Growing Pains. Flamholtz Eric G.
CEOs of entrepreneurial companies are enthusiastic about markets and products but are not very interested in management or the “nuts and bolts” of day-to-day operations. Many of them find accounting boring. They have no more interest in their own accounting system than the typical homeowner has in the household's plumbing: They want it to work, but they do not care to understand how it works. Many tend to look at financial statements only to determine “the bottom line.”
Entrepreneurs are typically above average in intelligence, willing to take risks, uncomfortable in environments in which they are told what to do, want things done quickly, and are fond of seeing things done their way. Most, but not all, do not have good listening skills and many seem to have ADD (attention deficit disorder). They are like butterflies flitting from one thing to the next, or like Tennessee Williams's proverbial “cat on a hot tin roof.”6 Anyone who has spent serious time with many entrepreneurs will recognize the behavior that includes an inability to focus on one thing for very long, an ingrained impatience, and an expectation of virtually instant results. One colleague estimates that 90 % of entrepreneurs have the ADD syndrome.
Most of these CEOs have made open-ended commitments to their business, which means that business does not merely consume a great deal of their life; in most instances, their business is their life. The pejorative term workaholic, however, would be a misleading description of such people; rather, they view the business as a very complex, infinitely interesting game. It is a source of profound personal pleasure.
Entrepreneurs are accustomed to being the dominant person in business situations. Above all, entrepreneurs possess a strong desire to be independent of others' ability to control their behavior. They like to feel in control. The typical CEO of an entrepreneurial company either consciously or unconsciously values control both as an end in itself and as a means to other ends. This personal preference has most likely been reinforced in a variety of ways for a relatively long time.
In the early stages of organizational growth, the typical attributes of an entrepreneurial CEO are beneficial and necessary for the company. Fledgling enterprises need strong direction and open-ended commitment to make everything work properly. At this time, a compulsive CEO who knows about everything that is going on and who pays attention to the smallest detail will have a tremendous positive impact on operations.
As the organization increases in size, however, an entrepreneurial CEO's typical way of doing things (and personality) can begin to adversely affect success. Specifically, everyone in the company (including the CEO) may have become used to the idea that almost every issue – whether major or not – will be brought to the CEO's attention for decision or final approval. In other words, the CEO may have become an unwitting bottleneck in the organization. More insidiously, if the CEO has not been extremely careful, an entire organization inadvertently may have been built on people weaker than the CEO. Even though the business has grown in size and added many managers and professional specialists, the CEO may remain the most skilled person in the company in most, if not all, areas. This means that the CEO has not been able to increase the company's capabilities beyond his or her own admittedly considerable personal skills. Such a situation puts limits on the organization's capacity to grow and develop.
The CEO's desire for personal control over everything done in the organization, which was a considerable strength during the start-up stage, thus becomes a limitation or bind on the company during later stages of growth. The CEO's need to control everything can lead to an unintended dysfunctional consequence of slowing an organization down to a bureaucratic pace.
Also, some CEOs consciously want to retain control at all costs and therefore do not want to hire people who are better than they are at any particular task. Others are afraid that if they hire someone to perform a task that they cannot do themselves, they will become too dependent on that person. For example, the CEO of one service firm with $5 million in annual revenues was doing most of the company's computer programming work himself. When asked why he was spending his time in this way, he replied, “If I had someone else do it, I would be vulnerable if he left me.”
Some CEOs are able to recognize their own limitations relative to their companies' changing needs. As one founder and CEO of an entrepreneurial company aptly stated, “I'm an entrepreneur. I'm very good at controlling things – making a decision and seeing it accomplished by sheer willpower alone, if necessary. But our company has grown beyond that style. I'm not uncomfortable with the company, but I'm not as effective.” Such CEOs realize that, for the good of the enterprise, they need to make the transition from a manager who is used to controlling everything and being the center of all that happens to someone who is still important but is not an omnipresent, omnipotent figure.
Even when the need for it is recognized, however, this type of change can be stressful. For some CEOs, whose identities are closely bound up with their companies, it represents a threat – a potential loss of perceived potency. Many CEOs are simply not able to give up control to any significant degree and end up strangling their organizations.
Some CEOs go through the motions of giving up some degree of control because intellectually they know that this is essential; but emotionally they cannot really bring themselves to do it. For example, one entrepreneur built an organization that achieved a billion dollars in revenues in less than one decade. Recognizing that the size of the enterprise now made it impossible for him to manage in the old way, he brought in two heavyweights – experienced professional managers whom he had to pay high salaries to attract. One was a marketing manager, and the other was a finance-oriented manager who would be responsible for day-to-day operations. The entrepreneur himself moved up to chairperson. Unfortunately, he then proceeded to turn the professional managers into managerial eunuchs. When the organization began to do poorly, he announced that he had experimented with professional managers but, reluctantly, he had to reassume personal control himself. Similarly, this was the root cause of Steve Jobs' battles with John Sculley during his first term at Apple (which ended in 1985). Steve Jobs was, in common parlance, a control freak.
Another barrier to continued successful growth relates to the understandable human tendency to repeat what has worked in the past. If a success formula has worked in the past, it is reinforced by success, and tends to be repeated – even after the conditions that enabled it to be successful have changed. For the founder and CEO, many factors reinforce the set of behaviors that has been successful, including conventional wisdom that says, “If it ain't broke, don't fix it.” The problem is that organizational success leads to changes in the key underlying determinant of future success – that is, size. Size matters in business as well as in other areas of life. The greater the size of an organization, the greater its complexity. This, in turn, means that managing and leading the business will also be more complex. Like a rubber band that is stretched to its ultimate breaking point, an organization will inevitably grow to a size where the success formula that created its success (including the way that the CEO has managed and led the business and its development) will no longer function as well and will require change.
All of the critical characteristics of a founder or CEO of an entrepreneurial company combine to create what can be characterized as the core dilemma that must be resolved if an organization is going to continue to grow successfully over time: The mindset, skills, and capabilities of entrepreneurial leadership that led to initial success are no longer sufficient or appropriate for future success once an organization reaches a certain critical size. Specifically, at some point, the significant or possibly total focus on markets and products, and the lack of interest in and subsequent neglect of management of the nuts and bolts of day-to-day operations will turn strength into a limitation. Similarly, the willingness and desire to personally “do whatever is necessary” (and, in turn, control everything) will also turn from strength to a limitation. Taken together, this means that the entrepreneurial success formula must inevitably change, if success is to continue.
There are three key ideas that must be embraced by company leaders as their organizations grow. First, a key notion that must be embraced is that past success is not a guarantee of future