Growth paradox can sink entrepreneur's startup

Enterprise page, Next Steps column, The Globe and Mail,
Wednesday, May 9, 1999

John Fauquier

Fred started his software firm four years ago. Revenue had been growing steadily with a solid product design and a receptive marketplace.

For the first couple of years, Fred was too busy launching his business to worry about managing it. Cash flow was more than enough to cover operating expenses. Carol was hired in the first week to answer the phone and look after the mail, faxes and courier deliveries. A family member was enlisted to sign cheques and make bank deposits.

The company seemed to expand without even trying to more than 20 people.

But Fred is feeling overwhelmed. Employees complain to each other about poor communication inside the company and with customers. Management meetings are rare. Exciting sales prospects have failed to materialize. The company has been reorganized recently and a few key staff members have left for the competition.

Fred assumes his problems are the product of the business's rapid expansion and greater complexity. But, in fact, he's experiencing the entrepreneur's growth paradox: the factors that made Fred good at starting and running a small enterprise are the same ones preventing him from effectively managing a mid-sized company.

Let's look at those factors:

Entrepreneurship. Fred had the confidence to risk starting a new business. He and his wife mortgaged their house and raised money from friends and relatives. He had to be confident, optimistic and willing to assume substantial risk. Fred felt he could conquer any problem with energy, intelligence and technical knowledge.

Leadership and delegation. At first, these were not considered important because the office was small and the staff worked closely together. Fred saw and heard everything going on in the office; he was involved in everything. Most communications were verbal so practically nothing relating to administration was written down.

Management skills and abilities. While at university, technically minded Fred did not take any courses in management or administration. But he liked to read the business section of the newspaper, giving him a false sense of capability and a lengthy list of jargon.

When trouble came, Fred simply assumed that most problems were related not to him but to the larger size of the organization and its complexity. But what worked for him in the start-up phase does not work at this one.

First, Fred's entrepreneurship has led customers to too closely associate him with the product. He knows he should be doing more to develop new prospects as well as attend more shows, conferences and industry meetings, but feels pinned to the office. Sales and market share have not increased according to plan, so Fred is losing confidence.

As for leadership and delegation, Fred doesn't realize he is still trying to personally direct each section of the company. He has delegated nothing of significance. As well, the family member has not kept up with the requirements of financial management, and Fred is reluctant to deal with it.

He has also valued technical competence over communications skills. Faced with growth pressures, Fred retreats more into technical issues, talking to fewer staff each day. Employees learn of new developments from a variety of sources, particularly customers.

Fred has heard casual remarks in the office about poor communications but is puzzled because his "open-door policy" encourages staff to discuss problems any time. But no one has taken him up on his offer.

And Fred's management skills have been wanting. On hiring Carol, Fred promised her a performance review following her first three months. After four years, Carol is still waiting for the first review. Fred has not gotten around to reviewing the performance of any staff.

After a few years and at the request of some staff members, Fred holds a management meeting. It is a disaster. Some employees see it as a waste of time and walk away feeling more confused than ever. Planned for an hour, it runs past two hours. Worst of all, there is no follow-up announcement, memo or newsletter to deal with the questions raised.

Fred is a fighter and not prepared to give in to frustration and fatigue. He wants to chart a new course and has been thinking over three options.

Retrench. Fred may reduce the size and scope of his business to regain control of day-to-day operations. That means going back to the original structure. But he may reject this option because it means restricting product development, growth and higher revenue. Fred doesn't see that his management style and lack of skills are the root of the problems.

Change working style. He may pledge to work at this approach by signing up for management training courses. However, this strategy has no fixed timetable and there is a low probability of Fred substantially changing his basic attitude and behaviour.

Seek help. Fred may hire professional consultants to assist in organizational change that will allow for better methods of delegation, communications and management. He may also convene a board of advisors, including experts who can help with issues relating to sales and marketing, finance and legal matters and who have experience in the software industry.

Finally, he may look around for someone he respects highly - and has the time available - to act as a mentor or coach. Fred can find a way out of his problems if he chooses.

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