Entrepreneurial Quest

Leadership Styles of Entrepreneurial CEO's

Leadership Styles of Entrepreneurial CEO’s by Art Marks -- An explanation of why it is so hard for Entrepreneurs to Travel the Entire Voyage from Founding the Company to Reaching their End-Goal.

I want to share some thoughts on the challenges of being an entrepreneurial CEO (eCEO). My hope is to help entrepreneurial CEO’s understand the different roles they have to play and, more importantly, the required transitions they must face.

Being an entrepreneur is tough. Being a CEO is tough. Being an entrepreneurial CEO is among the toughest jobs in existence. The reason the job is tough, is that different styles of leadership are needed at different stages of a company’s life. Very few people are able to adapt their personal style effectively to each of the stages.

Start-Up Stage

In my twenty five years of investing in entrepreneurial endeavors, I have noted that when a company starts out, the circumstances dictate a style, that I call LEAD DOG, is the most successful.

At the start, an entrepreneur usually has a decent idea of where he wants to end up, but the strategy, tactics and business model are less than fully formed. In addition, resources are scarce, so the entrepreneur fulfills both the leadership role and often plays a critical role in performing certain tasks. Most often, the eCEO acts as the key product manager, chief sales person and, sometimes, lead developer as well.

This period usually encompasses the first year or two of a company’s life. The team is typically no bigger than twenty and is rarely housed in more than one facility. Revenue is modest, if existent at all. Communication is critically important as the CEO revises tactics and strategy while moving forward. There is an old saying that “the view never changes unless you are the LEAD DOG”. In this case, the view is always changing, and the LEAD DOG is the only position one can be in to understand how your environment is changing. The LEAD DOG leads, but also pulls his weight. To change direction, you pull in that direction but sometimes you have to bark as well.

Middle Stage

At the middle stage of the eCEO’s journey to success, I would characterize the best style as COACH. The COACH eCEO knows the objective as well as the tactics that will work. His primary concern is finding, allocating and developing resources to serve customers in an effective way. If you go to a management meeting where the eCEO is in the COACH stage, he will do 75% of the talking. He tells people what to do and when. He often tells them how. He is organizing the work to be done. He has the playbook and the instincts about how to reach the objective. He is constantly evaluating his people resources to determine who can do the work and where he needs to recruit new talent. Part of his job is deciding what not to do as well.

The COACH phase of the company’s life is characterized by an organization of 20 to 100 or more. Revenue is from $2 or 3 million to $20 million. Resources remain constrained, but are considerable. Tactics are becoming clearer, the strategy is being refined. Developing people to do specialized tasks is a key contribution of the eCEO.

Transition from LEAD DOG to COACH style
The change to a COACH style of leadership from LEAD DOG style usually passes through a transition process, which I call, not surprisingly, PLAYER-COACH. The eCEO retains his LEAD DOG style in a business function or two, say development or sales, while transitioning to COACH style in other areas where he has been successful in recruiting other talented managers. This occasionally gives way to criticism within the organization by everyone not being treated the same. My advice: Acknowledge the complaint, but do not change the differences.

Late Stage Styles

A fully mature entrepreneurial company’s CEO, like many mature companies in the U.S. is typically led by someone whose style is more like a GENERAL. By this I mean, someone who is focused on strategy, resources for the whole organization and the task of developing leaders. If you have ever read the biography or autobiography of a successful General, there will always be a chapter about some great battle where the General says something like:

“I was watching the battle unfold from my position on the hill (at headquarters, in the command station, etc.) when I realized there was nothing more I could actually do. The battle was now in the hands of the leaders I had selected, the men we had trained, the strategy I had chosen and the tools and weapons we had brought to the battle. We won because we had the right strategy, leadership, men and armament (if he had not won, he would not have written the book).”

The GENERAL does not actually do the work; he is focused on developing other leaders to do the work. Recruiting talent for the job more than for personal fit is a key attribute of GENERALS, who often recruit people with completely different personal style then their own. The GENERAL is very concerned about competitive strategy. His other contribution is making sure the organization has the resources (capital, command structure and headcount) to execute the strategy.

