The First Challenge for Entrepreneurs

The first challenge that entrepreneurs face is establishing a successful new venture. The basic skills necessary to meet this challenge are the ability to recognize a market need and the ability to develop (or to hire other people to develop) a product or service appropriate to satisfy that need.

If these two fundamental things are done well, a fledgling enterprise is likely to experience rapid growth. At this point, whether the entrepreneur recognizes it or not, the game begins to change. The organization's success creates its next set of problems and challenges to survival.

As a result of expanding sales, resources become stretched very thin. A seemingly perpetual and insatiable need arises for more inventory, space, equipment, people, funds, and so on. Day-to-day activities are greatly sped up and may even take on a frenzied quality.

The business's operational systems (those needed to facilitate day-to-day activities), such as marketing, production or service delivery, accounting, credit, collections, and personnel, typically are overwhelmed by the sudden surge of activity. There is little time to think, and little or no planning takes place because most plans quickly become obsolete. People become high on their own adrenaline and merely react to the rush of activity.

At this point the organization usually begins to experience some, perhaps all, of the following “organizational growing pains”:

• People feel that there are not enough hours in the day.
• People spend too much time “putting out fires.”
• Many people are not aware of what others are doing.
• People lack an understanding of the company's ultimate goals.
• There are not enough good managers.
• People feel that “I have to do it myself if I want to get it done correctly.”
• Most people feel that the company's meetings are a waste of time.
• Plans are seldom made and even more seldom followed upon, so things often do not get done.
• Some people feel insecure about their place in the company.
• The company has continued to grow in sales but not to the same extent in profits.

These growing pains are not merely problems in and of themselves, they are a symptom of the underlying problem that there is an “organizational development gap” between the infrastructure required by the organization and the infrastructure it actually has. An organization's infrastructure consists of the resources, operational support systems and management systems, and culture required to enable the organization to function profitably on a short- and long-term basis. As described further in Chapter 2, a company's resources consist of the human capital, financial capital, and physical assets of an enterprise. Operational support systems consist of all the day-to-day systems required to produce a product or deliver a service and to function on a day-to-day basis. Management systems consist of the organization's planning system, organization structure, management development system, and performance management system. “Culture” refers to the values, beliefs, and norms that drive the behavior of people in the enterprise as well as the “system” for culture management (whatever that might be). These are the systems required to manage the overall enterprise on a long-term basis.

The Second Challenge for Entrepreneurs

Once an organization has identified a market and has begun to produce products or services to meet the needs of customers within that market, it will begin to grow. As the business grows, it will be faced with the need to make a fundamental transformation or metamorphosis from the spontaneous, ad hoc, free-spirited enterprise that it has been to a more formally planned, organized, and disciplined entity. The organization must move from a situation in which there are only informal plans and people simply react to events to one in which formal planning is a way of life; from one in which jobs and responsibilities are undefined to one in which there is some degree of definition of responsibilities and mutually exclusive roles; from one in which there is no accountability or control systems to one in which there are objectives, goals, measures, and related rewards specified in advance as well as formal performance appraisal systems; from one in which there is only on-the-job training to one in which there are formal management development programs; from one in which there is no budget to one in which there are budgets, reports, and variances; and, finally, from a situation in which profit simply happens to one in which there is an explicit profit goal to be achieved. In brief, the company must make the transition from an entrepreneurship to what we term “an entrepreneurially oriented, professionally managed organization.”

As we will see in Chapter 1, this is a time when the very personality traits that initially made the founder-entrepreneur so successful can lead to organizational demise. Most entrepreneurs have either a sales or technical background, or they know a particular industry well. Entrepreneurs typically want things done in their own way. They may be more intelligent or have better intuition than their employees, who come to rely on their bosses' omnipotence. Typical entrepreneurs tend to be “doers” rather than managers, and most have not had formal management training, although they may have read the current management best-sellers. They like to be free of “corporate restraints.” They reject meetings, written plans, detailed organization of time, and budgets as the trappings of bureaucracy. Most insidiously, they think, “We got here without these things, so why do we need them?” Unfortunately, the nature of the organization has changed—and so must its senior management.

There is no one pattern for a successful transition from an entrepreneurship to a professionally managed enterprise. Whatever path is followed, the key to a successful change is for the entrepreneur to recognize that a new stage in the organization's life cycle has been reached and that the former mode of operation will no longer be effective.

Making an Organizational Transition

As an organization grows, it will, in fact, face not just one but several significant transitions and transformations that need to be managed. A key question for senior leaders (whether they are the entrepreneur of a new company or the CEO of a billion-dollar-plus company), then, is, “What should we do to take the organization successfully to the next stage of growth?” To answer this question satisfactorily, it is necessary to understand that there are predictable stages of organizational growth, certain key developmental tasks that must be performed by the organization at each growth stage, and certain critical problems that organizations typically face as they grow. This understanding, in turn, requires a framework within which the determinants of successful organizational development may be placed.

Part One of this book focuses on identifying these determinants of success, on the identification of the predictable stages of organizational growth (each requiring transitions), and on the personal transitions that entrepreneurs and other leaders need to make to support the transitions from one stage of growth to the next.

Chapter 1 deals with the personal and organizational transitions that are necessary during the life cycle of a business enterprise. It examines a variety of personal and professional changes or transitions that must be made by the chief executive officer or “CEO” as a company grows. These individual transitions include the changing nature of the CEO's role, changes in managerial style, and the behavioral and attitudinal changes required to support successful organizational transitions. It also examines the strategic and “architectural design” changes required for healthy organizational development as a company grows over time.

Chapter 2 presents a holistic framework for successful organizational development. It deals with the issue of what makes an organization successful and profitable. Drawing on research and experience from consulting with organizations of all sizes and types over nearly 40 years, it presents a systematic approach to understanding the six critical variables that determine organizational effectiveness. It examines these six critical tasks of organizational development and describes what must be done to accomplish each. Chapter 2 presents a method for self-assessment of the strength of a business in terms of these variables, which we call the Pyramid of Organizational Development. A database is provided for the reader's comparison of their company's “strategic development scores” with that of other businesses.

Chapters 3 and 4 together identify and examine the seven different stages of organizational growth, from the inception of a new venture through the early maturity of an entrepreneurial organization, and to the ultimate decline and revitalization of a company. Chapter 3 focuses upon the first four stages of growth from a new venture to scale-up, and from scale-up to professionalization of the enterprise as well as consolidation. Taken together, the four stages described in Chapter 3 comprise the period or era from an entrepreneurial start-up through transformation to becoming an entrepreneurially oriented professionally managed enterprise. Chapter 4 examines the remaining three stages—diversification, integration, and decline-revitalization. These chapters also examine the relative emphasis that must be placed on each of the six critical developmental tasks at each stage of the organization's growth.

Chapter 5 identifies and describes the growing pains that all developing organizations experience. It provides a method for assessing these growing pains and determining their severity. Senior managers need to be able to recognize such growing pains as symptoms of the need to make changes in their organizations. Chapter 5 also presents a method for self-assessment of the “growing pains” being experienced by a business as well as for interpreting the degree of “risk” of problems (including ultimate failure) facing the company. A database is provided for the reader's comparison of their company's growing pains scores with that of other businesses.

Taken together, the ideas in Chapters 1 through 5 provide a conceptual map of the “tasks” that must be focused upon to build a sustainably successful business. Part One also provides a guide for analyzing and planning the transitions that must be made in moving a company from one developmental stage to the next.