A great CEO makes all the difference, and a poor one destroys a ton of value.
But recruiting great CEOs is often hard, especially when picking, as is most often the case, from a list of potential first-time CEOs. How do you know who is going to be the right fit and profile for a biotech startup?
It’s fair to say that identifying the hallmarks of a new CEO destined for great things (versus those with less stellar outcomes) is therefore one of the best skillsets an investor can possess. In early stage biotech investing, it’s obviously important for an investor to understand the science and to appreciate the art of drug discovery and translational medicine – but it’s the ability to pick, recruit, and cultivate a great CEO that is worth its weight in gold.
There’s often not a lot of science in the recruiting process, nor in how to describe the ideal candidate for a new role.
To have some fun, increase the scientific element of the dialogue, and take metaphorical descriptors way too far, I’ll put forward that CEO profiles can be described through the lens of thermodynamics and reaction kinetics. Let me explain.
Thermodynamics: Endothermic vs exothermic interpersonal styles.
As many readers know, in science, thermodynamics considers the relationship between different types of energy (like heat) in systems, and how it is transferred through output like work performed across and within systems. Generally speaking, there are two types of thermodynamic processes, endothermic and exothermic ones:
Endothermic: of or relating to processes that absorb or consume energy to complete work in a system, e.g., baking bread, photosynthesis, evaporation
Exothermic: of or relating to processes that release energy like light or heat, e.g., the burning of a candle, formation of snow in the clouds, nuclear fission
These concepts can easily be applied to how a CEO engages with teams and people around them.
Endothermic managers primarily consume energy provided by others around them. They are often low-key thinkers, deep on content and R&D experience – frequently scientist-turned-CEOs. When successful, they typically surround themselves with teams that are able to provide the energetic fuel to achieve the vision. There’s a bias amongst endotherms to go off by themselves, often alone with the door shut, to tackle a big intellectual problem before reverting to the group. Solving conflicts in the boardroom with endothermic managers isn’t often comfortable, so a great burden of conflict resolution may fall to the boards themselves. These leaders also don’t tend to be “high maintenance” managers with their teams and Boards; since they don’t give off heat into the system, they typically don’t cause of stress-inducing chaos with “six impossible ideas
Exothermic managers typically add energy to a room and a leadership team. They are seemingly full of boundless energy, throwing off the joules required to inspire, motivate, and sustain the people around them as they lead their teams on efforts of broad ambition and scope. They are great up on the stage, charismatic in their in support and articulation of the company’s vision. They are adamantly “open door” types, preferring to engage others than to necessarily construct a novel solution all by themselves. They often prefer tackling tough concepts in the boardroom through animated and at times heated discussions. Their bias to add energy can often inefficiently fuel organizational entropy; lots of heat around challenging topics can create waves of thermic disruption in an organization.
You can often feel the difference here in the first meeting with these two types of CEOs; did the initial discussion consume or throw off energy?
As an investor trying to identify talented leaders, while the exothermic executive quickly lights up the room, it often requires several meetings to begin to appreciate the deep competence and attraction of endothermic executives. Either profile can work in leadership, but they are very different – and putting them in an organizational context that supports and “fits” with them is critical. For instance, pairing a endothermic scientist-CEO with a more exothermic CBO is a frequently used configuration.
In some ways, these two characterizations are geeky variations and build upon the overused MBTI personality type dichotomy between E’s and I’s (extraversion and introversion).
Kinetics: Stoichiometric or catalytic organizational impacts.
The second key axis for how a CEO or leader drives value in an organization picks a descriptive metaphor from reaction kinetics, and the difference between stoichiometric and catalytic processes:
Stoichiometric process: one where the inputs are all consumed at a fixed, proportional basis, and the rate of the reaction is largely constant; additive or linear processes
Catalytic processes: ones where inputs can be consumed in greater proportions as the velocity of the reaction is increased (in catalysis); synergistic or non-linear processes
As before, these two can be aptly applied to the type of organizational impact a leader can have.
Stoichiometric CEOs can be great stewards of the business, superb at executing the plan, meticulous on the details and getting the job done. As Phil Needleman often says, the prize often belongs to finishers. This type of leader takes the inputs and fully converts them into the outputs in an expected, positive way. They are, when successful, excellent executors of the strategy, and getting a drug program or discovery platform from A to B. Most of the time, though, these CEOs are additive and not synergistic to the trajectory of an organization.
Catalytic CEOs, like an enzyme in a reaction, can have outsized impact on the velocity and performance of an organization. They often achieve non-linear changes in an organization, looking around new corners, creating new strategies, deriving new paradigms for how to envision the company and the field at large. They are by definition more strategically inclined than stoichiometric CEOs. Often not great at execution (perhaps distracted by too much enzymatic substrate around them!), they can lose focus at the finish, so are best surrounded by detailed-oriented ‘completers’. Catalytic CEOs can change the vector of a business profoundly.
As with endothermic and exothermic types, stoichiometric and catalytic CEOs can both be successful – but they typically are best fit into different types of companies, are excited by different types of challenges, and require different types of teams around them.
The Sato Matrix
Most CEOs fit into a matrix of these two dimensions. It may be a bit cerebral, but I think it’s a very appropriate pair of axes to define the characteristics of a CEO. Vicki Sato is a friend, mentor, and advisor of mine (and former President and Head of R&D at Vertex), and is always full of pithy ways of framing up issues. She deserves much credit for this matrix, as it came out during a well-caffeinated morning discussion at Henrietta’s a few weeks ago. So I’ve decided to call it the Sato Matrix of Biotech Leadership:
The descriptors in each of the quadrants captures the essence of the CEO profile.
It’s fair to say that the bottom left – stoichiometric endotherms – is probably not a frequently successful CEO profile in biotech, though they can and often are good individual contributors inside of an organization. The other composite profiles have many examples of successful CEOs, though I’ll refrain from applying names to labels to protect the innocent – but most readers can probably think of folks in the biotech world across these profiles.
Picking the right CEO profile for the right business context is critical. Big science drug discovery platforms, opening up new frontiers of biology, are clearly best suited with more catalytic leadership. Asset-centric single product plays frequently do well with a stoichiometric exotherm in charge – someone who can operate a lean virtual biotech and its external R&D partners to deliver on the product strategy. Getting the leadership of a biotech “right” is as much about the CEO profile as it is about getting the appropriate team around them, and the underlying business model.
So next time you are thinking about the CEO role in a company, remember it’s all about thermodynamics and reaction kinetics.