably not their cup of tea. They’re more operationally minded. And in that case, having someone who can really lead a business development initiative and get out of the gates quickly in acquisitions is probably the next. I can think of one of our companies that a critical early hire, it was probably number three or four in was the Chief People Officer.

And it’s because the kinds of businesses we were going to acquire had a number of extenders around each acquisition partner. In this case, it was a healthcare business. And we knew that the headcount of the company would quickly grow from 50 to 150 to 500. And we knew without a strong leader over people and culture, we would fail.

And so the Chief People Officer was, I think, number three or four higher total because of that.

Anderson Williams: And what role do you guys, you guys are both Lead Independent Directors, you work closely with our CEOs, what role do you play or how do you help support them in identifying some of those blind spots that you’re talking about?

 

Bill Clendenen: Yeah, I think it starts before even we make the investment. We spend a lot of time with that CEO or potential CEO during diligence, right? Really understanding what their drivers are, what their interests are. People typically are most successful when you align what their desires are with their talents.

And so really understanding where they’re good. You know, beyond that, what I try to help them understand is understand what the expectations of Shore is, or really any private equity firm that you partner with. Shore has a pretty high standard, and so understanding what the requirements can be before they step into that seat and know what they’re getting into is important.

So I think, you know, we ask questions to help them better understand themselves, but really what we’re trying to do is shine a mirror on them so that they understand where they’re strong and where they’re weak.

 

Michael Burcham: The approach I have taken as a Lead Independent Director is a study and look at the kinds of acquisition partners that will be joining the platform and what talent and knowledge and skills are among those founding partners.

There’s no need to duplicate that. If we have really good founder partners who will be joining us early, in the case of our orthodontic business, our initial founding partner was a terrific doctor that I knew had all the wherewithal to be a great Chief Medical Officer. In that case, a Chief Medical Officer wasn’t on the short list to be hired because we were going to have an outstanding founder who could do that.

In another case, one of the CEOs that I work with, the initial founding partner who would be joining, had really deep operating experience and really aspired to help run the operations of the business. If you think about who will likely be your early acquisition partners who join and their skill, and you take Bill’s advice of being super self reflective, I think it becomes really clear to the CEO who they will hire, but I think failure to do that can lead to some early mis-hires.

We have on some occasions, a initial founder will serve as a CEO for a short time that rarely turns into the long-term, but those early founders do want some type of role that’s meaningful for the most part. And I think being respectful of their expertise and finding the right role for them. Before you simply begin hiring into function areas is a really smart move for a CEO and can really help not only get the acquisitions accomplished, but give that founder a key role in the company to help tell the story and bring the other partners together for the CEO.

 

Bill Clendenen: I’d like to emphasize something Michael said, and that’s really one of the goals of an acquisition, right? Talent acquiring, when you do an acquisition, is critical. And oftentimes when I’d be looking at, you know, buying a company, I’d say, okay, who’s on their team? And who’s better on that team than on my team?

Are there better processes there? Are there better people? And so, you know, those early acquisitions can really quickly transform the initial startup of a business in a partnership with Shore.

 

Michael Burcham: Yeah, we haven’t talked much about it, but another area for a CEO to think about is it’s really hard to hire everyone you want to hire right away because you have limited both time and capital until you get acquisitions done.

Quite often, an astute CEO can lean on one or two board members to complement them before hires get done, and I’ve seen that done very effectively when the CEO makes it really clear. This is likely a short term assignment, so I’m not asking you to sign up for something in the long run. But boy, it’d be helpful to me if you could help me for the next three to six months do this while I’m hiring for that.

And I will tell you, even when sometimes early on or with turnover, Bill and I have both been ad hoc, functional people. Leaders for CEOs for a period of time, just helping keep the momentum of the company while the CEO either makes the right hire or replaces a mis-hire. Wouldn’t you say Bill?

 

Bill Clendenen: Completely agree.

Now that’s the challenge, right? Is finding the right talent at the right time. And you should look around the Shore network, your board, other COEs, right? If there is an acquisition where, you know, the acquisition is going to be say marketing critical, bring along the COE to fill in a gap. that you might not have on your own team.

