I got a frantic call just the other day from an entrepreneur that had built a new internet start-up from nothing to something. He’d just been given an ultimatum from the VC’s that had been brought into the firm. Relinquish the CEO position in favor of one of their picks (and accept another position) or exit the firm. His question to me? “Should he fight it?” The answer of course was that there was really no fight to be had. He’d already set the wheels in motion when he accepted the resources of the VC in the first place. The only thing he had to decide was whether he should stay with the firm or pursue something else. And that was totally up to him.
What happened here has been a long-time focus for Noam Wasserman of Harvard University starting with a paper entitled “Rich versus King” which was first published in August of 2006 and his most recent work, “The Founder Resource-Dependence Challenge” March 2014. It has also been a key focus in my consulting practice with small and medium sized companies for the last few years and a fundamental take-away from my book, “The Success Cage” launched October of 2013. It’s this. Any business owner has a fundamental question to answer for themselves and their businesses: Do you want to maximize your wealth or control of your business? You can’t have both.
The issue can be gut-wrenching for any business owner. The vast majority have built their businesses from scratch into good companies which provide a decent income for the owner and those associated with the business. To grow beyond the owner/operator-managed company requires different skills and resources than those which brought it success to this point. Two popular sayings come to mind… “What got you here won’t get you there.” “To grow you’ve got to let go.”
The brilliance of Wasserman’s work is that he’s put some hard numbers to support these common refrains. The first work referenced above studied 457 private ventures in technology. Lack of industry sample diversity aside, it came to one major conclusion: The more decision-making control kept by the business owner, the lower the value of the owner’s stake. Wasserman’s more recent study drew from a much larger sample. He used a dataset of 6,130 American start-ups and concluded that retaining full control diminished the organization’s value by an average of up to 58%.
Within the article, he also reprised some important associated observations from others studying the subject. “After the starting difficulties have been overcome, the most likely causes of business failure are the problems encountered in the transition from a one-person, entrepreneurial style of management to a functionally organized, professional management team.” (Hofer & Charan 1984, pg. 2) In order to grow, the needs of the organization move from the specific knowledge needed to build a product or service offering, (in my parlance “high technical” skills) to the more generalized knowledge and processes of managing a more complex firm (“high leadership”).
The key steps along the organizational journey pose a continuous trade-off between attracting the resources (capital & people) required to grow and build company value & being able to control decision-making. The key question for the business owner? In the end it comes to this. What drives you? Is it the need for maximizing wealth or the need for control? The two do not go hand in hand. And without going into a lot more detail…my experience is that most side with the latter. It’s head versus heart and usually the heart wins.
“At some point, your business will teach you that you can’t do it all.”
Although this applies to all leadership positions, it is especially the case for founders and owners of the privately held enterprise. The quote listed above and short story which follows comes from a business owner who learned this all-important lesson. The story ends spectacularly. Last year he sold what started as a reasonably successful business with about $20 million in revenue for over $500 million U.S. More importantly, through the growth process he got his life back. In his words…
“I was at my wit’s end and ready to throw in the towel. The harder I worked the worse it got. It was bad. I was alienating my team, my family and customers. Until I realized that to grow, I had to let go. I needed a road map and someone to keep me focused and out of the minutia. I restructured my role and my team. The magic started to happen immediately.
I’ve now moved away from diving into the day-to-day. I have a renewed trust in my team and they now believe I won’t dive back into the business. Last year I took 12 weeks of holiday and I intend to take more this year. What a change from feeling overworked, stressed and solely responsible for the success of the business. It was the toughest thing I’ve ever had to do but the reward was worth it!”
For those of us who have held leadership positions I venture that the toughest road to climb is that of delegation. We’re wired to focus on ourselves for survival so delegation doesn’t come naturally. The truly great leaders learn the lesson of delegation early and use it to great effect in their business and personal lives.
As careers and businesses progress, there is an inverse relationship between a leader’s involvement with the day-to-day operations within a business and success.
Your goal as you move up the ranks or build your business is to become progressively more operationally irrelevant.
Here are several keys to breaking the operational bonds.
It starts with you.
