Todd Belfer | Crain's Phoenix

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Todd Belfer

Background:  

Scottsdale-based Canal Partners is a private equity firm that provides professional investor capital to software and internet technology companies.

The Mistake:

I hired a CEO without performing due diligence.

I co-founded a software company 18 years ago and had a CEO there who left for another company. So I very quickly had to hire another CEO.

Without doing a lot of due diligence, reference checks and background checks, I hired a CEO on a friend’s recommendation – very quickly, on a whim. He started in the first week of December and I didn’t follow up with the team – the employees that I knew and the other co-founder, who at the time was the CTO. I just kind of let it go. I thought, “Thank God, I’ve got a CEO and I can take my hands off this one now.”

I was skiing with my family in Deer Valley the week before Christmas and I got a call from the CTO, who said, “If [the CEO] shows up tomorrow at the office, the whole company will not come in. We’re all quitting.” I think this was on a Thursday. He said, “If he shows up on Friday, you don’t have a company.”

I said, “Tell me why,” and he proceeded to tell me all the stories about the CEO, what he was doing and how he was yelling at people. He was belittling employees, screaming at them and firing people on the spot.

Really, it was my fault for not following up with the employees to see how things were going. I was just hoping for the best. So, I flew back that night after I got the call. I scheduled a meeting first thing in the morning with the CEO and let him go. I met with all the key VPs and managers of the company and told them that I had terminated the CEO and would be the interim CEO. 

I saved the company. It proceeded to grow in the following years and then we sold it for over $30 million.

Personality is everything. Social skills are everything.

The Lesson:

The takeaway is never hire a CEO without doing a lot of work – a lot of background checks and reference checks and buying into his or her strategy. I made a very expeditious, quick move because I was desperate to get someone in there. I was extremely nervous that we didn’t have a CEO and made a quick move based on a friend’s recommendation.

Personality is everything. Social skills are everything. This guy came in and ran the company like a dictatorship and people were not having it. I didn’t take the time and energy to vet him. I think if I had done all those things, I would have realized that he was not the right CEO, not the right person. But, because I was in a pickle and such a rush, I was just excited to have a body that came as a reference from someone I respected.

But, because of that, I almost lost the whole company. If I didn’t fire him that day, there was no doubt in my mind that nobody would have shown up at work and we would have been out of business a week later.

We now have a screening process. I let all my partners meet all the candidates. We get multiple reference checks now. We call former colleagues, customers and clients of the candidate. We spend a lot more time and a lot more energy on vetting a CEO or even any VP or executive position.

It’s come a long way since then. It showed me that I can’t be lazy. I can’t be rushed and I can’t make decisions on a whim. It taught me that I can’t make intuitive decisions; I have to rely on evidence and people’s experience.

Follow Canal Partners on Twitter at @CanalPartners.

Photo courtesy of Todd Belfer

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