So use the Shore network to leverage the resources that you have.

 

Michael Burcham: Bill’s comment about the COEs is really right on. Our Centers of Excellence leaders at Shore have immense industry knowledge and can not only be a great advisor to a CEO, but they also likely have a network that they know that can bring great resources and even perhaps candidates to the CEO to consider in a hiring process.

 

Bill Clendenen: And the last thing, maybe just as we think about what we should be looking for in the early stages of a partnership, my preference as a CEO in the early stages was to find more generalists, find a five tool athlete who can do a little bit of this, a little bit of that and do it really, really well. As the company grows and scales, I think the team needs to be more specialized.

And so as the company grows and scales, you get people with precise sales experience, marketing experience, data experience, medical experience. So all those things, as you grow and scale, become more specialized. But at the start, I look for five tool athletes.

Anderson Williams: Well, let’s take that a little further. Bill, you know, we’re investing in companies with high expectations of rapid growth.

That team, that’s a good $5 million team to a $20 million team to a $60 million team. That’s a very different environment to be for a team to be operating different expectations, different expertise. How as a CEO, do you know whether you want to invest or need to invest in a particular team member to grow and scale versus recognizing that this person’s not going to be the one that gets us to the next level and I’ve got to top grade this position.

How do you decide between those two? And maybe there are more than two approaches, but.

 

Bill Clendenen: So there are multiple things to unpack in that question. And so let’s talk more broadly, such as from a general process perspective. One of the things that I learned in one of my first private equity backed experiences was something called a Human Resources Review or an Organizational Capacity Review.

And in essence, what that is, is you as CEO would take a blank sheet of paper. And what I would do is I’d map out Where the organization currently is today, where it’s going to be in six months, where it’s going to be in two years, and I put that box around that time frame, then what I do is I say, what do I need to support the organization?

My customers might go to market, my growth strategy, and I’d create essentially an organizational chart. of what we actually had to do today, tomorrow, and two years from now. Then what I do is I take my people, so I do places first, then faces. Then I take my people and say, okay, can they go here? Can they go, you know, six months?

Can they go two years? And if they didn’t make those leaps in time, I knew I’d have to start backfilling. And this for me was an incredible tool to help get me thinking about the future, right? Because there’d be tipping points. Sometimes the tipping point would come sooner. Based on our performance, or it might come later if we weren’t hitting on all cylinders.

What that did, it allowed me to identify my human resource needs before I actually need it, before it was too late. It also gave me a tool to talk with my operating partner, talk to my LID, saying once I’d figured that out myself, I’d then start sharing it with my board. At Shore, we do something called a Nine Box, which is similar, but that’s more actually how well are the individuals performing within their current role and, how much capacity they have for the future.

But this is more granular and tactical. And that helped me think about what resources I needed for the future.

 

Michael Burcham: So, Anderson, when we begin and we hire athletes or generalists, it’s always good to have the right conversation with that individual as well. For instance, it may be, we’re going to give you a meaningful operating role, but in two years, there may be a Chief Operating Officer hired that you will work for and you may lead a market or a region.

I think if you set the proper expectations, you can hire a generalist in the beginning that doesn’t expect in 12 or 14 months you’re going to promote them to a Chief Operating Officer if they simply don’t have that skill set. So it’s really about managing expectations. I really like that. Bill’s example, I have done this same thing throughout my career.

I basically built a progressive set of organizational charts. This is when I get to 10 million of cash flow, I’m going to need this type of structure versus what I have today. When I get to 30, I’m going to need an org chart that looks more like this. And by having that clarity in my head, I have the right conversations with the earliest hires.

They know what it’s going to take for them to professionally grow and be part of the organization. I don’t promise a role I can’t fulfill for them to get later. And it gives me a, almost a cadence of how and when key players will be coming in, based on how we grow. That actually helps the team relax a little bit too, because when you’re really busy heads down and the work gets steep, let’s say, everybody’s looking around like, when are we gonna hire?

