Monday, March 4, 2013

GROWING PAINS - FOUNDER'S DISEASE AND FAST GROWTH FIRMS


At the end of April, the Minister for Business will launch the fifteenth Wales Fast Growth 50 competition at a special event in Cardiff.

Established in 1999 with Media Wales to identify the fastest growing companies in Wales, the project has become a benchmark for celebrating the entrepreneurs that create wealth and employment in the Welsh economy.

And as the Western Mail’s “Business in Wales” supplement demonstrated last week, the stories of entrepreneurial individuals leading Fast Growth 50 firms, such as Neville Wilshire of Save Britain Money and Jacquie Williams of SCS Aftercare, are inspirations to other to follow in their footsteps.

Despite the phenomenal success of such individuals in growing their business, the research that the Fast Growth 50 team has been undertaking over the last decade and a half into these companies unfortunately shows that they are the exceptions rather than the norm and many firms still face considerable challenges in achieving growth over the long term.

In particular, one of the major barriers to growth identified within many small firms is related directly to the founders of such businesses, especially the lack of strategic skills among the entrepreneurs and their resistance to change.

This is especially problematic when coupled with a reluctance to create a balanced management team and an organisational structure to support delegation of decisions.

This attitude amongst entrepreneurs, described by academics as ‘Founder's Disease’, results in new venture founders being unable or unwilling to adapt to the requirements of their business as it grows.

As a result, if they continue to lead the firm beyond the start-up phase without changing the way they manage, there will be a serious impact on the future performance of the business.

This is not surprising, as the skills required for start-up are not those required later as the company either consolidates or grows. Indeed, our studies have shown that a high degree of both management and strategic skills are required by the entrepreneur to undertake the successful growth of a small company, and if an entrepreneur who does not possess such skills continues to lead the venture beyond the start-up phase, then the performance of the company may begin to suffer.

One option is for the entrepreneur to learn a new set of skills to take the business forward although some entrepreneurs cannot or will not break old habits to learn new skills and, as result, the company’s growth will stall.

Alternatively, the entrepreneur needs to introduce new business techniques and to delegate to others within the business, although this is easier said than done as entrepreneurs hate to step aside even though they may be temperamentally unsuited to be managers.

Indeed, all too frequently, entrepreneurs are naturally reluctant to lose control of the business, wanting to do it all themselves rather than managing others, so the growth potential of the business is strictly limited by their personal energy and capacity.

One alternative for companies faced with this problem is to bring in one or more senior level executives with big company experience to supplement, support or even or replace the owner-founder with a professional team of managers.

This could be fraught with difficulties and such an action could result in the loss of the company's entrepreneurial orientation, the very thing that has got it to develop its ideas in the first place and become successful. The result is that such companies will become essentially ‘large small firms’ and stop growing.

Indeed, as one Fast Growth 50 owner manager told me, if such external executives simply try to impose a large firm mentality without considering the culture of the smaller business, then the situation can usually turn out to be worse than if the original entrepreneur has stayed at the helm.

Therefore, the challenge for the entrepreneur is to be able to move away from the operational and managerial roles within the company towards undertaking a more strategic approach that will take the business forward to the next stage of growth.

This involves delegating tasks to other employees as the business develops and, more critically, understanding that their role in strategically planning the future development of the business, rather than undertaking day to day tasks, is critical for its future growth.

Of course, there can be significant problems as the management needs of the business begin to outstrip the entrepreneurial skills of the founder. This may create a tension within the firm between the need for professional management and the need to maintain the entrepreneurial spirit of the successful organisation.

However, delegation by the entrepreneur as the firm develops and the development of a more team-oriented approach to managing the company can solve many of these issues and, more importantly enable the business to grow quickly, as demonstrated by many of our Fast Growth 50 firms during the last fifteen years.