From the February 2006 issue of Entrepreneur

Oil refineries have a dangerous problem on their hands. They rely on highly reactive alkali metals like sodium and potassium for their operations, and using them risks catastrophic fires. Entrepreneur Michael Lefenfeld, 25, is helping solve this problem. He founded SiGNa Chemistry, a 2-year-old New York City company that has patented a way to stabilize alkali metals. The company's client roster already includes Exxon Mobil and Shell Chemical, and it pro-jects sales of more than $5 million in 2006.

But Lefenfeld is now heading into a potentially volatile mix of his own: He wants to hire a CEO who can pursue new capital and customers while he focuses on R&D. "I love being on the business side, [but] there are certain people that are deal-closers. They're programmed that way," he says. "We're anxious to expand SiGNa into a much larger business."

Globalization, outsourcing and competition for capital are also putting pressure on small companies to think like large businesses. "Even as a startup, it's hard not to be thinking globally," says Buck Goldstein, an entrepreneur-in-residence at the Kenan Center at the University of North Carolina, Chapel Hill. "Any CEO with aspirations to build a significant company has to think in a much more profoundly global way than ever before."

SiGNa Chemistry already has customers in Europe and South America, "and we're barely out of the gate," Lefenfeld says. "You have to have a strategy for attacking those markets that are much harder to access."

Hello, CEO
Global outplacement firm Challenger, Gray & Christmas Inc. tallied more than 1,100 CEO changes between Janu-ary and October last year-a new CEO turnover record. The report concludes that many CEOs are deciding it's time to step aside, but in many instances, they're staying with their companies in other positions. Joe Griesedieck, vice chair and CEO- and board-services consultant at executive search firm Korn/Ferry Internationalin San Francisco, says, "We've certainly seen an increase in the number of CEO searches." But he also sees a continued rise in the number of CEOs hired from the outside who "just don't make it" over a sustained period of time.

While there are a few high-profile examples of founders working alongside CEOs recruited from the outside-Yahoo! co-founders David Filo and Jerry Yang, for example, seem to have made a smooth transition after hiring outsider Terry Semel--there's "inevitably a rough ride" in the transition, says Julia Homer, editor in chief of CFO Magazine. "You can never communicate enough," she says. "And even when you think you're communicating enough on both sides, it often turns out there are misapprehensions about how the roles are going to be."

Last year, Joe McIsaac, founder of 4-year-old Woburn, Massachusetts, e-mail security firm Reflexion Network Solutions, decided to hire an outside CEO and transition to chief technology officer. He hired technology industry veteran David Hughes, who's working to simplify the company's product line and change its go-to-market strategy. Reflexion projects a fivefold increase in bookings this year.

Accepting a new CEO's mandate isn't always easy. McIsaac, 44, was surprised one day to find that Hughes had instituted new accounting controls. "In the past, I was also the CFO," McIsaac says. "Controls put on me were unexpected." Ultimately, a smooth transition requires trust and the ability to accept change. "You have to let it go," McIsaac says.

Hiring a CEO requires exceptional due diligence on your part. Trey Cox, a partner with Lynn Tillotson and Pinker in Dallas, suggests starting with an extensive background check of a CEO candidate's references, public filings and criminal record--something a private investigator can do for you. "I have seen instances where an excellent-looking candidate has a skeleton, or several skeletons, in his closet," he says. "Especially a sexual-harassment skeleton." A background check will help you avoid directors and officers insurance claims, not to mention the public embarrassment of a CEO hire gone wrong.

On par with most privately held companies, Michael Lefenfeld is offering a combination of cash compensation and options while touting his company's potential. But he's also checking references and giving CEO candidates a mock business plan to evaluate during the interview process. "It's sort of a homework problem," he says. "[It gives me] a sense of how they see SiGNa growing."

It's wise to craft confidentiality agreements and employment contracts that lay out job roles and describe the terms under which a CEO would leave your company. "All business relationships end one way or the other," Cox says. "Plan for that eventuality, and leave yourself a means to terminate that you can live with." If you're in a highly competitive industry, a noncompete and nonsolicitation agreement is a good idea, too.

Hiring a CEO requires hard work mixed with a dose of good luck. At press time, Lefenfeld was still looking for the right chemistry. Says Lefenfeld, "We're making progress."