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General Business
by Jack Veale

Many family and ESOP business CEOs find themselves looking at the next generation and saying, "they are not as hungry as I was their age," or "they don’t have the knowledge I had then (or have right now)," or, "they do not want to take any risks."  We also hear stories of CEOs who have grown their businesses as much as they can and are frustrated that all of their time is spent on maintaining, not growing the family firm profitably. Both of these scenarios relate directly to the company’s ability to develop and encourage entrepreneurs.

Entrepreneurship is the process of creating customers through the use of Marketing or Innovation.  Most entrepreneurs have several common characteristics.  They normally have high energy levels, are enthusiastic, and can be very excitable with regard to their ideas. They usually talk fast, are overly demonstrative and have a compulsive need to change whatever they are involved in.   Unfortunately, they also have a tendency to use work teams to convey ideas down, promote people who follow their directions well and blast the poor subordinates who make decisions without their approval.  A successful entrepreneur learns that to adapt his/her style as the organization grows.  The unfulfilled entrepreneur finds his expectations are not met as he faces the difficulties of dealing with the conflicts that arise from not changing with the organization. 

The Administrator mentality that is present in some companies can stifle the creativity of an entrepreneur.  Successful entrepreneurs understand the importance of control, but share it with others.  They recognize the importance of setting a plan, executing a plan and following through with changes on the plan rather than starting another project.  The entrepreneur’s adrenaline usually rises with new ideas, and drops when details surface.

Developing and protecting entrepreneurs is the process of allowing decisions to be made and having the mistakes corrected by the same person. Business entrepreneurs focus on customer needs and they develop products and services to fit those needs.  Almost every successful entrepreneur experiences a significant failure, either in business or in his or her personal life. Stephen Covey, in his book "The Seven Habits of Highly Effective People," developed the following characteristics for successful business entrepreneurs:

  1. They are products of Teams, meaning they do not work alone.  Entrepreneurs develop people skills that attract good talent and allow flexibility to have the team members take risks, too.
  2. They are highly Proactive, meaning it weakens their position if they are in a reactive mode. Therefore, risk-taking is a fundamental characteristic trait of an entrepreneur.
  3. They are Controlled Workaholics. They are tireless, ceaseless, workers who have learned the hard way that overdoing it causes unbalances in other relationships.  As a mother takes care of her early born child, so does an entrepreneur take care of his infant business.  They show they care by the long and early morning hours, their attention to problems that are similar to a mother's response to her child's crying, are just some of the examples of entrepreneurs who must take hold for the survival of the project. 
  4. They hate Structure and Bureaucracy.  Getting closer to the customer means having fewer layers of reporting, allowing them to respond to customer needs faster.  In other word, the more rules that arise that are in conflict with customer needs, the more hate is created by the entrepreneur.
  5. They keep nurturing their Entrepreneurial Spirit.  They constantly focus on gaining valuable knowledge, wisdom, maturity, skills and judgment.  They avoid being reckless and skipping from one idea to another without finishing the project.

Our experience with successful entrepreneurs is that they spend an inordinate amount of time experimenting with an idea.  They can be found either tinkering in the basement or in the plant on weekends because they have to figure out how to implement their ideas.

Successful entrepreneurs who grow their business beyond 10 to 15 people share information and control in order to grow for the organization.  They share goals and expectations.  They share mistakes and failures.  The term "Open Book Management" was derived from the process of getting the remaining partners of a business (the employees) to understand the financial and operational issues that improve performance.  ESOPs, or "Employee Stock Ownership Plans" were developed, not just as a tax strategy, but as a way to attract and retain key employees.  Entrepreneurial companies understand the need for rewards for good performance and seek to reward others, especially non-family members, for excellent performance.

Michael Dell, an entrepreneur who built a multi-billion dollars computer company in less than 15 years (he started it by while in college in his dorm), learned several lessons about growth:

  1. Strategy comes before Structure: Developing a structure before the strategy constrains the organization.  Entrepreneurs need to understand the purpose first, then get the structure in place after the needs have been filled.  In other words, don’t put people in place without first defining customer needs.
  2. Customer Focus: Ranking number one in customer satisfaction surveys is the result of focusing on customers and living the motto "the customer is always right."
  3. Breakthroughs: Create radical changes to the business model to reduce costs or increase customer satisfaction.  Dell's constant focus on direct sales by phone, and now the Internet, has resulted in results that have surpassed even the most aggressive forecasts. 
  4. Segmentation: Separating customers by specific, measurable categories as the company grows allows for new opportunities and knowledge that will create even more value and satisfaction to the customer.  Understanding the differences in corporate versus small business customers, or younger people versus older people, provide a basis from which excellent customer service and value can be offered.
  5. Talent: Focus on attracting and developing the best talent. As the business grows, divide people’s jobs so others can develop.  It may create cultural issues at first, but it will free both to take on more customer-valued work.  If the company is turning away potential entrepreneurs to other companies, its owners should take a hard look as to WHY the entrepreneurial candidates did not select their company.  Family businesses have much to offer, beyond stock options.
  6. Leadership: Dell Computer learned they could not get customer value by copying what "the other guy" was doing. Borrowing ideas but following their own path was the key issue that produced increased sales.  In fact, they had a difficult time during their early years of 1992-94 as the ability to manage a high growth company was hampered by their systems and management.  Through new software, process changes and employee training the company has enjoyed remarkable and profitable growth.

