Building organizations around great ideas the secret to successful entrepreneurs TiE, New Delhi March 25, 2008

Arrangement The spirit of entrepreneurialism The potential chasms of crisis that entrepreneurs face The organisation building agenda The foundation of Leadership The People Processes The four potential risks in the journey Can an entrepreneur be “Rich” & “King”

The spirit of entrepreneurialism

The potential chasms of crisis that entrepreneurs face

The organisation building agenda

The foundation of Leadership

The People Processes

The four potential risks in the journey

Can an entrepreneur be “Rich” & “King”

The spirit of entrepreneurialism

“ Entrepreneurship is the recognition and pursuit of opportunity without regard to the resources you currently control, with confidence that you can succeed, with the flexibility to change course as necessary, and with the will to rebound from setbacks.” Bob Reiss

All entrepreneurs start with a great idea… … ..an idea that can transform the world

Great Ideas

Entrepreneurs behave in very unique and distinctive ways: The are able to create / innovate They are able to take risks The are able to react to changes quite rapidly They are informal and flexible They have their finger in every part of their business given their need for control They often rely on their gut feel in taking decisions They are passionate and have huge energy They often have a very personalised style Traits that help them to go all out and convert their ideas into great businesses. Entrepreneurs also have a unique DNA

Entrepreneurs behave in very unique and distinctive ways:

The are able to create / innovate

They are able to take risks

The are able to react to changes quite rapidly

They are informal and flexible

They have their finger in every part of their business given their need for control

They often rely on their gut feel in taking decisions

They are passionate and have huge energy

They often have a very personalised style

Traits that help them to go all out and convert their ideas into great businesses.

The potential chasms of crisis that entrepreneurs face

What is not understood and recognised is that while great ideas and entrepreneurial traits are necessary, they are not sufficient conditions for success.

The concept of crossing the chasm Author Geoffrey Moore demonstrates that there are cracks in the curve, between each phase of the cycle. The largest crack, so large it can be considered a chasm, is between the Early Adopters and the Early Majority. Many (most) high tech ventures fail trying to make it across this chasm.

So too entrepreneurs have their own chasms to cross…

There are at least three chasms that entrepreneurs can fall into Greiner’s five stage life-cycle model of growth - each stage ending in a crisis. To advance from one stage to the next, an organisation must successfully manage and solve the problem associated with each crisis. Age of organisation Y oung Mature Large Small Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 1. Crisis of leadership 2. Crisis of autonomy 3. Crisis of control 4. Crisis of red tape 5. Crisis of ?? 1. Growth through creativity 2. Growth through direction 3. Growth through delegation 4. Growth through coordination 5. Growth through collaboration Size of organisation

Greiner’s five stage life-cycle model of growth - each stage ending in a crisis.

To advance from one stage to the next, an organisation must successfully manage and solve the problem associated with each crisis.

The entrepreneurial chasms as seen by Greiner The crisis of leadership is the most dangerous one. The crisis of autonomy and control are also serious. The successful entrepreneurs cross the chasms of crisis and less successful ones are those that fall into it. Age of organisation Y oung Mature Large Small Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 1. Crisis of leadership 2. Crisis of autonomy 3. Crisis of control 4. Crisis of red tape 5. Crisis of ? 1. Growth through creativity 2. Growth through direction 3. Growth through delegation 4. Growth through coordination 5. Growth through collaboration Size of organisation

Growth through creativity …. Characterized by: Start-up company, entrepreneurial, informal communication, hard work and low earnings. Dominated by the founders of the organisation - emphasis is on creating both a product and a market. As the organisation grows, management problems occur that cannot be handled through informal communication. Founders find themselves burdened with unwanted management responsibilities. Conflicts between the leaders grow. The crisis of leadership ……… .leading to the crisis of leadership

Growth through creativity ….

Characterized by:

Start-up company, entrepreneurial, informal communication, hard work and low earnings.

Dominated by the founders of the organisation - emphasis is on creating both a product and a market.

As the organisation grows, management problems occur that cannot be handled through informal communication. Founders find themselves burdened with unwanted management responsibilities.

Conflicts between the leaders grow.

