Leadership, Management and Failed Growth

Many small and not so small companies grow rapidly after inception, driven by a supercharged, frequently overachieving, founder. These businesses usually are very profitable because overhead is low and control is tight and well within the span of the founder. The owner’s drive and energy permeate all activities. The company thrives.

Then, many of those same companies hit a ceiling. Growth may continue but profits decline or even disappear. Cash flow frequently turns negative. Sometimes a company fails.

What has happened? What has kept the so called “second phase” of expansion from kicking in? Why has the company HIT THE CEILING?

Out of many possible answers to this question, the most frequent is the failure of the hard driving founder to transform from manager to leader. Managing is one thing. Leading is quite another.

One source defines the work of a manager as, “directing and controlling a group of one or more people or entities for the purpose of coordinating and harmonizing that group towards accomplishing a goal,” while the work of a leader is "influencing, motivating, and enabling others to contribute toward the effectiveness and success of the organizations of which they are members."

Leading is inspiring others to do the work effectively – meaning efficiently and for a business, profitability. The key word is inspiring. In today’s business terms we would say leading means having goals (some would say “vision”) for the business and inspiring others to adopt them readily, even enthusiastically. It means getting others to “buy in” to the plans for reaching the goals. Leadership includes encouraging, teaching, learning from mistakes rather than punishing, praising, rewarding. It means selecting competent people to do the necessary jobs, training them well, giving them the resources they need and letting them accomplish results with your help, not your management. It means letting go of great chunks of control and trusting that others will do the job.

The ability to be a leader does not rest on charisma. In fact, many great leaders are far from being charismatic people. Leaders are not necessarily “born to lead,” but can learn the techniques of leadership in many ways.

The inability of an owner to “let go” and trust that others can do a job well insures a company will hit the ceiling. We call this micro-managing. Companies led by a micro-managing owner have weak middle managers who turn to the “Boss” when problems arise. Frequently middle managers are punished for mistakes. With this environment middle managers “hunker down” and turn to the Boss for all the answers. The process weakens the company and it hits the ceiling.

For example, one Boulder company grew rapidly from its inception both in sales and profits. After only five years it had reached over a million dollars per year in profit. Then it broke through the ceiling of the founder’s managerial ability and almost doubled in size. Unfortunately, although control requirements expanded beyond the span of one person, there was no “letting go” by the founder. He never became the leader the company needed. The result – control slipped, and then fell apart. The firm lost more in its next two years “above the ceiling” than it made in all its years “below the ceiling.”

Some company founders recognize they are not the leader that can drive their company into the future. They are smart enough though to hire others to do that, while they remain the technical innovator, the marketing maven, the great salesperson or some other specialist that drove the company to the point of hitting the ceiling. Then the company prospers because leadership is good; the founder prospers because someone else is leading the parade.

Other founders may not want to give up control, and are smart enough to stop expansion when the company nears the point of hitting the ceiling. A Phoenix micro circuit company has operated very profitably for many years with 15 or so employees and very little growth in sales. The owner, recognizing his leadership limitation, manages the firm effectively, creating a very comfortable living for himself and not risking growth beyond his span of control.

Some founders, recognizing their limited leadership ability, study the subject and train themselves and become effective leaders. Through emulation of other leaders, reading, training courses, clinics and seminars, they evolve from manager into the leader needed to continue driving their company forward. For them there is no danger of hitting the ceiling.

Charles R. Schaul, Partner of SixPillars Research Group, focuses on increasing business profits by resolving the problem of customer attrition. Aligning companies with their customers; generating and implementing strategic initiatives; and promoting employees’ customer focus through commitment, responsibility and accountability combine to achieve the result.

Copyright 2008 by Charles R. Schaul, Boulder, Colorado. All rights reserved.