Developing leaders is different from developing entrepreneurs.  Peter Senge wrote about the "creative tension" that arises when the vision doesn’t reflect where "the company is."  In other words, leaders are required to either raise the reality to the vision or lower the vision to the reality.   Leadership is about dealing with people, management is about dealing with systems.

Entrepreneurs work on creative theories; leaders anticipate or respond to facts and actions. Entrepreneurs are curious, imaginative, and have high emotional energy or "ownership" for a project or plan.  Entrepreneurs take risks; leaders manage risks.  Entrepreneurs will follow the trail of least resistance (don’t follow the rules) in order to satisfy customer needs, while leaders pay attention to details like costs that affect customer needs. Entrepreneurs develop their ideas and make them happen; leaders allow or guide people to implement and make things happen.  There are times when good leaders are not very good entrepreneurs.  There are times when good entrepreneurs are not good leaders. 

Leaders lead; entrepreneurs own.  When a CEO is looking for someone to take "ownership" of a project he is looking primarily for an entrepreneur, not a leader.  This "project owner" will be required to make decisions on a variety of issues and must have the authority and knowledge to change directions. A project owner must risk their career for the opportunity.  Experience and observations, not skills have built the entrepreneur spirit.  A leader must have the skills to motivate and direct people and resources to fill a need.

Developing entrepreneurs is not a simple process. Coaching and mentoring, a process of introducing new concepts and ideas and allowing for mistakes, is the best way to develop entrepreneurs. However, the budding entrepreneurs must clean up their own mistakes.  A good mentor/coach will not allow a large mistake to capsize the company. Family business CEOs have a difficult time coaching the next generation as they were not trained to do so.  However, successful CEOs have found that allowing mistakes to occur gives new people’s theories the opportunity to develop into laws that will result in high customer value and satisfaction.  Cleaning up messes allows for learning to accelerate, and new ideas to form.  Pain has a wonderful way of teaching all of us what NOT to do.

Keeping new entrepreneurs is more and more difficult.  In today’s tight labor market, turnover by those under 30 is extremely high.  In some cases, these people are "free agents."   Here are some suggestions for attracting and keeping new entrepreneurs:

  1. Build systems and cultures that maximize the value adding potential of people.  That means allowing people to experiment without serious career pain and teaching managers HOW TO manage people, delegate, and coach the people they SERVE.  Grow knowledge workers by transforming the way they work, the roles they play and the experiences they develop.  Allow them to move around in other departments to expand their knowledge of the company’s processes.
  2. Work with people on their own terms.  They may decide to build their own business and be a subcontractor.  At some point, if they are bringing value, you can acquire them and integrate their developed skills more effectively than getting them stuck in your now constrained culture.  Identify a project that you could hire someone to help you with.  Hire a temporary and see how the project unfolds.  That temporary may be product manager who is currently looking for work and experience.  A big mistake is to have preconceived notions of a temporary person or clerical worker.  There are many former executive secretaries that are now senior vice presidents due to opportunities to allow people to step up and help.  They developed numerous organizational and operational skills by working with the right people and getting things done.
  3. Promote people by innovation.  That is, reward people that develop knowledge and allow the company to stay on the cutting edge.  Rewards should come with results, and should follow those results as rapidly as possible.  Push new people into every area of the company as a training exercise.  Make them produce results, understanding the processes and technologies of each position.  Make them talk to each other, regardless of the "rules." The old idea box by the time card machine has now been replaced by interaction with higher levels of management.

Microsoft would not have been in the Internet business as early or rapidly as it was, if it were not for two software programmers who were "skunk working" Internet services in a far corner of the company.  They were allowed to communicate directly with Bill Gates, and on occasion, they sent him emails about external Internet-related strategies and company issues that they found.  It wasn’t until they were at their Alma Mater and learned how integrated the Internet was that THEY pushed hard for Gates' attention.  Bill Gates' entrepreneur spirit allowed free flowing information to and from his office so that other opportunities could develop.  The whole company changed in a matter of months due to emails sent to Bill by those two employees.

As your company struggles with the idea of identifying new markets, new products, and new processes, it will require people who will "own" the new creations.  It will require these "new owners" to take care of their "new babies" like they would their own child.  These babies will need to be fed with cash flow and sales.  Successful entrepreneurs will learn how to do it, when to change directions and will bring value to the customer by the experiences they develop at your company.  Allowing them to succeed creates opportunities for the company to grow with them. Developing support systems for their success will not only attract but also retain those individuals, provided there are opportunities for growth and profitability.  Developing High performance teams is just the start to creating new opportunities for growth.

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