Getting to Prime

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INC.: Well, yes and no. We've seen companies go on like that for years and years without blowing up. Sometimes they become very large and successful.

ADIZES: Go-go can last for years, but eventually something is going to happen. Sooner or later the company is going to get involved in a product or a market it knows nothing about, and it will get hit over the head. The more arrogant you are, the bigger the hit will be. Because there is no structure in go-go, no clear responsibilities. The information doesn't flow very well. Cost accounting is a mess. The reward system is a patchwork of deals. Yes, the company is growing rapidly, but there is no accountability. It's a prescription for disaster.

INC.: Suppose the founder brings in professional management.

ADIZES: Founders usually do, or at least they try to. If they don't, they fall into what I call the founder's trap. By that, I mean the company cannot exist without that one person, which becomes a problem. When he or she goes in for a loan, the bank insists on personal guarantees, because it will never get its money back if something happens to him. He is the biggest asset of the company and the biggest risk. At some point he may even realize that he can't run the company as a one-man show anymore -- it's too big. He says: "I know how to start a business. I don't know how to run it. I need help. Bring me a professional manager." That is the beginning of the next stage in the life cycle, called adolescence, which is the most difficult transition of all. Starting a company is not nearly as difficult as keeping it. If a founder is going to lose his company, it usually happens in adolescence.

INC.: Why is it so difficult?

ADIZES: It's difficult because the changes are so fundamental and so necessary, and the entrepreneur often appears to be an obstacle to them. For one thing, the company has to make the transition from more is better to better is more. It's gotten this far by getting more and more sales, assuming a fixed marginal profit, but marginal profits are actually going down, down, down. One of these days you're going to make a sale and lose your shirt. The solution is to turn inward, get the place organized, increase productivity and profitability, and you don't know how to do that. You probably find it boring, maybe even threatening. You know the company has to change, but you worry about losing the entrepreneurial spirit that got you where you are. Now you bring in a professional manager who is by definition a number cruncher, an administrative type. When the old-timers start resisting him, you may side with them.

INC.: Perhaps they're right. We've seen professional managers come in and screw up a lot of good companies.

ADIZES: That can happen, but the founder hasn't solved the problem that led him to hire this guy in the first place. He's in the founder's trap, and the only way he can get out is to restructure the company. Up to now, the organization has always been structured around people, and that isn't working anymore. You need clear responsibilities; you need accountability; you need a reward system that makes sense. That means structuring people around the organization. I tell you it's very, very difficult. I've done this with all kinds of companies, big and small. I did it with Domino's Pizza and the Bank of America. Now I cannot restructure my own pip-squeak company, $3 million in sales. Why? Because every time I look at the organization, I see people. I know too much about them. I hired them. I reward them. It's very painful.

INC.: But presumably there's a payoff. What's on the other side of this transition?

ADIZES: If you do it right, you end up in prime. If you do it wrong, there are several possibilities. The most common one is called premature aging. The administrative types take over, and the entrepreneur is pushed out. The company gets under control, but it loses its flexibility, and it slows down. It may still have some momentum left over from go-go, but if something doesn't change, it eventually begins to decline. That is what's happening to Apple Computer. Another possibility is that you get stuck in the founder's trap, which is my problem.

INC.: That's interesting. Have you had all these problems of growth?

ADIZES: Of course. Being a doctor doesn't mean you don't get diseases. I have had almost all the normal problems, none of the abnormal ones really, but they have been painful anyway.

INC.: Can you give us an example?

ADIZES: In the early days people accused me of being authoritarian, nonparticipatory, arrogant. They didn't understand why I insisted on doing things a certain way. I took it very much to heart. I tried to change, and I couldn't. Looking back, I see I was fighting for my vision, which I couldn't articulate because I didn't have enough experience. There was no track record of success. Finally, I just told them, "Goddamn it, do it my way. I know what I'm doing." But it was very painful emotionally and intellectually. My present situation is just as painful.

INC.: So how does a company make the transition to prime?

ADIZES: There are 11 steps, and they go in a specific order. Do you want to hear them all?

INC.: Maybe you could give us a brief summary.

ADIZES: First, we make sure there is some mutual trust and respect among the top managers. If there is very little, we take some time to develop it, give people a sense that they are capable of making things better. Those are the first three steps. Once we've built that foundation, we can move on to the more difficult tasks. The sequence is important here. To begin with, you redefine the mission of the company. What business are you in? By the end of go-go, the company is in everything from shoes to real estate. So you need to refocus, which can be hard because it involves letting go of some dreams. After the mission comes the organizational structure, then the accountability systems and information flow. What we're doing here is building participative management at the top of the organization. In the following steps, we keep working with top management people on teamwork, performance goals, and strategic planning, but we are also bringing the lower levels into the process. Only at the very end, the 11th step, do we come up with a new reward system. That's very important. You have to follow the sequence: mission, structure, accountability, rewards.

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