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Second-Stage Sensei

by Dr. Dino Signore

Manager of Entrepreneurial Education

Leadership power: six degrees of differentiation

influence - golden key isolated on white background

In second stage, founders are trying to transition from entrepreneur to leader. This is no easy task because leadership is complex and about influencing the behavior of others.

A classic framework for understanding influence was introduced by John French and Bertram Raven in 1959. These two social psychologists initially described five sources of social power — legitimate, reward, coercive, expertise and referential — then later added informational power as a sixth component. Below is a quick explanation of each, along with my take on how they apply to second-stage entrepreneurs:

Legitimate — This power results from holding a title or position of authority. For most people, this influence is temporary; they only wield power as long as they hold their position. Yet second-stage entrepreneurs typically have a different role and time horizon than many corporate leaders. As long as they hold primary equity of the company, they can control direction of the organization, what is done and not done, and what resources are allocated.

Experience shows many examples of how people with legitimate power are not effective without the other powers. Subordinates “have” to respect this power mainly due to the status attached to the leader’s position, but it’s limited on its own.

Rewards — This power revolves around the notion of giving some sort of compensation for desired behavior. Once again, owners of second-stage companies tend to have more latitude than other people in management positions because they have more control over budgets, bonus structure or how compensation changes. At the same time, their ability to follow through on monetary rewards could be thwarted by unexpected changes in the market, customers or other external forces.

It’s important to note that monetary rewards are probably the most expensive way to motivate employees. In contrast, giving praise or recognition costs less and has longer-lasting impact. A couple of other ideas: Give employees a wide degree of autonomy or opportunities for professional development.

Coercion — This is a darker power that elicits compliance from force and threats of punishment. Granted, sometimes you have to resort to coercion; for example, someone may be in physical danger or underperforming and harming the performance of the team. But wielding it too often will create a toxic environment in the workforce. Be careful when you use it and whom you use it on — certainly not with your top performers. (Micromanaging could also be considered a form of coercion because employees can perceive it as punitive; micromanaging implies that they don’t know how to do their jobs.)

Informational — This power is about the ability to access or control information that other people need. I believe that information flow is the lifeblood of any organization, and although many business leaders claim to have open-book policies, in reality, they don’t really practice it. In contrast, enlightened leaders will tell everyone within their firm what’s going on.

Leaders also need to watch out to make sure staff members at all levels are passing relevant information back and forth. Information must flow freely between different departments within your company to prevent silos from forming.

Expertise — This power comes from having special knowledge or skills. For second-stagers, expertise usually originates from the technical work they did before founding the company. Yet as they move through second stage, relying on technical expertise could backfire and keep them working in the business instead of on it. Second-stagers need to hire people who not only have other expertise but also who can replace them in their particular technical skill set. This is what enables a founder to advance as a leader, to work on strategic issues and become a coach and visionary.

Referential —Having referential power means people like you or want to be like you. Followers respect you — even when you aren’t present.

Movie stars, artists and celebrities typically have referential power. For business leaders, I think this is the highest of power because it’s something you can’t demand. It doesn’t revolve around your position but rather, is about how other people feel about you personally. They want your approval; they want to be around you.  It’s like a gravity field. People will do things and be motivated simply by the presence of the leader.

Some suggestions for earning referential power in the workplace:

  • Help others find meaning in their work. Human beings are not only creatures of habit, but creatures of meaning. We want to understand why we are doing things, why it matters. (This is one of the reasons it’s important to create a purpose statement for your organization.)
  • Articulate what your values are and then follow them under all circumstances. You’ve got to walk the talk; otherwise you’re destroying your credibility.
  • Have compassion for other people in your organization; understand that they have stress outside the workplace.
  • Be humble and forgive your employees — and yourself — when something goes wrong.

I also think that referential power comes from using the other powers correctly. Almost anyone who is new to being a leader frequently defaults to using force too often or inappropriately. Although force may elicit compliance in the short run, it ultimately alienates your staff.  Be aware of what powers you are using — and how they are affecting others.

(Published Oct. 18, 2016)