The entrepreneur begins running around like the proverbial one-armed paperhanger. He sees the sales figures, and he sees profit forecasts. Those make him believe that in another year he can sell out and get $10 million. And he doesn't see that he's outgrowing his management base.
You know, I've worked with entrepreneurs for 50 years and can say that there is a fairly normal curve; 80% fall within it. Even if your business is growing at a normal rate -- not tripling in size every six months, but growing at a good, solid, sustainable rate -- the management crunch hits you at the end of the fourth year.
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Inc.: That's when you outgrow your management base?
Drucker: Yes. Starting out, the typical founder does everything himself. He has helpers, but he doesn't have colleagues. Then suddenly everything goes wrong. The quality falls out of bed. Customers don't pay. Deliveries are missed.
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Inc.: But every young business makes mistakes, lots of them. What's the one symptom an entrepreneur cannot afford to ignore when it comes to outgrowing management?
Drucker: I always ask people who come to me how they respond to opportunity. "Suppose a customer says, 'If you make 10,000 of product X, we'll give you a contract.' Do you see this as a burden or an opportunity?" When they say, "Of course it's an opportunity, but I'm worried about it because it's an extra burden," I say, "Look, my friend, you've outgrown your management base."
To avoid a crisis, you should sit down and create a management team. By that time you have maybe 40 people working for you. Look them over to see who shows management ability. You call in those 4 or 5 people (you're not likely to have more), and you say, "I want each of you to sit down alone next weekend and look at the other people here, including me. Don't look at yourself. Look at the others, and think about what each of them is good at." And then you all sit down together, take a fresh sheet of paper, and list the key activities of the business. Today we call this "establishing our core competencies."
Young entrepreneurs can't pay to bring in a management team. But here's Tom, and Tom is good at customer service, so you might also let him run the office. Give him an extra load for a few months or a few years, or give him an assistant. But Tom's job now is customer service. And here's Jane, your manufacturing person, who's better than anybody else at handling people. So your manufacturing person also becomes your people person.
And you start to meet once a month, maybe on a Saturday, and within a year you have a management team. It takes at least a year, more likely 18 months, to create a team.
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Inc.: To really begin to work together as a team?
Drucker: Yes, but also to know that even though Joe's a difficult person to work with, he's exactly the financial person you need. Or to know that Tom is developing into a first-rate sales and marketing manager but is a weak customer-service manager. Tom may have been the best you had, but he ain't good enough.
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Inc.: That's a hard decision for an entrepreneur to make, especially if Tom was there at the start.
Drucker: Yes, but if you start to build your team 18 months ahead of time, Tom's going to know that it's time to step aside. You can do it, but you can't wait until everything falls out of bed at the same time.
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Inc.: And the fourth pitfall?
Drucker: The fourth pitfall is the most difficult one. It's when the business is a success, and the entrepreneur begins to put himself before the business. Here is a person who's worked 18 hours a day for 14 years and has a $60 million business and a management team that works. Now he asks himself, "What do I want to do? What's my role?" Those are the wrong questions. If you start out with them, you invariably end up killing yourself and the business.
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Inc.: What should you be asking?
Drucker: You should be asking, "What does the business need at this stage?" The next question is "Do I have those qualities?"
You have to start with what the business needs. That's where an outsider can be very helpful.
Over the years I've had maybe 100 people come to me in that situation. And when I ask them why they've come to me, most say that their wife says that they're not doing a good job anymore, that they're destroying themselves, their family, and the business. Occasionally you have a bright daughter who says it. If the son says it, he's brushed aside by the founder, who's thinking, "Does he want to take over and push me out?" But a wife or a bright daughter can say that.
Sometimes an outside shareholder speaks up, or an accountant or a lawyer. Usually somebody has to kick that entrepreneur hard to get him to face up to the harsh reality that he doesn't enjoy this anymore. He knows he's not concentrating on the right things.
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Inc.: Do you think entrepreneurs today are smarter about avoiding the pitfalls you've been describing?
Drucker: No.
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Inc.: No? With all the education, with all the MBAs?
Drucker: No. Education gives you neither experience nor wisdom.
