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Is your Business Positioned to Transition
from Entrepreneurship to Professional Management?
Many successful entrepreneurs that outlive
the hazards of the start-up phase are unable to transition
to professional management. Many businesses, which survive
their founder, have done so only through absorption by a larger
public company and or an LBO firm. The acquisition by a larger
more sophisticated entity using the most recent managerial
techniques does not guarantee its success. We only have to
look locally at Prince, Cape Cod Potato Chips and Lechmere
to see that large does not necessarily mean better. How does
the founder/ entrepreneur provide a future for his/her baby?
They have to look at themselves in the mirror
and ask if the company is professionally managed. Can and
will the business grow and prosper as presently constituted.
In this lies the answer to the business's future. What is
a Professionally Managed Business and the changes required
of the entrepreneur to become professionally managed are:
- Planning – strategic and annual business
plans
- Goals and objectives for the company, divisions,
departments, and people
- Responsibility – People are given
the authority and responsibility
- Role definition – People have clearly
defined roles
- Profit motivation – People and departments
have clear and quantified profit objectives
- Corporate Culture – Is written and
understood by the employees
- Mission Statement – The companies
purpose and mission is understood by the employees.
As every company moves through its economic
life cycles, leadership changes occur. The reason and the
success of the leadership change will depend upon the incumbent’s
ability to establish a professionally managed business. Reengineering
has redefined how professionally managed firms function. There
have been a significant number of entrepreneurial successes
only to become failures under new leadership. Some companies,
after long histories of success lose their luster over time
while others become quick problems.
One such disaster was an entrepreneurial lead
retailer called Merry-Go-Round. Merry-Go-Round’s revenue
had grown from $500,000 in 1968 to $1 billion in 1994 when
the company filed for bankruptcy. Merry-Go-Round was liquidated
in 1996 with many of the creditors collecting zero cents on
the dollar. Fortune magazine in December 1996 listed five
(5) reasons the company faltered.
- It lost sight of customers’ preferences
- It made a disastrous acquisition
- It created an insular corporate culture
- It didn’t prepare for management succession
- It couldn’t cope with rapid growth
As we will discuss, the problems listed above
are not unique to Merry-Go-Round. Failure of the entrepreneur
to build a professionally managed business will result in
the company having a great history and no future.
There is a pattern in many companies where
the successful founders faced the need to transition the company
from an entrepreneurship to a professionally managed business.
Unfortunately, while the founders had the skills and personality
to establish a successful company, not all of them possessed
the very different skills, behavior patterns, and will necessary
to take the firm to the next level, a professionally managed
company.
The book "Beyond Survival" published
prior to the current technology wave describes the profile
of the self-made business owner.
The entrepreneur wears many hats. He is the
"BOSS", and to them that means they are the
- Owner and must keep shareholder interests
in sight;
- Employee and the company’s best worker;
- CEO, decision maker par none to grow and
make money for the business;
- Aging, who wants to reap the fruits of
their labor.
In the early years the entrepreneur worked
extremely hard and did whatever was necessary to succeed.
Their life and that of their families suffered. They were
always working and the early rewards may have been small.
The years pass and the business grows with the entrepreneur.
During these years the entrepreneur might be heard outlining
the growing pains of the business during family gatherings.
At some point they start bragging to his offspring that the
business will someday be theirs. The "X" generation
says either out loud or to himself, "NO WAY, that is
no life and it is boring. The entrepreneur is left wondering
who will lead the business, who will take over after me.
Unfortunately, during this period the entrepreneur’s
business personality also develops a tendency which can plague
them forever. They become secretive. The entrepreneur sees
the business as an extension of himself or herself. They will
most likely not communicate about personal or business matters.
The entrepreneur becomes very protective of the business;
it is his/ her "BABY". Often entrepreneurs only
share knowledge with those people who must have it. They do
not cross educate their managers, and god forgive, if someone
besides the owner and the trusted keeper of the books should
have knowledge about the company’s finances.
