Growing Pains. Flamholtz Eric G.

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

Alternatives for the CEO as the Organization Grows

      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 founder was, of course, the owner of the company and had to approve the CEO's recommended strategic plan and capital expenditure budgets. He was also disciplined enough not to throw his weight around and overrule the CEO's managerial decisions and actions, even when long-term employees came complaining about something. As a result, he did not undermine his CEO.

      A variation on this theme is for the entrepreneur to turn over the CEO position to another individual in the business who is better suited to handle the CEO position. This was done reasonably successfully by Howard Schultz at Starbucks who turned the business over to Orin Smith. However, after Smith retired from Starbucks, the next successor, Jim Donald, came from outside the organization and was later fired, with Schultz returning to the position of CEO. Schultz later stated that Starbucks would never again hire someone in that position from outside the organization who did not deeply understand the company's distinctive culture.

       Change Behavior, Skills, and Role . Finally, a CEO may choose to make the personal and managerial style changes necessary to be able to take the organization to its next growth stage successfully. This can also involve a redefinition of the CEO's role. We will provide more detail on the specifics of leadership transitions in the context of leadership development – the subject of Chapter 9.

      As described earlier in this chapter, a critical ingredient in the success of such an attempt is the CEO's willingness to live with less control over the organization and its activities. Our experience in coaching CEOs through this transition is that it is possible, but it is not easy.

      Cultural factors can play a role in a CEO's willingness to give up a degree of control. In many Asian counties, founders and CEOs (both men and women) are expected to be “strong” individuals, as they typically are. The cultural expectation can lead to a situation where the CEO makes all of the major (and probably many, if not most, of the minor) decisions. This can result in the CEO being the only strong individual in the company, surrounded by “helpers” or people capable of executing tasks and decisions, but not making them. This makes the company totally dependent on the CEO and results in a self-fulfilling situation where the CEO does not expect others to be capable of making decisions and therefore makes them himself or herself. Similar expectations and behavior are also found in various Latin American countries, including Mexico.

      Such a situation does not exist only in Asian and Latin American countries; there are many examples of this behavior in the United States and Europe as well. For example, in one medium-sized bank in which we worked as consultants, the founder was an exceptionally strong and dominating individual, and had “trained”

7

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.

8

Ryan Knutson and Sam Schectner, “Zuckerberg Seeks Calm with Telecom Carriers,” Wall Street Journal, March 4, 2015, B4.