Higher Ground

Some Inc. 500 CEOs from the 1980s explain how if you don't act fast, your successful business might out grow you.

By Donna Fenn |  @donnafenn   | 
 
Visit the Inc. 500 site, which includes a fully searchable database of winners from 1982 to the present

Take it from THE FOUNDERS who occupied these rankings a decade ago: your Inc. 500 company will soon outgrow you--unless you act fast

Fast-forward 10 years. the Inc. 500 company you founded back in 1991 is a market leader, racing toward $1 billion in sales. You realize in an instant of startling clarity that managing that company still boils down to a familiar challenge: plucking bits and pieces of strategy from an ever-evolving landscape and then combining them to make bets on what will push revenues and profits higher. It's exactly what you did back when you spotted an opportunity and shaped a business to fit it. The trouble is, you're not the one doing the managing anymore. You've been cast aside as CEO, replaced in day-to-day management.

Right now it's hard to imagine exactly how it will happen. But you can choose from the scenarios played out in countless business tomes or repeated by legions of consultants: at a certain stage, growth companies almost have to leave their founders behind. True, there are exceptions. There's that fellow named Gates, for instance, who continued to grow his software company long after it ranked #163 on the 1985 Inc. 500. Watch him--or others like him--for clues, and you'll come to the conclusion that they're naturally able to delegate more as a company grows.

Don't believe it for a second.

Pick the brains of a dozen founders who've continued to grow their businesses fast a decade after appearing on the Inc. 500, and there's no question that they often express gratitude to a person or a team that helped steer the business out of one crisis or another. But keep the spotlight on the founders themselves, and it becomes clear that what looks like skilled delegation is really a byproduct of the very concrete ways they have come to understand themselves and their business, and to build what they've learned into their company's practices. It takes work.

If these founders have mastered any one discipline, it's that they manage to be a presence without being around. As their companies grow, they aren't just frantically handing off decisions. Instead they have passed on a framework that enables employees to anticipate and react to events, making decisions on a much sounder footing than they would if they were just second-guessing the boss. The latter can work, of course--for a while. But it's only a matter of time before an employee does something that makes you wonder why you ever ceded any authority at all. You're left trying to figure out what went wrong, likely to lay blame on everyone except the person who is really responsible: you.

"There are some fundamentals that are as important to a $2-million business as they are to a $2-billion business," says John Kotter, professor of leadership at Harvard Business School. "I would suspect that the people who can take a business from $2 million to $2 billion have figured out those fundamentals early on and haven't lost track of them." That's much harder than it sounds. The entrepreneurs who endure haven't let the greater demands of growth cloud their thinking about who they are, what they want from employees, or how to preserve their company's fundamental purpose. Most important, they haven't let those demands drag them away from what they love to do. "My job hasn't changed much," insist the founders who have stayed atop their fast-growing companies.

It's exactly how you want to feel a decade from now.

you already know what you need to know about yourself to take your company to the next level. The challenge is acting on it. Chances are, you're comfortable with a high level of control and prone to tinker with every aspect of your business. It's natural for you to feel proprietary--after all, you conceived the business, and you were smart enough to grow it exponentially. But greater growth, and the finer rewards it bestows, pose special threats to even the most self-aware founders. "People are easily corrupted by success," says Kot-ter. "They become arrogant and diverted by fame, glory, and money."

Founders who stay on top of their growth companies aren't any less susceptible to such difficulties. The difference is that they recognize their own weaknesses and have built that knowledge into their company's operations. By doing so tangibly, and often openly, they make it difficult for their worst instincts to prevail. The key is to make it difficult enough.

Lane Nemeth, who founded Dis-covery Toys Inc. (#306 on the 1986 Inc. 500), didn't fully understand the vulnerability of her educational-toy company until about 3 years ago, when her chief operating officer, Mike Clark, died. For 10 years she had relied on Clark to bring her down to earth by "asking questions that no one else would think of. He was very analytical." She served as the wide-eyed idea generator, capitalizing on her own strengths ("I love marketing, sales, and product development") and depending on him to protect the company from her limitations ("I can't stay focused on the operations side").

But not long after Clark died, Nemeth found herself drawn deeply into dangerous territory. "Every time I take my eyes off what I do best, growth suffers," she says. In 1994 she decided that Discovery Toys should branch out into children's clothing, and she approached the project with her usual zeal, carefully attending to the details of design and market research. But while the clothing succeeded in terms of quality and customer satisfaction, it caused enormous back-office problems that Nemeth had failed to foresee. Warehousing and inventory control were disastrous, a source of growing frustration among the company's independent sales reps. "We made a complete mess out of our computer," says Nemeth, "and we should have known it would happen." She discontinued the line after a year, taking a significant loss.

To Nemeth--whose 18-year-old company has grown from $37.9 million in 1986 to almost $100 million this year--the problem was clear: having just one person between her and the business she'd founded wasn't enough. She had hoped there were systems in place to provide more of a bulwark. There weren't, as she found out. Clark, she says, "didn't delegate well enough, and if your organization is dependent on one person, you're in trouble."

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    • Donna Fenn

    Inc. contributing editor Donna Fenn is the author of Upstarts! How GenY Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009). Both this blog and the book examine the ways in which GenY is changing the entrepreneurial landscape with new approaches to starting, growing, and managing their companies. Learn more at http://www.upstartsrock.com/.


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