Growth through direction…. Characterized by: Sustained growth, functional organisation structure, capital management, budgets and standardized process. The question of who is going to lead the organisation out of confusion and solve the management problems confronting the organisation arises. Need to find a strong manager who can pull the organisation together. During this phase the new manager and key staff take most of the responsibility for instituting direction, while lower level supervisors are treated more as functional specialists than autonomous decision-making managers. As lower level managers demand more autonomy, this eventually leads to the next phase. The crisis of autonomy … .. leading to the crisis of autonomy

Growth through direction….

Characterized by:

Sustained growth, functional organisation structure, capital management, budgets and standardized process.

The question of who is going to lead the organisation out of confusion and solve the management problems confronting the organisation arises. Need to find a strong manager who can pull the organisation together.

During this phase the new manager and key staff take most of the responsibility for instituting direction, while lower level supervisors are treated more as functional specialists than autonomous decision-making managers.

As lower level managers demand more autonomy, this eventually leads to the next phase.

Growth through delegation …. Characterized by: Decentralised organisational structure, operational and market level responsibility, profit centre, financial incentives, decision making is based on periodic reviews, top management acts by exception, formal communication. It is difficult for top managers who were previously successful at being directive to give up responsibility. Lower level managers are not accustomed to making decisions for themselves. Numerous organisations flounder during this period. Lower level employees are disappointed with lack of autonomy and leave the organisation. When an organisation gets to the growth stage of delegation, it usually begins to develop a decentralized organisation structure, which heightens motivation at the lower levels. Eventually, the next crisis begins to evolve as the top managers sense that they are losing control over a highly diversified field operation. The crisis of control … .. leading to the crisis of control

Growth through delegation ….

Characterized by:

Decentralised organisational structure, operational and market level responsibility, profit centre, financial incentives, decision making is based on periodic reviews, top management acts by exception, formal communication.

It is difficult for top managers who were previously successful at being directive to give up responsibility. Lower level managers are not accustomed to making decisions for themselves. Numerous organisations flounder during this period. Lower level employees are disappointed with lack of autonomy and leave the organisation.

When an organisation gets to the growth stage of delegation, it usually begins to develop a decentralized organisation structure, which heightens motivation at the lower levels. Eventually, the next crisis begins to evolve as the top managers sense that they are losing control over a highly diversified field operation.

There is one sure way to cross these chasms … ….build an organisation around the great idea Some entrepreneurs recognise these crisis situations and ask for help and do something about it. Others live with the problem and suffer

The organisation building agenda

The organisation building agenda as we see it Leadership People Process People Process People Process

The adhocracy – bureaucracy dilemma In helping them make this journey, we are acutely aware of the need to preserve certain functional elements of adhocracy like flexibility, speed and responsiveness! Adhocracy: adaptive, integrative and creative behaviour which can respond faster to a changing environment. Bureaucracy: standardized procedure, formal division of responsibility, hierarchy, and impersonal relationships and informal influence. Most entrepreneurial firm are in the process of moving from a certain level of adhocracy to a functional level of bureaucracy.

The foundation of Leadership

The foundation of Leadership While there are several aspects of leadership that we hear about, the three that we have experienced as most critical are: Giving and sustaining clarity and direction Designing the right organisation that delivers the strategy by promoting delegation while maintaining control Demonstrating a style of leadership that promotes trust, respect, recognition, performance, ownership and fairness

While there are several aspects of leadership that we hear about, the three that we have experienced as most critical are:

Giving and sustaining clarity and direction

Designing the right organisation that delivers the strategy by promoting delegation while maintaining control

Demonstrating a style of leadership that promotes trust, respect, recognition, performance, ownership and fairness

While many Leaders are clear in their mind about what they want to achieve, they seldom clarify this or communicate it consistently. While their founding team members may “understand” the direction, the next generation of employees fail to see it. The problems become acute when the founders are unclear about where they are headed or keep making course corrections. Sometimes the direction might be clear but the path to get there may not be as clear. There are several reasons why entrepreneurs fail to give this direction: They assume people know They are so introverted that they find it difficult to communicate As the organisation becomes larger, they realise that they need special skills to not just communicate but rally people around this common purpose They are also unable to address conflicting views around the direction and just avoid talking about it Giving and sustaining clarity and direction

While many Leaders are clear in their mind about what they want to achieve, they seldom clarify this or communicate it consistently.

While their founding team members may “understand” the direction, the next generation of employees fail to see it.

The problems become acute when the founders are unclear about where they are headed or keep making course corrections.

Sometimes the direction might be clear but the path to get there may not be as clear.