Note well. An eCEO whose only style is that of a GENERAL is not very effective at an early stage company. He is too remote, the action is too fast to carefully consider a rigid strategy and there are insufficient resources to build a complex command structure. CEO’s from GE and IBM recruited to an entrepreneurial company at an early stage often fail for these reasons. Similarly, an eCEO who is most comfortable being a LEAD DOG usually fails when the eCEO’s job requires a GENERAL’s style. Visualize a pack of 200 dogs to understand the problems that occur.

When a company reaches the GENERAL stage is usually at least 200 people and profitable. Revenue exceeds $25 million. Financing may still be required, but it is more like project financing than risk capital. The issue for the eCEO and the company is competitive success. When a GENERAL runs a meeting he does 15 or 20% of the talking. The team is reporting on results and raising issues. They are discussion pros and cons and conflicts. The good GENERAL makes sure all issues are aired and all points of view brought into the mix. The good GENERAL drives for decisions and makes decisions. He tests others by allowing them to make decisions and mistakes. He makes sure that his strategy and team are effective and takes action when they are not.

If a company reaches a GENERAL stage and the eCEO remains in COACH style, it becomes difficult for them to recruit high quality middle managers, because they want to lead and not be told what to do. If on the other hand, middle management has to be coached, they often fall short of what is needed. In either case, the failure to transition styles can lead to significant problems for the eCEO and the company.

Transition from COACH to GENERAL

There is a transition phase from COACH to GENERAL. I call this stage the GUIDE stage. The eCEO still steps up to organize the work, but the hand is looser. He is still the source of direction, but without the command and control associated with the GENERAL. In some ways, this is the most difficult phase to master in the company and the point where entrepreneurs often need to be supplemented with other talent. The GUIDE needs to convince the rest of the organization to follow, without having the same “tight” interaction of the COACH, or the resources of the GENERAL.

The size and metrics fall between COACH and GENERAL STYLE. The same “trick” of mixing styles eases the transition for many eCEOs, but sometimes it is a symptom of not being able to let go. There is also a danger that the eCEO might spend too much time on their “favorite” activity and lose touch with other critical activities. I have seen some eCEO’s mix LEAD DOG, COACH and GENERAL styles simultaneously, but not for long.

eCEO’s who are good at being LEAD DOG and good at COACH, do not necessarily make good GENERALS. It is a very different way of managing the enterprise and most entrepreneurs do not feel comfortable being remote from the action that got them to this stage in the first place. Staying involved with one function (e.g. development) has helped some, but the most critical ingredient is finding people that are extraordinarily capable that the eCEO can trust and allowing them to do a critical portion of the work. Great eCEO’s learn from their key managers.

More about GENERALS

Not all successful GENERALS operate the same way. Some rely heavily on subordinates and their involvement in the enterprise and its strategy. They reward group success. Some play their cards very close and encourage their subordinates to be competitive. The later works better in a multi-business unit or multi-product company.

Summary

I have tried to provide a somewhat simple template to explain why different phases in a company’s existence require different leadership styles and the reasons behind those requirements. These changes call for an extreme versatility. Few eCEO’s can fully match the needs of the evolving company. Based on an awareness of the changes needed, many eCEO’s can better adapt and make the mental adjustments and organizational changes necessary to achieve greater success.

The following table tries to summarize these thoughts.

Effective ECEO Styles at Different Stages of an Entrepreneurial Company

Download eceostyle.docx

Six Critical, Company Building Processes

The Six Processes

The thrill for anyone involved with entrepreneurial companies comes from the satisfaction derived from growing the company and the accompanying changes those companies undergo. The management challenge in entrepreneurial companies is based on the fact that these companies must change as they grow. Entreprenurial companies change strategies, outgrow their management, and are inherently unstable.

Many eCEO’s attempt to address these challenges by hiring top-graded talent to fill many of its top positions and in the process often diminish some of the spirit and glue that has allowed an organization to perform its critical tasks. Adding talented people is good, losing momentum can be an unintentional consequence. Some people refer to organizational memory or a network of relationships, but we do not think that is the issue. Organization charts and the organizations they represent are a static, momentary view of how work is organized. Again, an organization and a job description are about what is, but an entrepreneurial organization is all about what it is going to be. Moving towards the future causes an organization to go though continuous change.