Well, the best answer is we have a plan for hiring and as soon as we complete two more acquisitions and hit this amount of cash flow, we are hiring this position. And the one right after that is the one you’re hoping we will hire. So it’s number two in the queue. It’s on the list. We will get to it.

 

Bill Clendenen: Another great benefit of the Shore family is the CXO program. And oftentimes, Shore CEOs will be encouraged to hire a CXO. And, you know, the X in CXO stands for anything.

 

Michael Burcham: Whatever you need them to do.

 

Bill Clendenen: Whatever we need them to do. Oftentimes, it starts as a Chief of Staff, Head of Strategy, some generalist position to help the CEO in this time of growth, the initial fast growth.

And I think the CXOs, provide incredible value at the beginning of a hold. So for me, it’s not only the CFO, but the CXO, a hard driving, charging generalist to help me achieve the results for striving are excellent. And Michael, you, you lead that program now, and I’d love to hear how CEOs can tap into that more specifically.

 

Michael Burcham: A couple of thoughts come to mind about that, Bill. I mean, as you were describing that, we have one of our CXOs who’s been with Shore now four and a half years. He started as a Chief of Staff. He moved into helping run a specific location because the founder turned over. He then serves as an interim in a financial role.

As we were looking to hire a Chief Financial Officer, he moved into a development role. Following that He was just named Chief Operating Officer, but he has four years of knowledge, very deep about the organization, and honestly has positioned him incredibly well for his next stop to be a CEO for sure, because he’s literally proven his capability in every seat, almost in the C suite.

So, that was my immediate thought. When you shared that, we actually encourage the young men and women who joined Shore in the CXO program to really help the CEO in every capacity possible. Don’t get too headstrong in what you long term plan to do, just solve problems and do the work that’s in front of the company and the CEO every day.

And through that, they’ll get the reps to position them for a significant role in the company. Having the flexibility as a CEO to put someone like that in various roles is really important early on as you’re growing the company because no matter how much you’ve attempted to predict what you want or believe what your plan is going to be, guess what?

Surprises happen all the time, almost monthly. And having someone who has the flexibility to adjust and help you as a CEO is extremely powerful person to have on your team.

Anderson Williams: When you guys think about your own experience, as well as your experience as a Lead Independent Director, what are some big mistakes that you’ve seen CEOs make?

And maybe it’s along the planting, growing, harvesting timeline, but what are some mistakes that you’ve seen that anybody listening and thinking about being a CEO, you could just go ahead and give that advice to them. Keep an eye out at this at the planting phase, maybe at this in the growing phase, and maybe this at the harvesting phase.

 

Michael Burcham: So I’ll take a first crack at that and then I’m sure Bill has some thoughts because he and I have both been around Shore quite a while. In that early stage, which we call the planting stage, which is likely moving us from concept to the very first acquisition partner or two, I think the right mindset to have for a CEO is think of entrepreneurial grit.

I have found when you try to hire someone from a very large company into that phase, it rarely works because they’re coming from an environment where there were so many individuals across the organization and under them executing that they were much more of a strategic leader than they were an execution leader.

I think early on planner doers is much better than just planners. So having somebody who will roll up their sleeves and help do the work early on is a real good recipe for success. So I think one of the key mistakes I’ve seen that I encourage CEOs not to do is don’t go hire someone from a very large organization that’s super specialized.

Maybe at year three or four, that might be what you need. But early on, you need very gritty, hardworking individuals who will help you achieve what you need to achieve.

 

Bill Clendenen: One other trait that I think is incredibly valuable at the early stage of a partnership, in addition to grit, is a bias for action, right?

See a problem, don’t ask permission to fix it, just fix it. Having a bias for action to take action and get results is critical at that early stage. Oftentimes people don’t want to step on toes. They don’t want to, you know, mess with the apple cart. I want somebody who’s going to get in there and fix things right away.

As soon as they see it, just do it. Because in these early stages, there are a lot of problems to be fixed.

 

Anderson Williams: And what about as a company grows, Bill, does that evolve?

 

Bill Clendenen: Oh, completely. I think as you become more specialized and your processes become more robust, you need people that actually become functional experts in revenue cycle, in marketing, in sales management.

