November 1st, 2013
By Dr John Colley
Steve Jobs, Sam Walton, and Bill Gates were exceptional leaders. Not only did they create their businesses, they also lead them into maturity. Considering that 90% of start-ups disappear within two years, this is a major achievement. Rarer still, they are all examples of the founder remaining at the helm as the business grows.
Few leaders have a broad enough set of skills to guide a business through all the stages of its life cycle. The leadership requirements of each stage – start-up, rapid growth, maturity, turnaround and ultimate demise – are all very different.
A mature business demands very different leadership skills to a start-up. Similarly, a turnaround is very different to a period of sustained growth. Finally, when a business approaches the end, further leadership changes are often required to effectively manage it towards the best solution. But why so many changes in leadership?
Entrepreneurs are typically highly-driven people who enjoy creating new products and businesses. Many are serial entrepreneurs who continue creating businesses, some successful, some less so. They are characterised by frenetic activity, normally leading a small team of colleagues with informal relationships and little structure who work towards designing and producing and then marketing new products. Vision, creativity, passion and energy are critical.
However, should their product or proposition prove to be successful, the business will need to expand rapidly to meet demand. This requires systems, procedures and organisational structure. That’s the remit of a methodical person, market-focussed and with good communication skills who can balance the sometimes-competing interests of a growing number of stakeholders.
Few entrepreneurs possess these skills, nor do they find the demands of rapid business development particularly motivating. Furthermore, accelerating expansion often requires raising additional capital which can lead to control passing to venture capitalists. They will normally want to appoint an experienced CEO to look after their investment and expect the founding entrepreneur to step aside.
If the business reaches maturity, the skills demand of its leader change once more. The CEO needs to communicate extensively with investors, customers, employees and the media. They need to disrupt the status quo of a mature business by setting new challenges, and creating forward momentum. But it is evolution, not revolution, they need to build market share and continue to drive efficiency.
Should the fortunes of the business decline, a turnaround leader might be needed. This is someone who is not married to past decisions, does not have deep relationships with the staff and workforce and can make difficult decisions about what to cut and what to grow. A change agent with a new vision – someone objective and independent – is called for. Someone association with previous decisions could hamper effectiveness; hence an outsider is usually selected.
Finally, very few businesses survive for long periods of time without undergoing some form of profound transition. This might be a merger or sale or, in some cases, a business might be wound up. And this stage too calls for an individual with specialist skills and the ability to maintain the motivation of employees until the best solution can be found.
Objectivity in understanding the skills needed for a particular business, coupled with developing self-awareness are important capabilities for any leader. In early stage businesses these are particularly important because the pool of people engaged in developing the business tends to be small and there may be critical gaps and so understanding the leadership implications of changing business challenges is very important, as many leaders have discovered to their cost.
Dr John Colley is Director of MBA and executive programmes at Nottingham University Business School. He was previously group managing director at a FTSE100 company and Executive Director at a French CAC40 business. He is currently an NED of three businesses in private equity and NED of a FTSE listed company.