CEO Readiness Requirements

A framework for assessing if your business is ready for a CEO transition and how to execute it successfully.

Business Readiness Requirements

• Must have product-market fit
• Minimum $300k in annual profit
  • Allows for competitive base salary
  • Enables performance-based bonuses
  • Creates room for growth-based compensation

Founder Readiness Assessment

• Must be willing to fully walk away
  • Can't micromanage or constantly check in
  • Need to empower CEO to make decisions
  • Should avoid "swoop and poop" management
• Must accept business may run differently
  • Product quality might decrease slightly
  • But overall business health often improves
  • Common to see business double in first year

CEO Candidate Profile

• Look for someone who has run similar business at 2x the size
  • Not necessarily same industry, but similar business model
  • Often best to recruit #2 person waiting for CEO opportunity
• Identify their "hammer" (primary skill/approach)
  • Every CEO has one main tool they use to solve problems
  • Ensure their approach matches business needs
  • Examples: marketing, sales, operations, finance

Compensation Structure

• Lead with total compensation number
• Split between base and performance
  • Example: $300k total = $150k base + $150k bonus
  • Bonus tied to specific profit targets
  • Use uncapped bonuses for alignment
• Equity considerations
  • Prefer CEOs willing to buy in with cash
  • Can provide loans for equity purchase
  • Avoid traditional stock options
  • Create shared downside risk

Transition Process

• Make clean break after hiring
  • Remove yourself from Slack/communication channels
  • Direct executives to new CEO
  • Avoid undermining CEO's authority
• Start with frequent check-ins
  • Every 2 weeks initially
  • Move to monthly
  • Eventually quarterly or annually
• Focus on numbers rather than detailed reports
  • Track key metrics
  • Avoid micromanaging day-to-day operations