There are six styles of entrepreneurial management -- and any one of them can work. As long as you're honest about which type of manager you are, and you run your company accordingly
Too much management literature preaches "good management" as if it were a generic skill that comes in a plain white box. The reality is that there are all sorts of ways to manage -- and all of them can work. Here are six organizational setups for entrepreneurial companies. You'll undoubtedly recognize yourself in one of these styles or in a combination of several. The challenge is matching your style with your company's goals.
Many entrepreneurs prefer to run their businesses single-handedly, to maximize their independence. There are three ways to run a company without management assistance; we call them the Classic, the Coordinator, and the Craftsman.
The Classic, the traditional management style of the entrepreneur, might be described as "watch it all yourself." You hire people, but you insist on tight, personal monitoring and supervision. And of course, you do all the really critical jobs yourself.
If this is your style, you are probably reluctant to admit it. People criticize entrepreneurs for being unwilling to delegate. Management consultants contemptuously exhort entrepreneurs to reform their evil ways, to cure themselves of the neurotic need to supervise everything personally.
Piffle. This is a perfectly legitimate way to run a company -- as long as you recognize and admit that it is your style. Problems so often encountered in businesses of this type do not arise from the management style as such. They arise from the delusion that team management is being used. It's the management "experts" who are at fault. By delegitimizing the Classic entrepreneurial style, the experts have intimidated entrepreneurs into pretending to delegate. It is OK to delegate, and it is OK not to delegate; it is pretending to delegate that is disastrous.
Because you think you are using team management, you let your business become too big and too complex to run by yourself. So you hire managers to join your "team," convinced that you are delegating authority to them. Unfortunately, you don't really trust them. So you keep yanking back the reins. Your subordinates quickly become disillusioned. The best leave, and you lament that "I just can't keep good people, so I have to do it myself." Others turn off, and you lament that "my people just can't be relied on, so I have to do it myself."
The standard prescription is psychotherapy. You must, you are told, cure yourself of your aversion to delegation, your neurotic phobia of losing control. We have a different viewpoint: Whose business is it anyway? (In both senses of the phrase!) Where do people get off, telling you to revise your psyche? Just exactly why do you have to delegate?
Our advice is simply this: Decide whether or not you are going to delegate. Then make sure your company plans are compatible with your decision. If you are not going to delegate authority, you must limit the complexity of your business. There is a limit to the number of tasks you can cover personally. There is thus a trade-off involved in adopting the Classic style. If your chosen business is very complex, it will have to be kept small. If it is simple, it can grow fairly large.
An alternative to the Classic style is the increasingly popular Coordinator method, which allows you to run a good-sized business with very few employees. This type of business is sometimes called a "virtual corporation" -- but you don't have to incorporate.
The essence of this style is that you job out most of the business. You simply organize the enterprise and make sure that everything gets done.
In theory, you could job out everything: Arrange for someone to manufacture your product. Get brokers or reps to sell it. Hire an accounting firm to do your books, and sell your receivables so someone else has to do the work of collecting accounts. You could even retain a contract research lab to do your R&D! You could sit in your office, coordinate, and deposit the checks.
In real life, you generally need to do part of the work yourself. But you can do what you enjoy doing and are good at, and get rid of all the other work. Of course, you do have to work with other people and monitor all the jobbers who are supplying you. You will have occasional problems -- particularly if your business involves tight deadlines. Getting suppliers to perform on time is the hardest task.
As a Coordinator you could grow a multimillion-dollar business without a single employee. If you're willing to have a few assistants, you can grow even bigger. Some Japanese trading companies operate that way and do massive volume with only a few people.
Why isn't the Coordinator style more popular? We suspect it is due to the notorious cheapness . . . uh, fiscal conservatism, of entrepreneurs. It's a great deal cheaper to do a task in-house than it is to job it out -- at least, it may appear that way. That is generally false economy. One cardinal error is calculating costs without accounting for the value of your time. It is true that it costs you "nothing" to, say, solder circuit boards yourself. But is that the best use of your time?