With apologies to Gandhi, “You have to become the change you want to see”. Moving from “I do it all” to “you do it all” won’t come easily. Your team won’t be ready because you’ve likely trained them to look up before they act. It will take time; perhaps some people changes and likely require an outside resource to act as your guide and accountability stick. Old habits die hard and self-policing is unlikely to be successful.
The leadership team has to believe that change can happen.
An equal challenge is convincing your leadership team that a monarch can become a cheerleader. Most have likely had years of experience to the contrary and rightly go into the process with a jaundiced perspective. While I have found that a formal process of contracting roles, goals and responsibilities can be effective, real change happens only if both sides walk the talk. Direct experience is required and takes time to set.
Introduce new blood.
Instilling someone new who is responsible for the day-to-day is the quickest way to introduce the change. This is a major challenge for the obvious reasons. Fit – with both leader and employee group. Primary to their role must be the development and institution of disciplined process and metrics. The focus is to systematize the business, itself a major change.
Build an operating plan and make it the center of the day-to-day activity.
There must be something that guides the company’s action and can be relied upon to act as a sea anchor (helping the company to stay the course when times become turbulent) in a changing environment.
Police the process
Left to their own, few companies or leadership effect sustained change. The tendency is to drift back to the old ways of doing things . Most times, the introduction of a third party to keep the process on track is required.
The challenge of building a delegation culture is substantial. So too is the reward for business leaders and owners who achieve it. Exponential increases in business value, the ability to step outside of the business to chart exciting new directions and to find time to pursue other avenues of interest are well worth it.
My daughter called me from an upstairs bedroom the other day. "Dad, can you help me hang these three pictures on the wall?" Without thinking, I trundled upstairs and began to arrange the required tools. This, by the way, is about the extent of my expertise when it comes to handyman work...that and correctly replacing light bulbs - sometimes.
Before I began, I had a pang of guilt. "Why was I doing this and not my daughter?" So I asked her. "Because I suck at hanging pictures" she replied, "I can never get them spaced right or hung the right way." That's exactly when I should have stopped and turned the job over to her to complete. Instead, I mumbled something under my breath and proceeded to hang her pictures for her. "Hadn't she just finished painting her whole room by herself, with no help at all from me?" I rationalized. The process however, taught her nothing! I was actually doing her a disservice by hanging those pictures!
There's a new book out by J. Keith Murnighan entitled "Do Nothing". It's a book on leadership that quite correctly admonishes those in executive positions for micromanaging. He uses the metaphor of a vacuum early in the book to describe the process by which work will get done. "In Physics, a vacuum is particularly fragile: to survive, it must be contained. If not, other elements will be drawn to it and will fill up the space. Effective teams work the same way."
I struggle with learning that lesson, particularly so in my role as advisor. I must admit that it doesn't come naturally. My predisposition is to dive in and try to solve. I can think of nothing more exhilarating than to be given a particularly gnarly issue to chew on and spit out potential solutions. But who am I really helping in that circumstance? Of course the answer is me. The real challenge of leadership is to frame the issue or challenge and get out of the way. Great leaders ask open-ended questions and then listen.
My brother (who has a great sense of humour) sent me over the following quote from Aristotle. He opened the email with these words. "I thought I'd send you over a copy of the quote we spoke of, just in case you weren't listening." Here's the quote:
"Wisdom is the reward you get for a lifetime of listening when you thought you would rather be talking."
The biggest challenge I have as an advisor is to help business owners and senior executives delegate. They consistently dive back "into" the business, figuratively pushing their teams out of the way. Teams and employees learn quickly. Pretty soon you've got people sitting on their hands, waiting for the stone tablets from on high. And what do you think I get as questions from these leaders? Questions like, "Why do I end up having to do the work? Why can't they dive in without me?" There's really only one answer. "Because you taught them!"
“It is our job to competently maintain high quality intellectual capital, while continuing to continually facilitate progressive meta- services!”
“Our challenge is to assertively network economically sound methods of empowerment so that we may continually negotiate performance based infrastructure.”
You probably reacted to these statements the same way that the employee population of these two respective companies did. Whoa! I’m willing to bet that we’ve all been exposed to this type of baffle-gab. And yet, at least one person (and most likely several) thought these statements were abundantly clear.
