Friday, May 2, 2008

You Can Be Rich or King, But Not Both: 4 Take-Aways

Thomas Edison was the greatest American inventor of the nineteenth century, credited with inventing not just stuff, but the very discipline of research.

And, while inventing was fine and dandy, what Edison really wanted was to build businesses. In that regard, he was—despite his 1,093 patents--a complete and utter failure; Peter Drucker reminds us that Edison “so totally mismanaged the businesses he started that he had to be removed from every one of them.”

It was, Drucker says, the archetype for the now familiar high-tech “rags to riches and back to rags” phenomenon.

In the February 2008 Harvard Business Review, Noam Wasserman goes a long way toward explaining folks like Edison and the thousands of other bright innovators who conceive brilliant products, bring them to market, and then under-manage or mismanage their companies to the point where investors insert new leadership, or the leader hangs on by the skin of his teeth to the great detriment of the firm.

“Four out of five entrepreneurs,” Wasserman says, “are forced to step down from the CEO’s post. Most are shocked when investors insist that they relinquish control, and they’re pushed out of office in ways they don’t like and well before they want to abdicate. The change in leadership can be particularly damaging when employees loyal to the founder oppose it. In fact, the manner in which founders tackle their first leadership transition often makes or breaks young enterprises.”

But, Wasserman says, when founders are honest about their reasons for founding the business, the chances of “happily ever after” are significantly improved. Here are 4 take-ways from this excellent article:
1. New ventures are usually labors of love for entrepreneurs, who become emotionally attached and often accept a smaller salary than folks with comparable backgrounds. In addition, many entrepreneurs are overconfident about their prospects and naïve about the problems they will face. This combination of attachment, overconfidence and naivete may, in fact, be necessary to get new ventures up and running, but these emotions later create problems.

2. Many founders believe that if they’ve successfully led the development of the organization’s first new offering, that represents ample proof of their management prowess. But, the shipping of the first products marks the end of an era. The founder then has to shift gears to build a company capable of marketing and selling large volumes of the product and providing customers with after-sales service. The venture’s finances become infinitely more complex. The organization needs to be structured. The dramatic broadening of the skills that the CEO needs at this stage stretches most founders’ abilities beyond their limits.

3. The faster the founder-CEOs lead their companies to the point where they need outside funds and new management skills, the quicker they lose control. The founder’s emotional strengths—being the heart and soul of the venture—often make it difficult to accept a lesser role, leading to sometimes traumatic leadership transitions within young companies.

4. Most founder-CEOS start out by wanting both wealth and power. But sooner or later, the smart ones grasp that they’ll probably have to make a choice. And the fundamental tension—being rich vs. being king—isn’t biased one way or the other. What matters is why the founder started the business in the first place. If he or she had a clear set of goals and a roadmap, the “new era” represented by the first product release doesn’t have to be traumatic.
In Milton’s Paradise Lost, Satan gives a rousing speech to his followers after being tossed out of heaven, telling them, “Better to reign in hell, than serve in heav'n."

Admittedly, this speech came after one of the worst career moves in history.

But it doesn’t have to be that bad for founders, so long as they know the goal—rich or king—when they first decide to launch a business.

As an afterthought, too, there is a third alternative alongside rich or king, and that is gifted. One of Edison’s contemporaries, George Westinghouse, was a prolific inventor, beat Edison in the race for electrical standards (betting on AC while Edison was pushing DC), and, by 1904, had founded nine manufacturing companies worth about $120 million and employing approximately 50,000 workers.

So, don’t forget “gifted” along with rich or king. Just be realistic when you choose your path.