Archives For start-ups

Policy Manual On the recommendation of a friend and fellow entrepreneur, I recently picked up “The E-Myth Revisited” by Michael Gerber, published in 1995 and based on “The E-Myth” concept he created that was originally published in 1986.

Michael Gerber and anyone with millions of entrepreneurial business books sold deserves our respect. But, after reading this book I personally think the E-Myth concept should be abandoned immediately by today’s entrepreneurs. Put plainly, I think the idea is tremendously out of date and the ecosystem of business in today’s world demands a completely different business philosophy.

I didn’t do a whole lot of research on the E-Myth concept prior to purchasing the book. As the book began, Mr. Gerber explained the common occurrence of experienced technicians or “experts” in their field who can no longer stand to work under the oppressive systems of their current positions and decide to become their own boss and use their expertise to start their own business.

Unfortunately, it is extremely common for a very high percentage of these businesses to fail within the first few years. The primary reason Mr. Gerber presents as the reason this failure rate is so high is due to the “experts” inability to create the “red binder of business systems, policies, and scripts” that becomes the all knowing “god” of the company and covers everything an employee may encounter and what to do about it. It is so specific and tested it provides employees direction right down to how an oven should be opened, how sharp the pencils on the desk should be, and what an employee should be doing every minute of every shift.

The goal he pontificates entrepreneurs should strive for is a red binder that is so complete, that you could place any person, of any capacity into a position and their performance duties are so scripted, that all they must do is mindlessly follow the yellow brick road and the business will succeed. “This will eliminate the variable within the business that is human beings” and place the business in the absolute ideal position for success.

Based on the title of the book “The E-MYTH”, halfway through the book I believed that at some point the author was going to make a major shift and demonstrate that this “god like red binder” of oppressive dictatorial systems should be thrown out the window as it’s turns employees into “cogs” and destroys any inkling of employee initiative, inspiration, or motivation. I was wrong.

There are three reasons I believe Mr. Gerber’s “E-Myth” concept should be eliminated from any entrepreneur’s start-up business plan and they are supported by more recent business concepts that are proving more relevant to today’s business environment. [*See Book List]

 

  1. Business is about people, not systems
  2. There is no such thing as an unmitigated good: The inverted U
  3. Business problems of today are candle problems

 

People, Not Systems

The first and most important reason to toss the “E-Myth” concept is its specific focus on “removing the human element” from your business systems. This idea has been debunked by countless authors who have researched successful businesses and identified that a core reason for their success is their focus on people and the human element of their business and brand. In short successful business entrepreneurs operate their businesses in a more open environment where they engage, share, and value their people with a focus on inspiration and shared vision.

Mr. Gerber did get one thing right in that most business are started by “technicians” or “experts”. By creating a concept (The E-Myth) that gave technicians, who are often very linear in thinking and inclined toward perfectionism and control, permission to oppress their team; many new entrepreneurs have hailed to his banner.  The concept appeals to these technicians because once the red binder of systems is created, in their minds it alleviates any pressure to demonstrate leadership, engage their people, or take responsibility for the social culture of the business.  All they need is the policies and procedures, carrots, and sticks and they will be successful.

What these unsuccessful entrepreneurs then do is preach, push their agenda, expect employees to simply follow their protocols and policies, hide or ignore feedback, suppress team members who challenge current thinking, and basically try to control every aspect and interaction within the business by putting their team on the end of their whip.

In his book “The Fifth Discipline”, Peter M. Senge best identified the fallacy of this system rather than people based approach. Put simply, a systems and policy based environment at best can hope for “compliance” from its people. As opposed to a business designed around shared vision, employee autonomy, and inspiration will achieve “commitment” and experience not only an exciting work environment and business growth, but a deep and long lasting connection with all stakeholders.

 

The Inverted U

This is not to say that a business should operate with zero guidance or business organization. Author Malcolm Gladwell in his book “David and Goliath” presented the concept of the Inverted U developed by psychologists Barry Schwartz and Adam Grant. The inverted U graphically demonstrates how all positive traits, states, and experiences have costs that at high levels begin to outweigh their benefits.