There are several reasons why entrepreneurs fail to give this direction:

They assume people know

They are so introverted that they find it difficult to communicate

As the organisation becomes larger, they realise that they need special skills to not just communicate but rally people around this common purpose

They are also unable to address conflicting views around the direction and just avoid talking about it

Leaders may have a clear direction but may still be hamstrung by an organisation design that is not geared for the future. Issues of Organisation design could include the following: Job design for key roles might be wrong Roles may not be clearly defined leading to mismatch of performance expectations The basis of differentiation and the choice of organisational form may be erroneous Levels of impact may not be clear resulting in disparities The Span might be too large Accountability may be diffused across roles and levels Above all, the original design of the organisation as well as the original design of roles may need to be recast given the scale and growing complexity. Designing the right organisation that delivers the strategy promoting delegation while maintaining control

Leaders may have a clear direction but may still be hamstrung by an organisation design that is not geared for the future.

Issues of Organisation design could include the following:

Job design for key roles might be wrong

Roles may not be clearly defined leading to mismatch of performance expectations

The basis of differentiation and the choice of organisational form may be erroneous

Levels of impact may not be clear resulting in disparities

The Span might be too large

Accountability may be diffused across roles and levels

Above all, the original design of the organisation as well as the original design of roles may need to be recast given the scale and growing complexity.

In all organisations in general and in entrepreneurial organisations in particular, the style of the leader has a direct impact on the climate and therefore the engagement levels of the employees. Entrepreneurs are quite often unaware of their style and its impact on the climate of the organisation because no one gives them feedback. Entrepreneurs may be causing unintended damage to climate and morale as a result of their style. Entrepreneurs seldom realise that they need to change their style in line with the changing life stage of the organisation. Demonstrating a style of leadership that promotes trust, respect, recognition, performance, ownership and fairness

In all organisations in general and in entrepreneurial organisations in particular, the style of the leader has a direct impact on the climate and therefore the engagement levels of the employees.

Entrepreneurs are quite often unaware of their style and its impact on the climate of the organisation because no one gives them feedback.

Entrepreneurs may be causing unintended damage to climate and morale as a result of their style.

Entrepreneurs seldom realise that they need to change their style in line with the changing life stage of the organisation.

The People Processes

While there are several People Processes that are spoken about, our experience tells us that there are three people related problems that keep entrepreneurs awake at night: Hiring skilled resources Securing performance Developing people The modern concept of employee engagement gives entrepreneurs the impression that they need to get 70/100 on all people process. We see it differently. We believe that it is important to focus on the vital few processes that gives the organisation leverage at a given point of time. Scoring a 50/100 on all processes is not good enough. The People Processes

While there are several People Processes that are spoken about, our experience tells us that there are three people related problems that keep entrepreneurs awake at night:

Hiring skilled resources

Securing performance

Developing people

The modern concept of employee engagement gives entrepreneurs the impression that they need to get 70/100 on all people process. We see it differently.

We believe that it is important to focus on the vital few processes that gives the organisation leverage at a given point of time. Scoring a 50/100 on all processes is not good enough.

If you have watched Lion King the movie, you will certainly remember the famous words of Shenzi the Hyena: “ Look at you guys, no wonder we are dangling at the bottom of the food chain… you know if it weren’t for the Lions, we’d be runnin’ the joint”. Quite often I find entrepreneurs in the same mental state as Shenzi – at the bottom of the chain in the staffing market and feeling envious about the hiring clout of the larger players! Beyond hard realities, there are three belief systems which seriously inhibit the entrepreneurs’ ability to hire: Trapped by loyalty Fear of paying market compensation My style is the best style Hiring skilled resources

If you have watched Lion King the movie, you will certainly remember the famous words of Shenzi the Hyena:

“ Look at you guys, no wonder we are dangling at the bottom of the food chain… you know if it weren’t for the Lions, we’d be runnin’ the joint”.

Quite often I find entrepreneurs in the same mental state as Shenzi – at the bottom of the chain in the staffing market and feeling envious about the hiring clout of the larger players!

Beyond hard realities, there are three belief systems which seriously inhibit the entrepreneurs’ ability to hire:

Trapped by loyalty

Fear of paying market compensation

My style is the best style

Entrepreneurs also end up not being clear about their Employee Value Proposition (EVP) and fail to articulate it clearly. Entrepreneurs may also not think through their staffing strategy including decisions of mix, sources and so on. Entrepreneurs are also prone to making huge hiring errors given the lack of skills and experience or just the haste. Hiring skilled resources …

Entrepreneurs also end up not being clear about their Employee Value Proposition (EVP) and fail to articulate it clearly.