In the family owned business you find the
most influential person is the bookkeeper or controller -
the keeper of the books. The books are kept secret, for not
even the "BOSS" should know what the finance person
does not know. Nobody is really in a position to argue with
the judgement of the owner-manager. This is called non-review.
And it is this secrecy and this lack of review that are the
hallmark of the organizational structure of the family-owned
business.
Life around the business becomes interesting
when the entrepreneur decides he is going to be a full time
CEO and starts attending seminars to learn more about
- management by objectives;
- team approach;
- cluster management;
- Reegineering.
You have to be kidding. You cannot delegate
responsibility without information and neither the entrepreneur
nor the controller is going to risk full disclosure to the
team. This results in an organization chart that looks like
a spider web. The "BOSS" sits in the middle and
confers with everyone one on one, or will hold meetings without
providing objectives or comparative data maintaining a high
level of subjectivity versus the more definable and understandable,
objective (s) determinable.
Far and few between are the managers that
speak out and inform the "BOSS" that he cannot run
the business that way, as they need to feed their families.
Employees get rewarded for longevity - not results. The business
owner thinks he can hire whomever he needs to run a business
segment without providing information about the entire entity.
The entrepreneur masks his lack of knowledge about being a
"CEO" by using some of the following myths:
- My Business is different; Strange, the
business of all owner entrepreneurs are all different in
the same way.
- When you have my experience, you’ll
understand; The entrepreneur seals off constructive criticism
for who in the organization dares to contradict the "BOSS"
if he wants to succeed in his current position; they need
to provide for their families.
- It is my money and I will do what I want.
Sorry to say, it is not just their money.
- Business is lousy; Business will continue
to be lousy if they keep all the challenges and rewards
to themselves.
- It is my Business and I can do with it
what I want; Is the owner entrepreneur adding value to the
business, or are they setting it up for an auction sale
to the highest LBO bidder?
The composition of a professionally managed
company will vary depending on the size and complexity of
the company. Empowering and entrusting managers to be individualistic,
self-reliant, accepting risk, with a propensity for change
is today’s paradigm. These are the characteristics necessary
in the company’s managers for tomorrow’s success,
yet the corporate culture suffocates these characteristics.
The entrepreneur tends to be more directive and everyone waits
for "THE BOSS" to make a decision. If the employees
do what the boss wants it is safe, then the company is left
with brain dead employees leaving the company’s most
valuable assets laying dormant.
This reminds me of Champy’s "Reengineering
the Corporation" illustration of a fractionalized structure
with everyone looking to please "THE BOSS". In the
fractionalized structure, everyone is looking at narrow slices
of the market, but no one is looking at the customer as a
whole, so important aggregate issues may fall between the
cracks. I personally loved the story about a bank that established
a $20 million credit limit for a certain customer and instructed
each autonomous unit to enforce it. Each one did - by extending
the client the full $20 million credit. The bank - wide exposure
to the client was therefore many times that figure. Management
only understood its true exposure after the client went bankrupt.
I am truly left wondering if these loan officers understood
their client’s financial situation or was it more like
the pied piper and his merry gang of followers. Today’s
businesses do not need followers; they need pro-active team
players willing and able to take risks while adding value
within the corporate culture.
Is your company empowering and entrusting
its employees with the information and authority to be successful?
Hammer and Champy in their book " Reengineering
the Corporation" lists typical values held by employees
of a reengineered company.
- Customers pay all our salaries: I must
please the customer.
- Every job in this company is essential
and important: I do make a difference.
- Employees must do more than show up: I
get paid to create value.
- The buck stops here: The employee must
accept ownership of problems and get them solved.
- I belong to a team: We fail or succeed
together.
- Nobody knows what tomorrow holds: Constant
learning is part of my job.
Do your employees believe the customer pays
their salaries?
Are the employees customer focused?
Is the mental state of the entrepreneur one
of empowering or dictating?
The road to a professionally managed business
is not easy nor is it for everyone. It is the road to seque
the business into the 21st century.
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