Inverted U Employee MotivationIn the case of designing business systems around policies and procedures that eliminate the human element from the engagement of the business, the inverted U clearly demonstrates the limit of policy driven business systems and the negative effect on employee motivation and business growth. Inverted U Ingenuity and Growth

Based on the inverted U, at what level should a start-up create policies to maximize the benefits? Author Simon Sinek provides a very clear recommendation in his book “Start with Why” on this muddy topic. Businesses should develop a very clear “Why, How, and What” that are used to guide all company decision making. This process is very mission oriented and is designed to leave room for autonomy and innovation. As an example, he presents Apple’s “Why, How, What”.

Everything we do, we believe in challenging the status quo. We believe in thinking differently. (Why)

The way we challenge the status quo is by making our products beautifully designed, simple to use, and user-friendly. (How)

We happen to make great computers. (What)

This is a business philosophy designed for the new “experience economy” we find ourselves in. A policy designed around motivation rather than manipulation that will take you to the peak of the inverted U.

The Candle Problem

Dan Pink describes the new nature of business in his TED talk on the puzzle of motivation. The “red binder of policies and procedures” force team members into a box of “function fixedness” whereby they can no longer engage their creative side and see potential in areas outside the “red binder”. Similar to the “Candle Problem” developed by Karl Dunker in 1945.

Dunker coined the term “functional fixedness” for describing the difficulties in visual perception and in problem solving that arise from the fact that one element of a whole situation already has a (fixed) function, which has to be changed for making the correct perception or for finding the solution to a problem. Mr. Gerber’s “red binder of policies and procedures” does exactly that, it “fixes” all functions of the business thereby ensuring the cognitive abilities of the business team can no longer see potential solutions to their business problems as the leader has purposely installed rules and regulation that become cognitive blinders.

The effect is nothing more than a purposeful leadership lid placed on your start-up.

Before you begin creating policies and procedures for your start-up, I highly recommend exploring multiple pathways and engaging a free and autonomous team to open their thinking on how to achieve your “why”. As an entrepreneur who has worked at business building multiple companies, I can say with absolute certainty that if I had created stringent policies and procedures at the outset of the business and fenced in the start-up team, none of those businesses would have had a chance at success because we didn’t know, what we didn’t know yet.

 * Book List

Book List

 

I had a soccer coach in high school that was a bull of a woman. Like an Army Drill Sargent with a bunch of lazy new recruits she would yell, scream, and scowl like she was eternally disappointed in everything we did.  At times we despised her, and cursed her presence. But she knew her sport inside and out and regardless of her military style leadership method, we truly respected her as she turned that lazy group of recruits into a formidable team.

For a long period of time I thought that is what a good leader was, overtly passionate, hard as stone, and never accepted anything but the absolute best.  Fear was your weapon, punishment was indiscriminate and came swiftly without hesitation. I was wrong.

Years later, after college I met my current mentor, a serial entrepreneur and CEO whose leadership style was almost the exact opposite of what I expected from a successful leader. He led by example. He didn’t just ask the people around him to make things happen, he had no problem pulling on a pair of gloves or flying across the globe to move the business forward.  When he spoke, he shared strong beliefs in the mission of the company and the team.  He not only made room for failure, but expected everyone around him to try to reach beyond themselves and fail regularly.  He gave his power away, and put his faith in the team around him, guiding them, and mentoring them toward both personal and business success.

Influence:

Despite the difference in methods, both of these leadership styles contained an essential requirement of leadership. Influence. Ineffective leaders simply do not have any influence with the people they wish to lead. Usually, they lack influence because they lack position, lack permission, or lack production.  Many think that having the right position or title is essential for leadership, but permission and production are far more important.  Without permission and production, there will be no position.

People around you will not give you permission to lead if you do not have the personal connection, the buy-in, or the relationships that makes people want to follow you. Without permission you simply cannot lead.  To gain permission you must develop trusting relationships with the team you wish to lead and demonstrate personal interest in each and every individual’s personal and career success.

Concurrently, leaders must be able to demonstrate results. The people around the leader must be able to point to areas of credible production directly associated with the leader’s actions. When work gets done and goals are achieved morale goes up, momentum builds, and the level of leadership begins to rise. Production creates respect for the leader’s expertise and credibility.

