Hiring Executive Talent: The Sheepish Canadian Startup

December 26, 2009

Much is written about the state of the Canadian tech startup sector and why it lags the US, Israel and other countries in producing a richer community of world-class companies.

While I am not qualified to comment on many of the contributing factors I am witness to how Canadian startups hire and lever talent at key points in their growth. I would argue that for many of these firms the bar excellence is set so cautiously low that to expect anything but mediocrity is laughable. Let me provide a recent example.

Several months ago we were invited to bid on a CEO search for a growing $10mm per year startup, a SaaS provider of application software to a large enterprise market. In the past year, the company has discovered a sizable opportunity to mine and analyze data generated by their very large US-based customers. But try as they might the founders have not be able to capitalize on this very different business opportunity. At the urging of the board of directors the founders agreed that an experienced CEO might be able to help.

With nothing more than this quick synopsis one can surmise that this firm would benefit from the proven experience of someone who has successfully scaled a subscription-based, data-mining or related software businesses to the next stage of growth. Furthermore, given that the firm’s major customers are based in the US, it could also be speculated that familiarity with those customers and others being targeted would also be helpful. Depending on the company’s ultimate endgame they may set their sites on a whole range of additional experience, skills and relationships.

It bears mentioning that this firm is headquartered in a relatively small community and in our discussion the question of the geographical location of the new CEO was raised. It was clear that the three founders were struggling with the issue though they repeatedly insisted that given the sizable opportunity before them they would settle for nothing less than the ‘best of the best’, wherever that executive was based. It was also clear that in return for agreeing to hire a new CEO, the founders considered the question of where the successful candidate would reside to be their decision, not the board of directors. The two Canadian venture capitalists present at the meeting said little.

We did not win the search and thus never had more than a cursory discussion on the issues and tradeoffs in question. However, this past week, we were speaking with one of the board members involved and asked about the CEO that the firm hired. I must say that it was a surprising choice. The company did not hire a CEO with proven experience building subscription-based companies, nor did it hire someone from the data mining sector. It did not even hire someone intimate with its own industry, customers or the challenges of scaling a firm like theirs. Instead it hired a senior executive from the aerospace sector, one with a mixed track record in smaller company settings. When asked about their decision-making process, the board member beamed how pleased they were to attract someone of this caliber who was willing to relocate to the small town where the company is headquartered.

Rather than press boldly on the growth accelerator, this anxious Canadian startup installed a throttle valve to regulate it. Lacking the courage to pursue, dare I say demand, a proven industry leader to navigate the company through the treacherous waters that lie ahead, wherever that person may be, it settled for someone close to home. The compromise will prove to be an incremental, risk averse and far less promising gambit.

Such a decision would not be so concerning were this a private ‘lifestyle’ business, one being built in a measured fashion by the founders, at their leisure. But this is a venture-backed company, with a guiding model of growth, timelines, and a venture-capitalist dominated board of directors. It could be argued that this would not have been the outcome with one of countless US-based venture capital firms was an investor.

The search concludes with pats on the back for all involved. The board of directors takes pride in having triggered change with the introduction of a more senior executive to the company. Management makes the best of having been forced to make changes by controlling the process and hiring someone they believe they can keep an eye on, and control. Meanwhile, the company does not get the sure hands, wisdom or savvy they need and the network of relationships they can bring.

Typical, safe and somewhat sad. Welcome to Canada.

Robert Hebert is Managing Partner of Toronto-based executive search firm StoneWood Group (www.stonewoodgroup.com). He can be reached @ rhebert@stonewoodgroup.com or at 416.365.9494x777