If your answer to that question is yes, your style is probably the Craftsman. You can maximize your control over your business if you do everything yourself, making your business literally a one-man (or one-woman) show. Obviously, this approach limits the size to which your business can grow.
This style makes the most sense if your biggest concern is the quality of your output. It's an attitude characteristic of craft types, although many entrepreneurs in other businesses also adopt this style.
There are a number of advantages to doing everything yourself. Everything is done right because you do it. Expenses can be minimized. Operating with no employees can dramatically simplify your life -- no payroll taxes to worry about, no concerns about OSHA, labor unions, workers' compensation insurance. No hiring or firing, no supervision problems, no need to be concerned about pilferage.
The problem with doing everything yourself is that you must do the tasks you don't like as well as those you do. So if Craftsman is your chosen management style, think carefully about streamlining those portions of your business that generate work you dislike.
In the end all the single-manager styles impose limitations on your business. It cannot grow indefinitely unless you give authority to other people. However, most entrepreneurs don't want to build Fortune 500 businesses. If you choose to adopt single-person management, make a conscious decision: how big do you want your company to become? Then evaluate whether your style will be able to handle that size.
A tip: Most authors warn that entrepreneurs who take on too much tend to make bad decisions. But our experience indicates a different symptom: if you take on too much, you tend not to make decisions. If you find that you're having trouble making up your mind -- on business, personal, or even trivial issues -- chances are, you're suffering from decision overload. Delegate some authority, or simplify your operation.
Team management styles. Businesses beyond a certain size cannot be managed by a single person; a management team is required. What is the size limit? That depends on the complexity of the business. Manufacturing, particularly if it involves high technology, can be very complicated even on a small scale, while assembly operations can be far simpler. The same principle applies to service companies. Running even a one-plane commuter airline is a very intricate operation, but in some brokerage operations one person with a couple of assistants can manage an operation that generates many millions in revenues.
For a complex business, you must build a top-management team, with several people, each of whom has decision-making authority in a particular sphere. That means you have really delegated, saying in effect, "You make the decisions in this area. I will never overrule you; if I find one of your decisions truly unacceptable, I will fire you." We divide team styles, somewhat arbitrarily, into three types: Employee Teams, Small Partnerships, and Big-Team Ventures.
The Entrepreneur plus Employee Team is the team style that gives you, the entrepreneur, the most control. You delegate authority to key employees. But you retain final control because you have the option of firing them (or, less intelligently, retracting authority) if you are dissatisfied with their decisions.
You probably didn't start your company with this management style, since few start-ups can afford many high-level employees. So if you are adopting the Entrepreneur plus Employee Team style, you probably are switching the organization from another style, most likely the Classic, owing to company growth.
That transition is not as easy as you may think. You have to delegate sincerely and knowingly. You may find it hard to convince your employees of your sincerity. And your employees have a tendency to feel there is an implicit contract that things will stay the same. So when you introduce delegation, they think you're "changing the rules" -- which of course you are. The foremen who are used to dealing with you directly may interpret having to go through your new production manager as a demotion.
But don't delegate gradually. Do it all at once. Be firm and explicit. Announce to one and all that the company has grown and is successful, so much so that the old ways of doing things won't work anymore. Point out the opportunities for promotion, and make an effort to promote from within.
The Small Partnership, once a common mode of management organization, is now a rarity. However, it may be making a comeback.
You have considerably less control over the management of the business if you adopt this style. You must share not only tactical but strategic decisions with one or two partners (who may be partners in the legal sense or, more likely, stockholders).
In compensation for this lack of control, you receive a substantial advantage: the assistance of managers who, like you, have a real stake in the company and are motivated to make it succeed in a way no employee ever can be. Like you, they are hungry.
One of the most effective and widespread ways to organize a small company is the "inside-outside partnership." One partner takes on the "inside" tasks -- operations and administration. The other is the "outside" partner, handling marketing and sales. That divides responsibility along a natural fault line and commonly results in effective two-person teams.