Reading the Globe and Mail the other day, I found an interview which suggested an interesting experiment. Take your company’s Vision, Mission, Statement of Values and if you’ve got one, a Statement of Purpose and cover up the titles. Can you or your employees identify which is which? Most can’t which of course just underscores how well the communication will perform once it hits your corporate stage.
Great communication is short, simple, pragmatic and connects to the heart, not the head. It’s for that reason that I speak of a “Destination” rather than a vision. Here’s a short story to underscore the power of a Destination statement.
Ian, (name changed) had recently bought into a company and became its CEO, soon to be owner. Believing in the power of collaboration, he brought together the employees so that he could share his vision and mission for the company and get their input. Following his presentation, conversation commenced with several individuals taking part. Five minutes into the discussion a hand went up from the back of the room.
“Yes?” queried Ian. An individual who worked on the manufacturing line, stood up and addressed Ian and the rest of the employees.
“I don’t know about your Vision …but I’ve got one myself!” he exclaimed. “Looking at the state of the facilities, it’s to help get this business big enough so we can move out!” And with that, he sat down.
To Ian’s credit, he listened. “Does anyone else feel the same?” One by one, the hands went up. “Here is an opportunity!” thought Ian. I’ll fast forward the story. Ian replaced the vision he had created and took the statement, “Big enough to move.” as a replacement. Once that was determined, he had the rest of the team work on exactly what that meant, what needed to be done to achieve that goal and lastly, how they would measure whether they were making progress. Brilliant!
The Destination was succinct, motivating and abundantly clear to every employee.
It spoke to the heart, not the head.
It laid out the specific actions and measured their progress.
In their seminal work on effective communication, “Made to Stick”, Chip and Dan Heath reinforce the importance of clarity and simplicity using a concept taken from the U.S. army called “Commander’s Intent”.
“CI is a crisp, plain-talk statement that appears at the top of every order, specifying the plan’s goal, the desired intent of the operation. No plan survives contact with the enemy. And in business, no plan survives contact with the customer. It’s hard to make ideas stick in noisy, unpredictable, chaotic environments. It’s got to be simple…the core of the idea. The tough part is weeding out ideas that may be really important, but just aren’t the most important. That’s the challenge of creating a really powerful destination statement. Finding the most important idea.
Herb Kelleher (the longest-serving CEO of Southwest Airlines) once told someone, “I can teach you the secret to running this airline in thirty seconds. This is it: We are THE low-fare airline. Once you understand that fact, you can make any decision about this company’s future as well as I can. That’s his Commander’s Intent or Destination Statement.”
Every summer, my parents used to bundle the family into the car for our eagerly anticipated vacation to our rental cottage in lake country. We loved the wild beauty of the place, the feel that it was tucked into a little corner of the world that time had forgotten.
This was especially true of the picturesque little town nearby, where small mom-and-pop stores lined Main Street. And the best of the bunch was the local “five and dime,” an eclectic little store called Joe’s Emporium. Stepping into Joe’s was an adventure. You didn’t shop, you explored. I still remember the scents, a delightful blend of cotton candy, wood and machine oil that evoked something mysterious . . . something magical.
Joe was the most popular guy in town, always dressed in old jeans and a faded shirt, a smile perpetually on his face and twinkle in his eye. He had a memory like an elephant, always treating our family like old friends — even though he only saw us once a year. And that was why Joe’s Emporium was able to fight off the eventual onslaught of the bigger box retailers when so many others succumbed. He knew and cared deeply for his customers and that respect and appreciation was returned in equal measure.
Despite clamouring for more customer-centric business practices or the mining of Big Data, the sad fact is that old Joe forgot more about connecting with customers than most businesses will ever know. The challenge today is to connect and understand our customers with the intimacy that came so easily for Joe.
Here are some thoughts and questions that I’ve selected from a Harvard Business Review article from nearly ten years ago that have proved helpful for several ofthe companies with which I work. May they help you as well.
