08.07.17

Edison: Entrepreneurial Success or CEO Failure?

Todd Schrock, Advisor with The CEO Advantage

How to Overcome the Unique Challenges of Emerging Businesses (20-100 Employees)  Article #8 in the series

“And so every one of his four or five companies collapsed ignominiously once it got to middle size, and was saved only by booting Edison himself out and replacing him with professional management.” (Drucker, Innovation and Entrepreneurship, p. 188)

Bill Gates, Michael Dell, and Jeff Bezos possess a combination of the right aptitude and constant ability to learn the necessary skills to succeed at each growth stage of the business. That is rare. They have accomplished what few other founders have ever done.

Although Steve Jobs returned to Apple and became a legendary CEO, he did not always possess that same combination. As he later admitted, he learned critical leadership lessons only because he got fired from the company he founded. No shame in that. He learned.

Why is it so rare for Founder CEOs to have both the right aptitude and gain the necessary skills to address company growth stages that click by like mile markers? Some founders do have long and successful runs as midsize CEOs. But many founders are unable to make the transition as their company hits the normal, and painful, hurdles of successful growth.

Why?

Because entrepreneurial talents critical to start and grow a company are different from (and often opposed to) the skills of a successful large-company CEO. Similarly, even succeeding as a start-up or a small business CEO does not correlate with success as an emerging or midsize CEO, either.

What are the keys to building a great company? Brilliant ideas? Abundant investors? Great products? Hot market demand? Bull-dogged perseverance? Even these are not enough. Not by themselves.

Peter Drucker illustrates with a lesson from the greatest 19th century inventor, Thomas Edison:

  • Innovative? Check.
  • Many inventions with huge commercial potential? Check.
  • Ambition to run a big company?
  • Superb business planner?
  • Understood the necessary business model to succeed?

CheckCheckCheck.

“But Edison remained an entrepreneur; or rather, he thought that ‘managing’ meant being the boss. He refused to build a management team.

“But Edison remained an entrepreneur; or rather, he thought that ‘managing’ meant being the boss. He refused to build a management team. And so every one of his four or five companies collapsed ignominiously once it got to middle size, and was saved only by booting Edison himself out and replacing him with professional management.” (Drucker, Innovation and Entrepreneurship, p. 188)

Edison made a grave, but common, error. He refused to understand the difference between an entrepreneurial and managerial mindset. He did not use team members with differing aptitudes and skills to his advantage. It is rare for a single person to have the capacity to grow in both mindsets. Most of us have stronger instincts for one versus the other, unless we are entirely technical or craftsman-like in our orientation.

It is rarer still to find a single person who can grow in both mindsets to fit what the company needs at each business stage. For an entrepreneurial founder to be an effective emerging stage CEO, some fundamental work habits must change. A CEO who excels at company-wide execution can no longer prefer tasks over people, loyalty as the highest management value, or a focus of working in the business versus on it.

As the company grows, the CEO must gain and use these key leadership skills: delegation, clear communication, transparent accountability, and decision-making that can create employee buy-in, etc., to increase the effectiveness of the whole organization. These skills are as critical at the emerging stage as the founding entrepreneur’s skills of identifying and successfully finding a way to make a dent in the market were at the previous stage.

For an entrepreneurial Founder CEO to scale up the business to success, he or she must:

  • understand and appreciate the differences between entrepreneurial and managerial mindsets,
  • surround themselves with great people (smarter and better than him or herself), possessing the right mix of either and both mindsets, and
  • create teamwork, starting at the top, that enables people to work to individual strengths.

What does this look like for a company at this stage?

Both entrepreneurial and managerial mindsets are necessary in the leadership team. In fact, both are needed in different ways at every level of the company.

Managerial capabilities of the company and its leaders are commonly underdeveloped as they move into the emerging business stage. As a company grows, the existing entrepreneurial insight and energy must be mixed with some new professional management, in the useful proportions for the current stage.

As companies grow in size and complexity, it is a serious challenge to increase managerial order, but only as necessary, to get the best out of the entrepreneurial activities. The goal of managerial order, created by policies, procedures and systems, is to produce profit that pays the bills and builds capital and credit-worthiness for the next expansionary step. And this managerial order is best applied with as light a touch as possible.

The energy and ideas of the entrepreneurs in the company drive a company forward, while the managerially-focused leaders help ensure that growth is profitable and sustainable. When working well, the interaction of these two opposite instincts are poetry in action.

What does this look like in the leadership team?

At the leadership level, balancing these two mindsets and skills usually starts while the business is small. The Founder CEO often finds his or her opposite as a co-Founder or early partner for a little balance.

As a company hits this emerging stage of 20 employees, it is time to form the first leadership team. Start small, with informal meetings and with each member overseeing several key functions. Typically, long before 35-50 employees, it is best to formalize as a Management or Executive Team, using simple strategy execution processes to get the best of each team member’s perspectives and skills.

How do you pick these leadership team members?

The leadership team needs to include a representative from each key business function. A common early version of a leadership team will include a CEO, a sales/marketing person, an operations person, and an accounting/financial person. At this stage, the CEO and other team members may still be in charge of more than one key function, resulting in an even smaller team.

If this initial team does not automatically include a balance of entrepreneurial- and managerial-inclined members, then add another member solely to ensure that. Too much entrepreneurial energy without appropriate discipline or process can easily burn out people, market opportunities, and sometimes the company itself. Too much managerial order or constant no/not yet reaction can easily lead to deadly stagnation.

However, balance within the leadership team does not always mean there should be a 50/50 split of entrepreneurial energy and managerial order. Each stage (and each company) requires the balance to be tipped one way or the other, depending upon the realities revealed in your financial statements and in your customer satisfaction scores. How will you know you have the right balance for your company and for this emerging stage? When your leadership team can better resolve each of the unique challenges that are dissected in this series.

In the last article of this series, we will extend this topic to the third and final leadership opportunity.

Questions for CEO Reflection

  • Which inclination is more natural to you, an entrepreneurial or a managerial mindset?
  • Do you appreciate people with an opposite inclination? (Do you have enough people in the right positions who are different from you in mindset, as well as style and skill?)
  • Evaluate your leadership team: who is more entrepreneurial, who is more managerial? (Not everyone will fit in these neat categories, including highly technically-oriented people.)
  • How can these insights make your team more effective at reaching organizational goals?

© 2017 From the Top, LLC

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