If you are taking on a partner, avoid a 50-50 split of the equity. When companies get into trouble or disagreements arise, the even division of power is a prescription for civil war. If your partner's ego is too touchy to let him or her be number two, it's too touchy to handle the day-to-day give-and-take needed for an equal partnership. Let your partner be number one, or find another partner.
Sometimes you need a larger management team. In the viciously competitive economy of the 1990s, you can't keep a good thing to yourself for long. If there's money to be made, competitors will be nipping at your heels within months, perhaps days. If you have found a new market for your company that has true growth possibilities, you must exploit it rapidly. You cannot grow slowly, or the competition will take the market away from you. In addition to capital, you need a growth-company management team.
This is the Big-Team Venture. You're going to ride the tiger, which means you have to be prepared before you saddle up. Sign on a complete management team and make sure they're good. You can't afford to skimp. If you try to hoard your equity, you're going to read in Inc. about the brilliant entrepreneur who built an empire in a brand-new industry -- and it won't be you.
You take your pick. . . . You now have six options for your management style. If you're thinking of changing your company's structure, look to your past for guidance. When you were a kid, did you play (and enjoy) team sports or individual sports? Are you a perfectionist? Do you have a history of trusting other people with important tasks, or did you stay up all night to decorate the auditorium for the senior prom yourself, to make sure it got done right? Be honest. There are no right or wrong answers, and there's nothing to be ashamed of either way.
And don't tell yourself that you've decided to change your ways and be a perfect delegator from now on. Stick with the style that is comfortable for you.
But as you develop new plans for your business keep in mind how you plan to manage the changes. Ask yourself whether your management style is really effective for a business of this particular size, shape, and complexity. If the answer is no, modify your plan.
What if you encounter irreconcilable differences? Perhaps you are building a major growth company, but you see that you have always been a lone-wolf type. What then? Shouldn't you change your style?
Well, if you really think you'd miss your big chance, OK, give it a whirl. But don't think it will be easy. You'll have to keep a tight rein on yourself. Like a dieter who finds himself in the kitchen at 2 a.m. with an empty plate in front of him and no memory of the previous 15 minutes, you will suddenly realize in the middle of the night as you complete some crucial project with your own hands that you've backslid again. Try to avoid reforming yourself during a period of rapid growth. You're going to have enough worries. Accept what you are and make the best of it.* * *
The excerpt from The New Venture Handbook, by Ronald E. Merrill and Henry D. Sedgwick (copyright 1993) is printed by permission of the publisher AMACOM, a division of the American Management Association in New York City. The accompanying interviews were conducted by Inc. senior writer Martha E. Mangelsdorf.
SUE SCOTT, 40
President and founder of Primal Lite Inc., in Emeryville, Calif., a designer of lighting for the gift industry, founded in 1986, with $2.5 million in 1993 sales and 13 employees
"My personal style is the Classic. I'm not about to hire anyone to run my company. I'm involved in all aspects of the business. I have to be, with my company at this size. But Classic behavior can get you doing a lot of small thinking, and you can end up dealing with why somebody ordered so many staples. That's not how you can serve the company best.
"My best service to the company is in bringing long-range business in and developing new products. Administration and management are not my forte. It's taken me some years to understand that. As the company grows I'll try to spend more time on leading, less on maintenance. I'm never going to be the kind of president who says, 'Figure it out, then talk to me in a couple of months.' That's just not comfortable for me."
STANLEY HERZ, 51
Owner of Stanley Herz & Co., in Somers, N.Y., an executive-search firm, founded in 1980, with no employees
"I've always considered myself a Craftsman. Many people who perform personal services, as I do, view their work as creating art objects. I always have.
"I used to employ seven people. I measured my success by the number of people I had reporting to me. When the recession hit the executive-search industry, around 1990, I began to question that assumption. I concluded that executive search is a personal-service business. And to the extent that I had a lot of people working for me, I compromised what's most important -- service to the client. It's my name on the company. No one working for me had his or her name on the company.