Individuals that obtain permission and demonstrate production will often find themselves in a leadership position even without an official title. But when the time comes, the title will simply be a formal acknowledgment of the leadership level that already exists.

Inspiration:

Influence is good, and a minimum requirement of leadership. But, inspiration combined with influence is what makes great leaders, great companies, and great brands. Great leaders inspire us to believe in the potential, believe in the opportunity, and believe in a better version of ourselves. This is the difference between good leadership, and world changing leadership.

How to inspire others is a complex conundrum of human psychology. But, it can be boiled down to some very simple practices.

Clarity of Why – The leader must be able to provide a clear picture of a greater future and over-communicate the value and purpose of pursuing it as a team.

Lead by Example – Maintain a fair and principled set of values that cannot be influenced by outside forces or levels of financial success or failure.

Develop Others – Expect more of those around you and create an environment that supports and highly values the pursuit of personal growth and mentorship.

Take a Stand – Draw a line in the sand that separates those who believe in and are part of the mission and those that are not. This line should clearly differentiate the clients, partners, and team members that you work with.

Eat Last – Put the company, employees, and clients before yourself when it comes to acknowledgment and financial rewards.

I am deeply indebted to my mentor for the valuable leadership lessons he has taught me. Grow your leadership skills and your business will grow along with you.

Recommended Reading –

The 21 Irrefutable Laws of Leadership and The 5 Levels of Leadership by John Maxwell

Start with Why and Leaders Eat Last by Simon Sinek

The Advantage by Patrick Lencioni

Creating a successful business is hard, and it often takes a few more pounds of flesh than the start-up team anticipated. But concurrently, it can be one of the most rewarding experiences you might ever undertake. It reminds me a lot of parenting. You get less sleep than you thought was humanly possible, it costs you more emotionally and financially than you ever expected, but you wouldn’t trade a minute of it for anything, and you need a good partner.

I have personally experienced the ups and downs of the affliction that is the entrepreneurial spirit. Within the multiple companies I have had the opportunity to be involved in, some have succeeded and some have crashed and burned before they ever got off the runway. But I have found some similarities in the ones that succeed and that is what I call the Entrepreneurial Triad.

While there are a number of “must have” components on my list for a start-up opportunity, the Entrepreneurial Triad is something I look for first. Ideally it consists of three people with three specific roles they are bringing to the table.

  1. The Visionary – Every start-up needs a dreamer. An individual with a vision of a better future brought forth by the success of the business. Someone who inspires thTriade team around them and influences them while positively pushing forward the vision. Often the Visionary is the source of the business start-up “idea” and passionately believes in its potential success.
  2. The Expert – The Expert brings a substantial amount of experience in either business and finance, capital acquisition, or expertise in the specific field or area the business is focused on. As an example, if the business is to be in the financial field, the expert may be a CPA, former CFO, or experienced financial adviser. If the business in the medical field, the expert will likely have a PHD or doctorate with specific focus in the field the business is focused on.
  3. The Builder – The Builder brings everything together and is a master of resource acquisition and business systems. The Builder capitalizes on the knowledge of the Expert and the mission defined by the Visionary to create a disciplined business culture with an ethic of entrepreneurship that can result in a magical alchemy of great performance and business success.

The Entrepreneurial Triad also offers other advantages over start-ups by sole proprietors or two person “partnerships”. Start-ups can be a wild emotional ride and major challenges driving uncomfortable conflict is inevitable. As the start-up endures the entrance into the market it will experience a massive learning curve and be faced with major pivoting decisions in order to keep the train on the tracks.  In this environment, often sole proprietors experience decision paralysis as they face these challenges alone. Partnerships often experience a similar decision paralysis but often due to the inability of two individuals with opposing viewpoints to agree on major business decisions.  The Triad by comparison can often transition through these tough times, not only due to the combined consciousness of three minds, but with an inherent checks and balances system found in the power of 3. Triads react and make better, quicker business decisions and can often find common ground among at least the majority of stakeholders.

Thinking about a start-up? Gather your entrepreneurial triad before you take the exciting plunge. One third ownership of a flourishing business beats 100% ownership of a migraine headache every time.

Keep building!

Lots of leadership books and speakers talk about what you need to be doing as a leader. Inspiration, influence, and impact showing care, candor, character, and competence. But, what does your team want out of their opportunity and how can you support it?