So as the company evolves, you need people with a much deeper, specialized information in their particular department.

 

Anderson Williams: So what are those at that stage? What are some of the pitfalls you see or mistakes you see at that growing stage? Michael hit on the planting. What about at the growing stage?

 

Bill Clendenen: It’s in the growing stage.

I think one of the issues that new CEOs in particular have is they get comfortable with the people that they have, right? They’re used to how they work. They’re not messing up the apple cart. Things aren’t that bad. And so what they do is they often will settle for talent, right? They won’t get that. The best person that they can get, because that might be a threat to the organization, right?

You’re up-talenting people. What does that mean to the rest of the organization? They’re these inflection points as you’re growing. And I think as the CEO, you need to be bold in taking those up-talenting opportunities. Opportunities to really elevate the standard. So one of the things we talked about when we onboard CEOs is that as a CEO, you have to set the standard and then uphold the standard.

And I think during these transitionary points, planting to growing, growing to harvesting, you have opportunities to up talent. And I just would say be bold.

 

Michael Burcham: You can’t reward loyalty over performance and I think in the growing phase there’s a tendency by CEOs to say this person helped me go from zero to where we are.

I really owe it to them to give them more time to get ready and unfortunately that becomes your weakest link in the organization and one or two of those and the forward momentum of the company begins to decline. I mean, high performers like to work with high performers. High performers do not like to work with mediocre performers.

And our ability to perform at various stages and size of a company and complexity of a company varies by the individual, their talent, and how they’ve invested in themselves. It’s much better to say to someone you’re not ready to lead this next phase, don’t want you to leave. Here’s a role I want you to serve in now because I’m going to have to hire someone who has this expertise you do not.

But let me invest in you and let’s see if we can get your skill set to the point that the next promotion is yours.

 

Anderson Williams: Let’s assume you’ve made those good choices and you’ve been able to up talent bill like you were describing during the growing phase. Are there any things that you think about differently or pitfalls at the harvesting phase when you’re thinking about exit?

 

Bill Clendenen: And most certainly, I think this is one of the critical times for the CEO. And this is where you lean into your partnership with Shore. Who is going to be in the management presentation when you’re selling the company? Do you have the four or five individuals that are ready for that process on your team?

And if you don’t, you need to get them on board before you start that process. And so I think At that point, as you’re transitioning from the growing phase to the harvesting phase, doing a thorough evaluation of who’s going to be in the management presentation when you go to exit the company is probably one of the hardest decisions to have these people have been with you for three or four years.

That process, having done it myself. Three or four times is brutal. And if you don’t have the right team, you’ll have a sub optimal outcome. And really, it’s one of the most important decisions you make is who’s in that team, who’s in that room when you sell the company.

 

Michael Burcham: Sure, because we invest in microcap, we tend to sell our companies to larger private equity investor firms.

Always keep in mind that they want to meet a team that’s prepared to grow the company even more. And they’re asking themselves, can this team double the size of this company or not? And if the answer is, I don’t think so, then we’re all in trouble. So it’s important that you not have just the right face in the room that can tell a great story.

But you feel confident that the people you take into that management team meeting are prepared and have the skill and acumen to significantly grow the business and that they have such credibility, the buyer sitting across the table believes that too.

 

Anderson Williams: If you enjoyed this episode, check out the other episodes in this series at www.shorecp.university/podcasts, or anywhere you get your podcasts. There you will also find episodes from our Microcap Moments, as well as Everyday Heroes series, each highlighting the people and stories that make the microcap space unique.

This podcast was produced by Shore Capital Partners with story and narration by Anderson Williams. Recording and editing by Austin Johnson. Editing by Reel Audiobooks. Sound design, mixing, and mastering by Mark Galup of Reel Audiobooks.

Special thanks to Bill Clendenen and Michael Burcham.

This podcast is the property of Shore Capital Partners, LLC. None of the content herein is investment advice, an offer of investment advisory services, nor a recommendation or offer relating to any security. See the Terms of Use page on the Shore Capital website for other important information.