Most first-time entrepreneurs I know are risk-takers characterized by a can-do attitude and a fair amount of impatience with those who focus more on process or power than on achieving goals. Frequently, it is this lack of regard for process and hierarchy that drives these entrepreneurs to risk their livelihood and retirement on a new venture. Ironically, this maverick mentality can also make it difficult for entrepreneurs to assemble an effective management team — a critical component to any successful company.
Entrepreneurs are typically good leaders who value vision, loyalty, and leadership in their colleagues. They often scorn “management,” associating the concept with people who value position, salary, and power over doing the right thing. But leadership and management require two very different skill sets, both of which are essential to an organization’s growth and success. A leader is like the medieval chieftain or warlord who fought side by side with his men, winning their loyalty and respect with his courage, skill, and commitment. The warlord recognizes the importance of each man and draws power from his personal relationship with each warrior. A manager, on the other hand, acts more like a modern-day military general, who has little contact with the soldiers he leads. The general directs his army with foresight and confidence, doling out strategy and discipline in doses that bolster the health of the brigade.
Organizations always need leaders — individuals who can emotionally forge individuals into a committed team focussed on one goal. However, at a certain stage, organizations also need generals — individuals who balance process and risk in order to maximize the organization’s chance for success.
During the early years of Evolutionary Technologies International (ETI), I read every problem report and was aware of every customer’s status. I reviewed all product plans and development schedules in detail. As we grew, that attention to detail was no longer possible. There were too many customers and too many projects, and I began to spend more time fundraising and addressing our channel strategy. My solution for this increasing level of complexity was to promote employees who had demonstrated talent and leadership. I counted on their judgment to make the right decisions and alert me to any topics that needed consensus across groups or that put the company at risk.
This strategy worked at first. Because we were a small team that had worked closely together, we shared much of the same knowledge about products, customers, and the market. But as our momentum increased, we added more and more people without this background and perspective. I always advocated promoting from within — advancing individuals who were up to speed on our business and who had already earned the respect of their colleagues. In theory, this worked. In reality, the pace of business required my first managers to promote people who didn’t share our common knowledge and who made decisions that weren’t necessarily in keeping with our previous practices — not out of malice, but simply because they didn’t see the business in the same light as the old-timers.
The company lost money as a result. We had to give months of free consulting to a customer whose expectations we did not meet. A major product release was late. And when the product was released, we learned that our engineers had deleted or changed previous functionality upon which existing customers depended. When these things happened, the management huddled together to discuss the mistakes and to agree on tactics for preventing similar mistakes in the future. Sometimes this worked; sometimes it didn’t, depending upon whether managers changed their strategies. More often than not, the remedies didn’t work because managers just tried to do the same thing harder rather than make the transition from chieftain to general.
The challenge of management is to build an organization that asks for the right information at the right level of detail in order to focus and evaluate employees on behavior that will lead to the company’s success. It’s not enough to state some general principle and hope everyone embraces it and does the right thing. Leaders and managers must abstract a model of the business from the details, as well as the assumptions behind that model, and then build a reporting process that tracks these assumptions and goals. Too often, it is simply not possible to implement these changes without hiring experienced managers from outside.
Of course, there’s a Catch 22 here. If the entrepreneur knew how to build this type of organization, he would have built it. The failure to know what you don’t know often makes it difficult for entrepreneurs to recognize the skill sets needed in a new manager. It is easy to recognize that a problem exists in finance or sales, but it is seldom easy to determine the experience and talent needed to fix that problem. There are many types of individuals who may present themselves as excellent candidates for the position of chief financial officer, but some of them might be better at accounting and reporting, others at analysis, and still others at operations. Even if an entrepreneur and his or her team can accurately state the company’s problems, that doesn’t mean they will necessarily be able to assess whether any one candidate can fix them. (Very few job candidates will tell you they’re not suited for that kind of work.)
As a result, there are many missteps in building a good management team, and each one is costly. At the same time, a company’s success hinges on its mix of leaders and managers. The entrepreneur’s best bet is to use each failure as an opportunity to refine the assumptions dictating the company’s organization and corporate goals, and to remedy management problems as quickly as possible. In the next column, we will discuss techniques for addressing the hard problem of recognizing when a manager needs to be replaced and then doing something about it.