Human beings are strange and complex. These six expectations every team member is looking for when they come to work demonstrate that complexity.

Certainty – Everyone needs to know that the sun is going to rise tomorrow and that the doors of the business will be open.  Base level requirements for everyone is the ability to rely on some things being certain and reliable. Without base level certainty, anarchy erupts.

Uncertainty – Yep, we all also need an element of uncertainty in our lives.  Will I have the opportunity to lead that project? How will the prospect react to the sales scripts I have been practicing? How will the boss react to my idea for change in my department? There must be some level of uncertainty to create the excitement that keeps people motivated. Some jobs can get monotonous. When in doubt, create a little uncertainty and watch the team spring back to life.

Significance – An extremely important need within us all that is often defined by our professional lives is our significance to others and influence in our department, company, community, and the world at large.  Feedback clarifies each individual’s significance in their world and providing regular praise to those who work with, above, and below reminds every one of their significance and supports a positive outlook.  Team members that are feeling insignificant will often resort to gossip and uncooperative competition with other team members.

Connection – Regardless of an individual’s MBTI or DISC personality profile, humans need connection to other people. Some introverts may prefer a small number of deep connections while others a wide range of many connections. But maintaining a connection with those you work with and those you serve is essential to maintaining a connection with “why” we all do what we do.

Growth – This need cannot be stressed enough and it is often the most ignored.  Inspiration and passion directly stem from curiosity and personal growth.  Not only must a leader demonstrate personal growth, but also provide opportunities for team members to learn and grow in areas they have strengths or curiosity.  Many of the most productive and inspiring leaders are lifelong “learners” and your business growth can be heavily dependent on the personal growth of the team.

Contribution – Few things feel better and are more motivating than taking a step back and saying “I did that”.  When I was younger, every fall my father would purchase and have me “stack” what felt like endless cords of firewood. But when I was done and could see the long rows of perfectly stacked firewood, I felt accomplished and that my contribution to the family was visible. In our highly evolving and fast paced digital world it is easy to lose sight of the big picture contribution. Discovering ways to make those contributions visible will pay long term dividends.

Do you agree with Harvard on these leadership mistakes?

Are you arrogant, selfish, and untrustworthy?

From a leadership perspective, the 7 minutes of this video might be worth watching. After listening to their professional opinions I found that all of them could be alleviated simply by following the “4 C’s” of leadership. Many of these leadership “C’s” have been presented by individuals such as Zig Ziglar, John Maxwell, and Marshall Goldsmith.

Candor –

As a young leader, I found candid conversations a real challenge and looking back with hindsight can point to real failures, caused by organizational dysfunction, due to my fear of candid conversation. Candid conversations are a leader’s responsibility, and if an employee is not meeting the company needs it hurts the organization.

Leadership is about influence, and influence cannot be achieved without clear candid communication. Care is the baseline of the relationship with your team, but candor can direct and expand the relationship. Once a relationship of respect is established, candid truthful communication can grow the relationship, the individual report, and the business.

Connection –

Can you recall personal information about each one of your team members? Foods they hate, books they like, their favorite after work activity? Leadership influence is dependent on your ability to connect with those around you, and switch your mindset from that of a solo producer, to a people/team developer. You can’t move people to action unless you move them first with emotion, and that is only attained through understanding yourself and communicating with openness and sincerity. If you focus on your team rather than yourself, believe in them, and live your message you will connect. Lastly, a good leader lets his team enjoy the lights of success, while taking the responsibility personally for failures.

Character –

Character personifies who you really are. It’s the inner core of your being. It is your inner self in action. It reveals what you are truly made of, it’s your substance. Character is who you are when no one is looking and the easiest thing for your team to sniff out as fake.  Character is only achieved through self-discipline and living a respectable set of core values.  Character is what sustains meaningful relationships, and without relationships your ability to lead and influence others is weak.

