battles with John Sculley during his first term at Apple (which ended in 1985). Steve Jobs was, in common parlance, a control freak.
Another barrier to continued successful growth relates to the understandable human tendency to repeat what has worked in the past. If a success formula has worked in the past, it is reinforced by success, and tends to be repeated – even after the conditions that enabled it to be successful have changed. For the founder and CEO, many factors reinforce the set of behaviors that has been successful, including conventional wisdom that says, “If it ain't broke, don't fix it.” The problem is that organizational success leads to changes in the key underlying determinant of future success – that is, size. Size matters in business as well as in other areas of life. The greater the size of an organization, the greater its complexity. This, in turn, means that managing and leading the business will also be more complex. Like a rubber band that is stretched to its ultimate breaking point, an organization will inevitably grow to a size where the success formula that created its success (including the way that the CEO has managed and led the business and its development) will no longer function as well and will require change.
All of the critical characteristics of a founder or CEO of an entrepreneurial company combine to create what can be characterized as the core dilemma that must be resolved if an organization is going to continue to grow successfully over time: The mindset, skills, and capabilities of entrepreneurial leadership that led to initial success are no longer sufficient or appropriate for future success once an organization reaches a certain critical size. Specifically, at some point, the significant or possibly total focus on markets and products, and the lack of interest in and subsequent neglect of management of the nuts and bolts of day-to-day operations will turn strength into a limitation. Similarly, the willingness and desire to personally “do whatever is necessary” (and, in turn, control everything) will also turn from strength to a limitation. Taken together, this means that the entrepreneurial success formula must inevitably change, if success is to continue.
There are three key ideas that must be embraced by company leaders as their organizations grow. First, a key notion that must be embraced is that past success is not a guarantee of future success. This means that both the mode of operation and the way that a company is operated must inevitably change. This also typically means that the founder or CEO and his or her team will need to develop new skills and change the way that they execute their roles.
The second key idea that must be embraced is that infrastructure matters. When a company is founded and begins to grow, the most important questions are: “Do we have market?” “Do we have a product or service that is desired by the market?” and “Can we make a profit providing that product or service to the market?” If these questions are answered in the affirmative, the company will be successful and grow – at least for a while. At a certain point in this growth, however, significant attention needs to be devoted to developing the infrastructure required to continue to grow and operate successfully. As used here, “infrastructure” relates to the resources, systems, processes, structure, and organizational culture required to support effective and efficient day-to-day operations and continued growth. Just as a city or nation requires an infrastructure to facilitate growth, so does an economic organization like a company require an infrastructure.
The problem with focusing upon and developing organizational infrastructure is twofold. Although it is not typically an objective that excites or energizes an entrepreneurial leader, infrastructure is as critical to a business as to a house. In a house, when you turn on the lights or the water tap, you want it to work flawlessly, but you might not really care about whether or not you have certain types of wiring or copper pipes. You might well be much more concerned about the decorations and furnishings of the house. You know that wiring and pipes are important, but the details are not inherently interesting. With organizational infrastructure, the entrepreneur might know that it is important, but not find it inherently interesting.
The third key notion that must be changed or managed is that developing infrastructure (systems, processes, etc.) means creating bureaucracy. Infrastructure implies process and systems; and processes and systems (to many entrepreneurs) imply bureaucracy. Since bureaucracy is the mortal enemy of innovation and entrepreneurship, an entrepreneurial leader might recoil at the thought of embracing what seems to be tantamount to bureaucracy – just as he or she might not want to embrace a poisonous snake! Another challenge for the entrepreneurial leader, then, is to understand that not only is infrastructure important, but that it does not necessarily mean creating bureaucracy.
The construct we use as the basis for the vision of the required transformation is making the transition from an early stage entrepreneurship to an entrepreneurially oriented, professionally managed organization. This means that the organization must develop the processes, systems, and capabilities to manage the large, more complex enterprise it has (or will soon) become. Many entrepreneurs also equate professional management with bureaucracy, and reject that as an aspiration. For example, Steve Jobs once referred to professional managers as “bozos,” and once said: “Why would anyone respect professional managers? They can't do anything.” This is a misunderstanding of the role and function of professional management. It also explains why Jobs was once fired by his own firm. When Jobs returned to Apple, he changed his perspective and approach and hired Tim Cook, a quintessential professional manager, who became the company's CEO in 2011.7
Faced with the difficulties described above, what can a founder or entrepreneurial CEO do?
Four basic alternatives are available to the CEO who recognizes that the organization can no longer be run in the old way. As described below, they are: (1) do nothing and hope for the best, (2) sell the business and start over, (3) move up to chairperson and bring in a professional manager to run the organization, or (4) make a systematic effort to change personal behavior to fit the needs of the company at its new stage of development. Let us look more closely at each of these alternatives.
Business as Usual . First, the CEO can do nothing – or, rather, do “business as usual” – and hope for the best. This could be called the “ostrich strategy.” The strongest argument for this course of action is that the company has been successful with its current style to date, and “If it's not broken, don't fix it.” Unfortunately, corporate graveyards are littered with companies that had promising starts but, because of this strategy, did not continue to develop.
Sell the Business and Start Over Again . A second strategy is for the entrepreneurial CEO to sell the company when it gets too big to continue with an entrepreneurial style, and then set about building a new company. A variation on this theme is merging with another company to bring in new senior managers. This was the strategy of Steve Jobs, who began to develop a new company, “Next,” after leaving Apple. This means the founder must become a serial entrepreneur. Some founders are capable of doing this, while for others their business was a one-idea opportunity that cannot be repeated.
Bring in a Professional Manager . The third strategy is for the CEO to become chairperson and bring in a professional manager to run the business. When a founder has sufficient self-insight to realize that he or she is really an entrepreneur or “creative person” and not really an executive, this can be an attractive option. The founder can become the Chief Creative Officer (or whatever other title seems appropriate) and turn over operation to others more capable of running an organization. A great example of this is Mark Zuckerberg, founder of Facebook. As Zuckerberg has stated, “I'm not an operator.”8 Some of our clients have also pursued this alternative – including a package delivery business, where the founder realized he was “not CEO material” and hired a CEO to whom he reported (as COO) on an operational level. The
Timothy “Tim” Cook spent 12 years at IBM in its personal computer business. He ultimately became the director of North American Fulfillment. Later, he served as COO of the computer reseller division of Intelligent Electronics. Finally, before joining Apple, in 1998 he was Vice President for Corporate Materials at Compaq for six months.
Ryan Knutson and Sam Schectner, “Zuckerberg Seeks Calm with Telecom Carriers,”
