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Your Move — Trading Places

“Your Move — Trading Places”

Why do entrepreneurial businesses flounder after they’ve survived the startup phase?

Lloyd ShefskyLloyd E. ShefskyAt some point, a growing business moves from being an entrepreneurial company to being a managed one. And if the entrepreneur can’t make the leadership transition — or isn’t willing to relinquish control to a professional manager — the company will fail.

This happens because entrepreneurs and managers measure risk and reward differently. Most managers are so risk averse, so committed to comparing risk and reward, that they cannot be entrepreneurs. Similarly, the entrepreneur is so risk-willing that he may destroy the mature business he started.

Another factor is improperly motivating employees. The entrepreneur is a classic swashbuckler who waves a sword and yells, “Let’s take the beach!” His or her people eagerly follow — regardless of whether or not they’re well prepared for the attack. On the other hand, the managerial leader checks out different beaches and analyzes which one to take first and which employees are best to deploy. The manager is safeguarding the company’s many assets. The entrepreneur is forced to accomplish goals with very few assets; he or she is compelled to risk assets, or the job cannot get done.

Though not the biggest concern, lack of capital is a factor. Entrepreneurs typically raise money because they’re good at selling prospective projections, which is more of an art — and a necessity for new companies without track records. Yet with a more mature company, you must demonstrate how your historic financials have meaning, something that is more of a science and may prove tedious to entrepreneurs.

Some founders — although not many — may be able to switch leadership personas, but it’s almost impossible to function in both modes at the same time. It helps to think about what your talents are and where your interests lie.

Pinpointing the appropriate time to make this leadership shift is also challenging because most business founders lack a frame of reference from prior experience. Usually this knowledge must come from someone else. Your board of directors can help — if they know your capabilities and you’ve had a chance to develop a relationship with them and respect their counsel.

Be wary of how pride can influence your decision. Pat Ryan, founder of Aon Insurance, says there are two kinds of pride: internal pride, which motivates you to go the extra mile, and external pride, which is about ego fulfillment. External pride is dangerous because it can keep you from relinquishing control when you should. Remember: Although you may give up the title of CEO, you’re still the founder and majority shareholder of a company that’s poised to grow to the next level.

Writer: Lloyd E. Shefsky is clinical professor of entrepreneurship at Northwestern University’s Kellogg School of Management, as well as founder and co-director of the school’s Center for Family Enterprises. He operates a consultancy for entrepreneurs and is author of “Entrepreneurs Are Made Not Born: Secrets from 200 Successful Entrepreneurs” (McGraw-Hill, 1994). l-shefsky@kellogg.northwestern.edu

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