"With today's technology, I don't need employees. I do have people who work for me but only on a contract basis -- when I need them. You feel a lot of responsibility for employees, and you begin to wonder who's working for whom. Now I take more vacation time. I structure my days to fit my schedule. I work far more efficiently. And I have tremendous peace of mind."
MARY-CLARE MOLONY, 42; MICHAEL MOLONY, 46
Owners of Pet Ventures Inc./P.T. Moran, in Arlington, Va., pet-food stores, acquired in 1986, with $14.2 million in 1993 sales and 150 full-time employees
"Of course, all along we've been partners. We're a couple. We're both intensely involved in strategic issues. Generally, though, one of us handles operations and administration, and the other handles marketing and sales. We've relied on each other for the major decisions.
"Eight years ago we started with something akin to the Classic. When the company and its complexity grew, we moved toward the Entrepreneurs plus Employee Team approach. And as large new competitors have entered our market in the last 18 months, we find ourselves considering a Big-Team strategy.
"Our industry used to be a bicycle race, but it's rapidly turning into the Indy 500. So we're looking at some options for the further growth and survival of the company that are reasonably well described by that phrase riding the tiger."
WILL HILLS, 49
Owner and founder of Limitless Design Corp., in Boston, a maker of custom furniture, founded in 1972, with 2 full-time employees
"I'm a woodworker, so I build things. I'd be misleading if I said I didn't have a Craftsman's mentality, but as I've gotten older, I've become a Coordinator of other craftsmen.
"At one time I had six people on the payroll, plus three or four part-timers. But in the last economy, business was not great, and I learned that everybody on my payroll was an expense -- an expense that was overhead. I realized that if I judiciously chose contractors to work with, I could, whenever the situation required it, have a larger organization at my disposal -- without overhead.
"Now because I coordinate with other craftsmen and companies, the meter turns on only when I have a job. When I need it I can buy huge capability I could never match in-house. Today I bid on a wider variety of jobs than I used to, but as a Coordinator, I get them done in a different way."
KATHARINE PAINE, 41
CEO and founder of the Delahaye Group, in Portsmouth, N.H., a public-relations analysis and consulting firm, founded in 1987, with $1.7 million in 1993 sales and 30 full-time employees
"Probably the Entrepreneur plus Employee Team style is the closest to what we've got now, but fundamentally, I'm a Classic entrepreneur. My theory is that Classic entrepreneurs like me, who want to create 'empowered organizations,' get to the point where they long to go to Club Med for Dictators -- somewhere where they don't have to listen to anybody, where they don't have to get anybody's input, where if something needs to get done, they just do it!
"If I had just wanted a small business -- Katy Paine and a bunch of assistants -- I could have kept on being a Classic entrepreneur. But I want to create something that will last long after I'm gone. What I gain by developing a consensus-driven and team-driven organization is free time. And it's great for profits. We have exceptional people and low turnover -- and our clients see that. Whenever I ignore the participative process, the long-term negative impact is horrendous."
TERRY TOGNIETTI, 37
Managing director of domestic operations at Drypers Corp., in Houston, a diaper manufacturer, founded in 1987, #1 on the 1993 Inc. 500 list of the fastest-growing private companies in the United States, with $156 million in 1993 sales and 404 employees
"At Drypers we believe in the Big-Team approach. When my partners contacted me about starting this business as a team, it made sense for us. We knew this structure would click, and we knew we could check our egos at the door.
"We started with three partners on our executive team, and now we have five. Each one of us has complete responsibility for a business function. It's a neat structure for growth because a lot of people gain skills when you start off totally segmented, from the top and from the beginning.
"The critical challenge is to preserve individual accountability. All team members have to know exactly what results they're expected to deliver. Our culture breeds critique. If you've got thin skin, you're going to have a tough time here. We think the critique makes each of us smarter and makes the company do better."