Wednesday, January 23, 2013

7 Failures of Corporate Executives as Entrepreneurs

large-corporate-officeMid-level or even top executives who “grew up” in large companies often look with envy at startups, and dream of how easy it must be running a small organization, where you can see the whole picture and it appears you have total control. In reality, very few executives or professional stars from large corporations survive in the early-stage startup environment.

The job of a big-company executive is very different from the job of a small-company executive. The culture is different, the skills required are different, and the experience from one may be the exact opposite of what you need for the other. I agree with the seven survival challenges from Michael Fertik, in an old Harvard Business Review article, for executives making the transition:

  1. Empire-building skills are counter-productive. Establishing and wielding influence may help you move resources in your direction in a large business. Similarly, acquiring a larger footprint of direct reports is often a sign of success at large businesses. These instincts kill you in a small company, where requiring more resources is a negative.

  2. Forget your staff and entourage. This is one of the harder transitions for people joining small businesses. The axiom applies to all matters, tiny to large. Small-company heroes are consistently self-reliant. At a small company, if you're constantly demanding more support, you risk turning your net impact into overhead-creep rather than value creation.

  3. Never cover your a$$. There's no place for CYA in a small company. This attitude sows division and mistrust at exactly the early stages when the business most needs to build precious esprit de corps. When you're considering a job at a small company, look for colleagues and founders who don't tolerate CYA.

  4. Go faster. Large companies move slowly because they are usually in reasonable financial condition, with less urgency, have a lot to lose from making bad decisions, and have built layers of management sign-off over the years. These conditions don't apply in a small business. Speed gives you the greatest chance of success.

  5. Be very selective about the problems you attack. Managers at large companies often have the obligation and luxury of thinking about problems that may arise at some future time if things go well. Startups spend little time on this — the risks of enormous success are so remote they aren't worth major planning.

  6. Get used to dynamic budgeting. Large companies usually operate with annual budgets, and often the budgeting process is locked down months before the start of the fiscal year. At start-ups and smaller businesses, budgeting can happen opportunistically, monthly, or even on an ongoing basis.

  7. Understand that your daily impact is huge. Many of your managerial decisions will have enormous and possibly fatal effects on a small business. Larger companies rarely face life-or-death opportunities or threats. Small companies can face them daily. The most practical way to adapt is to focus on learning to evaluate and trust your judgment.

I’ve spent years in large-company environments, and many years later in startups, so I’ve seen and felt the pressures of both. One positive aspect of having worked in a large company is that they usually provide actual training and education for a new role, rather than all “on-the-job training.” This transfers well to startups, and should give you an advantage.

On the other side of the ledger, big company executives tend to be demand-driven by initiatives handed down from the top. In contrast, when you are a startup executive, nothing happens unless you make it happen. In startups, you have to drive multiple initiatives concurrently or the company will stand still. Well defined and well documented processes don’t exist to guide you.

For startups, the time to do the people filtering and fit analysis is before the hire. Look at previous company results, and listen for evidence of self-sufficiency, problem solving, and a thorough understanding of your product, technology, customers, and the market. If you don’t see a self-awareness of the differences required, your candidate probably won’t bridge the gap.

Marty Zwilling


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3 comments:

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  2. I found large companies riddled w / subtle political turf warfare often devoid of personal honor and integrity. In small companies, you must build relationships on honor and integrity, yet be prepared for an assassin in every transaction. It requires both more integrity and more street smarts to survive in a predatory world. Few corporate chiefs are ready for or attuned to this reality. They usually have to survive a few marketplace muggings to determine if they're ready to adapt to the new culture.

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  3. I like the article and there are some points I would like to add from my 30 plus years experience as a business owner and teacher of entrepreneurship. One..in any given day you will wear many hats...from janitor, to maintenance to salesman to president of the company. Flexibility and a "will do attitude" is a must. Two.. In the small business world many of us look at corporate executives with suspicion and wonder will they be able to stand the "heat of the kitchen". It is not easy out here and it takes a lot courage to hang in when things get tough. Three...Unrealistic approach to pricing your product or service. Pricing for a small business point is tough. You really need to know your financial information to establish a competitive and reasonable prices for the business.
    Four...unreasonable expectations of employees and customers. You have no "insulation" and you have to deal direct with employees, customers and vendors, and that is not always easy.
    I love being a business owner, but it is NOT for everyone. I invite those of you who are considering business ownership, take time to explore small business ownership and work free in a one and see how it feels and how you respond to the daily pace before you jump into ownership.

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