To keep the business running. An eCEO (entrepreneurial CEO) must recognize that what he needs to run his business is not an organizational chart (maybe not just an organizational chart), but an awareness of what critical processes will knit the organizational entities of the business together and create a climate for effective decision making. He must identify who (individuals and groups) owns that process (run it) and who (individuals and groups) make the decisions that the process serves up.

Each Process allocates critical resources and selects priorities. They require work product from multiple functions and trade-offs in upstream and down-stream tasks and costs.

An example is the product development process. This is not an engineering task alone. The product development process requires an insightful understanding of customers, competitors, development costs, customer acquisition costs and full knowledge of how the product is installed and serviced. This implies input from many functional specialties: Sales, marketing, development, QA, customer service and finance to name the obvious. But who in the company owns the process of collecting the input, setting the goals, assembling the resources and monitoring progress as well as owning the specification, date, product cost and project cost.

At the start of an entrepreneurial company, this process is typically owned by the eCEO. It is often the central “idea” of the business -- fulfilling an unmet need by creating a new product. But over time, the eCEO hands this off to others. It may be someone in Engineering, it may be marketing, and it may be a COO or a product or program manager. But someone has to “own” the process and keep delivering results.

There are six essential processes crucial to any entrepreneurial business. Organizations and leadership will transform overtime, but recognizing that these processes exist, require a process owner and a decision making body, is critical to organization health and effectiveness.

The six processes are:

1. Team Building
2. Product Development
3. Customer Acquisition
4. Customer Deployment
5. Supply Chain
6. Command and Control

1. Team Building is the process of specifying, sourcing, recruiting, compensating, developing, evaluating, training, integrating, promoting and firing talent. It requires skill in understanding the organization and what tasks need to be completed. It requires a process to establish fair relative pay and benefit practices; it requires highly developed interviewing and assessment skills. It requires time and dedication.

Most eCEO’s dedicate a significant portion of their time to recruiting and grooming their team. They need to understand the strengths and capabilities of their team to know how their talents can be most effectively deployed. eCEO’s, who manage an ever changing business, do not develop their employees in the same way that leaders of larger, more stable organizations do. In the later, an enormous amount of energy is devoted to addressing employee “development needs” in order to better fit the specification of a particular job. In entrepreneurial companies, the focus is generally on what strengths they have and putting the employee into a role where those strengths can be exploited. Frankly, I think that strategy develops better people.

2. Product Development is described above, but it requires some kind of market/ customer research, glow-in-the dark engineering talent, systems to manage complex products, a product introduction cycle that combines customer input with sincere listening skills.

3. The Customer Acquisition Process is not just Sales. It starts with a value proposition for the customer and an understanding what the life time value of a customer is likely to be. It requires an understanding of the cost and the method of acquiring customers in the competitive battlefield. It requires mere humans to assist the customer in their understanding of the value of the company's offering, usually with the aid of marketing, product management, etc. It requires important sales disciplines such as customer identification, customer qualification, pipeline management, forecasting, lead generation, contracting and contract management.

4. The customer deployment could be considered the completion of the acquisition process. Physically delivering the product or service to the customer and integrating into their business process or personal lives. It covers field operations, customer service, customer satisfaction monitoring, billing, collections and assembling customer experience feedback to input into the development, acquisition and supply chain processes. The key measures here are customer satisfaction, churn, renewal rates, maintenance income streams and costs to support customers. The process owner needs to clarify company strategy in terms of timing, cost and satisfaction trade offs.

5. The Supply Chain process is one of sourcing components and converting them (manufacturing) into the desired form and delivering them to customers. It is often quite complicated, involving many steps in many locations often in different countries. Sometimes it is quite simple, such as shipping a software disc or providing a web address and password.

6. The Command and Control Process collects information from all the other processes and building a mental and financial picture of the business and its interdependencies. How much of this year's and next year's revenue depends on the new products under development? How efficient is sales? What is the real cost of delivering our offering to a customer. When do we need more cash and how much of the company will we have to sell in order to pay for it.