1. Which customers use or purchase our product in the most unusual way?
2. Who uses our product in ways we never expected or intended?
3. Do any customers need vastly more or less sales and service attention?
4. Who uses our products or services in surprisingly large quantities?
5. Who else is dealing with the same generic problem as we? Can we copy them?
6. What other products do our customers use in addition to ours? Opportunities?
7. What’s the largest barrier to use for our product or service? Could we eliminate it?
There’s really no substitute for the insight gained through direct customer experience. One of the businesses with which I’m familiar recently opened a retail location simply to gain that deeper connection and insight in support of their product line. A little over the top perhaps, but the benefit of establishing that connection and daily insight is paying off in spades. The bottom line? Despite the lure and attraction of new advances in technology and tools, there’s nothing like direct communication and contact to build customer knowledge and insight. Use the newer tools, but don’t substitute that for the real thing.
One of the most important lessons I’ve learned – the importance of getting your core customer right - came from a colossal mistake. Here’s the story:
I was the marketing executive responsible for leading the charge on one of Canada’s Food icons – Kraft Dinner. To say that Kraft Dinner has a following is an understatement. Canadians have a very special relationship with KD. It starts when you’re young and touches you throughout your life. From child to grandparent. For years it was advertised and targeted to Mom’s with pre-teen kids. It was time for a new television spot to be created, so we tasked J.W. Thompson to create a new piece to be aired that year. The result was a commercial we all loved. It showed photogenic little kids eating KD in various cute ways set to the tune of the song “It had to be you”. We puffed up our chests, certain that we’d created a piece that would build substantive gains for the brand once aired. But, after a number of weeks on air, the needle didn’t move. Nothing. Nada. We’d missed something.
Perplexed, we went back to the drawing board to try to figure out where we’d gone astray. We talked again to our consumer base. We looked into how they used it at home and the relationship they had with the product. And finally, a new learning emerged. As it turned out, most people, regardless of age related KD to a rite of passage: living away from home for the first time. It brought back memories of dorm life, newfound freedom and college apartments. No wonder we hadn’t hit the mark. Cute kids playing with their food was the furthest away from college dorms and university memories! We changed the copy, directed it to the right consumer and the business took off!
There are two important lessons from this story. The first is picking the right core customer upon which to focus. Get it wrong and virtually all of your business activity will be misdirected, not just your communication. Second is laser focus. The tighter you can define your core, the more effective your execution. Avoid the natural tendency to broaden your appeal and extend the core. You’re just watering down your effectiveness and scarce resources.
Here’s a non-exhaustive list of questions you can use to help identify your core customers and better focus your business. The most important thing? It starts with them and their needs…not yours.
How do your customers make their decisions about your products or services?
What’s the competitive landscape? Who are they focused on?
What problems are your customers seeking to solve?
What are your customers’ customers problems? Solving them is a home run!
How have you reduced the barriers to purchase for your customers?
How could you make the purchase decision easier?
Have you set up a system for recording customer transactions and experiences?
Have you sourced and read strategy and industry reports relative to your business?
Are you speaking regularly with your customers? Directly? Through others?
What insight and learning have you got relative to your customer base?
Is your customer base different from others in your industry? How? Why?
Have you spoken with your front-line employees to learn what they know?
Do you understand how your offering fits within the context of their broader lives?
Have you a deep financial understanding of the profitability of each of your customer segments?
The strongest plans and execution starts with deep insight and laser-focus on the right core customer. Get that correct and you’ve upped your probability of success immeasurably. Get it wrong, well, you know what the end of that story is likely to be.
Blockbuster, Dell, Kodak, Motorola, Sears, Sony, Blackberry and now sadly, my alma mater…Kraft Foods. All have now succumbed or are in the process of succumbing to market changes that were recognized but not appropriately addressed.How could this happen to companies that had everything going for them?Organizational inertia.It plagues small business and industry juggernauts alike.Fortunately, the script doesn’t have to play out poorly.
The literature is well-developed in the subjects of organizational inertia and change management.Some research shows that an imminent threat to an organization can become a catalyst for reducing inertia and spurring the company to action.That’s the good news.Unfortunately, the more common organizational responses tend to heighten rigidity and hasten demise as noted by Clark G. Gilbert in his seminal research at Harvard in 2005.
Gilbert’s study concluded that in many cases in which an organization was faced with substantive change, the organization goes into defensive mode.Rather than focus on ways to meet the change directly it retrenches as follows:
Contraction of authority that amplifies the rigidity of routines and processes.