Entrepreneurs may also not think through their staffing strategy including decisions of mix, sources and so on.

Entrepreneurs are also prone to making huge hiring errors given the lack of skills and experience or just the haste.

Securing Performance While entrepreneurs are anxious about results, they do not always use an institutionalised process to drive organisation wide performance. The reasons for this are many: They believe that it is difficult to plan in a dynamic environment. As a result, they do not have culture of organisational level planning. The fact that plans and actuals vary significantly is also seen as reason not to plan. Even if they are sold on the idea, they may lack the discipline of committing themselves to a plan. Those who do plan, focus excessively on budgeting and numbers instead of looking at how they will achieve the numbers. The process may not be inclusive and inspiring The plans may never be reviewed and therefore may remain on paper There is often confusion between goals, strategies, initiatives and actions Many even believe it is the job of HR to set goals for all employees!

While entrepreneurs are anxious about results, they do not always use an institutionalised process to drive organisation wide performance.

The reasons for this are many:

They believe that it is difficult to plan in a dynamic environment. As a result, they do not have culture of organisational level planning. The fact that plans and actuals vary significantly is also seen as reason not to plan.

Even if they are sold on the idea, they may lack the discipline of committing themselves to a plan.

Those who do plan, focus excessively on budgeting and numbers instead of looking at how they will achieve the numbers.

The process may not be inclusive and inspiring

The plans may never be reviewed and therefore may remain on paper

There is often confusion between goals, strategies, initiatives and actions

Many even believe it is the job of HR to set goals for all employees!

Developing people “ I seem to be the lone engine pulling the train along” For many entrepreneurs, the depth of talent beyond employee # 5 is quite poor. Successful entrepreneurs quickly learn that their success depends on assembling a winning team. Others try to do everything themselves. Entrepreneurs are also worried about developing the people they have – grooming them for higher responsibilities. Many do not realise that they need leaders at every level and that it calls for a disciplined approach. The biggest challenge is for them to realise that leaders develop through the right exposure to workplace challenges and not in the class room. It is also a reality that the grooming received by the founding team is significantly superior to what the next generation of employees receive.

“ I seem to be the lone engine pulling the train along”

For many entrepreneurs, the depth of talent beyond employee # 5 is quite poor.

Successful entrepreneurs quickly learn that their success depends on assembling a winning team.

Others try to do everything themselves.

Entrepreneurs are also worried about developing the people they have – grooming them for higher responsibilities.

Many do not realise that they need leaders at every level and that it calls for a disciplined approach.

The biggest challenge is for them to realise that leaders develop through the right exposure to workplace challenges and not in the class room.

It is also a reality that the grooming received by the founding team is significantly superior to what the next generation of employees receive.

The four potential risks in the organisation building journey

Leadership crisis is sometimes presented as an HR issue The journey of delegation might be a false start The CEO gets fired! HR initiatives never get implemented because of the fear of losing control HR initiatives may not receive real sponsorship The four potential risks in the organisation building journey

Leadership crisis is sometimes presented as an HR issue

The journey of delegation might be a false start

The CEO gets fired!

HR initiatives never get implemented because of the fear of losing control

HR initiatives may not receive real sponsorship

Can an entrepreneur be “Rich” & “King”

Noam Wasserman’s (HBR, February 2008) studies indicate that a founder who gives up more equity to attract cofounders, new hires, and investors builds a more valuable company than one who parts with less equity. He believes that more often than not, those superior returns come from replacing the founder with a professional CEO more experienced with the needs of a growing company. This fundamental tension requires founders to make “rich” versus “king” trade-offs to maximize either their wealth or their control over the company, he maintains. What do you think ???

Noam Wasserman’s (HBR, February 2008) studies indicate that a founder who gives up more equity to attract cofounders, new hires, and investors builds a more valuable company than one who parts with less equity.

He believes that more often than not, those superior returns come from replacing the founder with a professional CEO more experienced with the needs of a growing company.

This fundamental tension requires founders to make “rich” versus “king” trade-offs to maximize either their wealth or their control over the company, he maintains.

What do you think ???

In our opinion, if the founder invests in building an Organisation around his great idea, he can be both Rich and King!

thank you