Competence –

A competent leader is simply demonstrating the work ethic and intensity he/she is looking for from their team. A competent leader will be emulated by the team. What makes a competent leader? Show up daily with your war face on, competent leaders show up when they’re expected. But highly competent people take it a step farther. They don’t show up in body only. They come ready to play… hard – no matter how they feel, what kind of circumstances they face, or how difficult they expect the game to be. Secondly, demonstrate personal growth and keep improving and most importantly… follow through and accomplish MORE than expected. Willa A. Foster remarked, “Quality is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skillful execution; it represents the wise choice of many alternatives.” Competence at this level is inspiring and as Simon Sinek says, “Leadership is inspiration, nothing more, nothing less.”

Go Lead!

“40 million dollars, the whole global market is only 40 million dollars.” said the self proclaimed “old gray hair” and my long-term mentor across the table after reading my report on the market size of the company we were involved with. With a heavy sigh he simply said “the business DNA just sucks”.

Every business has a DNA… similar to human DNA… and that DNA sets the scope and global potential of the business.

Just as I will probably never play Major League Baseball as my personal DNA has set my baseball skills capacity at a maximum of “Little League Coach”…  some businesses simply don’t have the DNA to match the leadership team or owners short and long term expectations. Like opening a Hot Dog stand on a rural route, in a “city” with a population of  700. Even if that business hit it out of the park and was as successful as it could possibly be… the owner would likely be grinding it out for the rest of their life simply to get by. Yet entrepreneurs do it everyday with high expectations of business success.

I have met and spoken with a number of entrepreneurs who have big dreams and high expectations for their business ideas.  I applaud them and firmly believe that success is achievable if you are willing to put in the time and effort. But, decisions some entrepreneurs make in the heat of the moment as they file their state and federal tax ID forms bring me visions of a Vegas wedding to someone you just met.

Before you get involved with or start a business, take a minute to examine the DNA of that business and picture very clearly in your mind what the absolute maximum potential for success that business may have. Then, work backwards to clarify what is going to be required to get there, what is the time frame, the financial requirement, what is the longevity of the business, and the market response necessary for that success.

Most recently I was contacted by a Dentist who was looking for distribution for his new “battery powered toothbrush cleanser”. A simple contraption that was designed to clean the microbes from a toothbrush between brushings. He had left a thriving dental practice, and invested his life savings, to pursue his dream of manufacturing and selling his invention.  He had hit the wall and was becoming frantic trying anything and everything to get his product to market. He was a victim of poor business DNA. Not only is the market size for toothbrush cleansers about as large as a hot dog stand, his invention was more expensive than existing products, bulky, and had low margins. His business DNA just sucked.

Some things you can change within a business, with good leadership, talented people, and personal growth the “lid” on the business can move up. But, recognize and examine the DNA of a business before you take that first leap, it may save you from a nasty divorce with your Vegas bride.

“What got you here won’t get you there.” – Marshall Goldsmith

I had a conversation recently with a local business owner we occasionally contract work to and have since the company was founded. He shared with me how amazed and confused he was at how well our company had grown, even despite the “recession”. I responded simply, “Individual growth equals company growth”.  He looked at me as if I had just shared with him the location of the lost city of Atlantis.

It is a simple concept, that you as the business owner or team leader, as well as the people around you can only grow the company if you are growing personally.

So what is personal growth? Personal growth occurs when an individual intentionally sets out to improve their knowledge and skills in order to move themselves closer to their true potential. As a leader you have to not only set yourself on an intentional path of personal growth, but you have to create an environment that supports the growth of your team.

Without personal growth, people lack inspiration, they become stagnant and their work suffers. Additionally, simply doing the same thing they did yesterday isn’t going to produce better results today than it did yesterday; we have to grow and develop daily to create improved results.

I have talked to a lot of business leaders who say they have a “growth plan” for their teams.  Usually it involves the entire team reading the same sales or customer service book and meeting to discuss it, or attending a class or lecture together.  While this is good, true growth occurs on an individual level; hence “personal” growth.

I try to work with each of my team members to find the area of growth that inspires them and will most benefit them individually.  While I may focus on leadership growth, they may be inspired by learning about improving communication, science, business models, philosophy, public speaking, or video production. Finding what inspires each individual is what keeps a team motivated, as well as dynamic when brainstorming or approaching issues as a team.

Personal growth must be individualized, intentional, expanding of one’s capabilities and contributions, and start with curiosity. Create a personal growth environment and your business will grow with the people.