Reduction of experimentation and heightened risk avoidance.
Increased focus on existing resources.
These are just fancy words for tightening of centralized control, risk avoidance and reliance on what’s worked in the past.In a larger company pin it on bureaucratization, in the smaller, the founder and the need to re-establish control if the ship starts to take on water.
1.Take the problem out of the purview of the existing organization.Set up a task team, new venture or division to deal with the threat.Give it structured autonomy allowing it to deal with the threat in new ways and alternatives.
2.Widen Your Metrics.What gets measured gets done.Broadening your market, competitor and product definitions will provide a different view, opportunities and potentially expose new threats.The opposite is also true.We used to joke that every time we lost our share leadership in a category of business, we’d just narrow the definition of the category to re-establish our leadership.Is Kool-aid really a powdered soft drink?
3.Increase Your Tolerance for Failure.Don’t seek silver bullet solutions.Play organizational small ball by seeding several initiatives.Swinging for the fences can reap large rewards but most often, large and costly failure.
The statistics on success of organizational change is quite sobering.70% of these attempts end in failure.By following the steps outlined above, my hope is that you have increased the potential to be in that elite 30% that make it.
A.G Lafley, the former CEO of Procter and Gamble wrote a seminal piece entitled “What only the CEO Can Do.” published first in 2009 by the Harvard Business Review. In it he outlined the unique role the business leader has in preparing and guiding the organization into the future.
“The CEO alone experiences the meaningful outside at an enterprise level and is responsible for understanding it, interpreting it, advocating for it and presenting it to enable the company to respond in a way that enables sustainable sales, profit and total shareholder return growth. That sustained growth is the CEO’s responsibility and legacy with inward focus the enemy of growth.” In my words, the business leader needs to understand their role as being the high beams for their organization. The following outlines five critical questions to ask and answer to help position your organization for sustained growth.
1. What would an outsider do?
The clearest view of you or your business comes through the eyes of others. An exercise I employ with some regularity with my clients is to ask them to role play as potential purchaser of their company. They are charged with the task of identifying a brief summary report on the company – the towering strengths which argue for acquiring the company and also the key challenges and concerns which could be either deal breakers or which would markedly reduce the attractiveness of the deal. The exercise helps to create a view of the organization which markedly reduces the amount of internal fog promoting a stronger focus on both strengths and challenges in the development of the forward plan.
2. What does not fit?
Look at your business products, services and customer base. Each may be attractive individually (Note! If you haven’t a good understanding of your returns by product, service or customer…you must. I’ve seen profits double and margin triple in businesses merely through better understanding and acting on where the money is made or lost) but do they create value collectively? Do they make sense together and create value beyond the individual pieces?
3. Where’s the money?
There are really only two parts to a planning process. This question is the first. The second relates to execution which of course is “How can we get it?”. Although simple, this question forces a deep inspection of markets, growth trends, competition and regulatory environment to name a few. It also considers the impact of business models past and future. Many a business and leader would have been well served to delve deeply into this question prior to committing to plan and action.
4. Is our organization resourced to deliver the plan?
This answer to this question could well be delivered through the role playing exercise I noted earlier. It is one thing to dream of a new or altered path to the future. It is quite another to recognize that you may not have the internal wherewithal to get there. One of the most difficult discussions I have with business owners is focused around the capabilities (or lack thereof) of their infrastructure and people. Often, it takes an outside view to put the microscope on the organization and to identify the changes needed or skills added to deliver a different future. Larger firms also struggle to see their internal challenges clearly. Many in search of growth, fight the bureaucracy and strength of inertia protecting the status quo. One way to deal with this is to ask a corollary question. Ask yourself what your business would look like if you could design it from scratch.
5. Can we copy someone?
The old saying that there’s nothing new under the sun is true. As Lafley observed, your role as leader is to scour the external environment at an enterprise level for opportunities and trends which your organization can capture for sustained growth. Too often leaders focus on “like” businesses or markets. I see this phenomenon often when discussing the value of peer mentorship. Statements like “They aren’t close enough to my business to help me” turn quickly when they realize in group sessions that all businesses have a common set of challenges. There is tremendous value in understanding business and markets which at first glance seem unrelated. Having a business model to follow trumps going it alone every time. A side benefit is that often, the path is much easier for the organization to follow if there is an example that brings the future to life.
While these questions are by no means, an exclusive list, they should help you and your organization to see more clearly and thereby improve your odds of meeting the ultimate goal of sustainable growth.
I’m a Baby Boomer. And unfortunately or fortunately there will be a lot of us facing that third age very soon. Some are there now with many to follow. It seems to me that virtually every conversation I have with friends and business acquaintances these days eventually gets around to the “what’s next for you?” discussion. More often times than not, there’s no answer. And it’s no wonder if you look at the number of possible downside realities. The loss of work. The impending loss of health and vitality. Possible loss of public exposure. Loss of influence, power, admiration and attention. If you view the glass as half empty, there’s a lot here to avoid. Why deal with a painful future? The answer of course is that you’re going to be a hell of a lot worse off as life progresses if you don’t.
It concerns me that so many of us appear to be walking like lemmings to that Third Age cliff with little or no preparation. For the business owner, it is doubly concerning because of the likely impact on the business itself or its returns on transfer.
A recent study identified a number of ways this group is dealing with the question. As you read through each, reflect on where you believe you might fit.
Continuers: These people use their existing skills and interests as a base to fit into their next thing.
Adventurers: See the next chapter as being the next achievement. They are excited by the opportunity to set a bold new direction.
Searchers: Explore several different fields and use trial and error to find their way.
Easy Gliders: Just let it happen. The future will unfold and they will react to what takes place at the time.
Involved Spectators: Consider the future and others’ plans to address it but do no personal planning.
Retreaters: Active avoidance. Activity is focused in hanging on rather than moving forward.
Consider these for your next steps:
1. Start talking. To your family. To others going through it. To begin the process of establishing new networks and possible interest.
2. Reinvent before you exit. Confirm/establish interest or passion. Set some goals. Identify your first projects.
One final thought. Find that something that gets you up in the morning. Empty days are very long!
There’s an old joke about families that goes something like this…
”Every family has someone that’s not quite right. If you look around and don’t see someone with those qualities, it’s most likely you!”
There is something to be said for the thought albeit indirectly about leadership and organizational issues. If you are looking for those culpable, you need not look farther than the first mirror you see. It’s likely you.
Here are a couple of frustrations posed as questions that surface quite regularly in my discussions with business owners and leaders. The answers are a little tougher to take because they’ve likely been created unwittingly by you.
Q: Why don’t our employees take ownership of the situation?
A: Because each time they’ve tried, you as a business leader have interrupted the process and offered your own solutions or belittled theirs. It doesn’t take many instances like this to have employees clam up and wait out the dictum that will arrive from you at some point. You’ve left the monkey firmly perched on your back, not theirs.
Q: Why are people resisting change?
A: Because you haven’t figured out the WIIFM factor. (What’s in it for me?) People sign up with their hearts, not their heads. It’s your job as a leader to paint a picture of the future that is inspiring and exciting…for them, not you. Once that’s achieved, people will move mountains.
Q: What aren’t people speaking up or challenging?
A: Because they have seen enough examples of you or the company ignoring suggestions, or worse, taking their heads off in public forums. It only takes one time to teach turtling behavior in the rank and file.
Q: Why don’t they ask for my input?
A: Because you give it without them asking.
Q: Why can’t we move faster?
A: Because the last time we did and missed a step they were castigated. Slow and steady means more time to make sure there are no screw-ups. Employees learn to play defence, not offence very quickly.
An interesting study by Hay and Associates underscores the need for senior leaders to have a good look in the mirror. After reviewing assessments of 1214 individuals it was found that leadership self-assessment was consistently higher and out of step with that of the organization. The findings?
1. The higher the rank, the more the individuals over-rated themselves compared to how they were rated by others.
2. The wider the gap between how they saw themselves and how others in the organization saw them.
Another amusing fact is that 64% of the population in the United States considers themselves to be about average.
The lesson should be painfully clear. As leaders, we’re often not as good as we think we are. Talking less and listening more is the prescription for a more effective and engaged organization.