Archive for the ‘Entrepreneurism’ Category

Organizational Phase Change

Tuesday, September 25th, 2012 by Troy Schrock

As certified CEO Advantage advisors, we generally consider middle market organizations (50-2,500 employees) to be in our sweet spot.  As an organization matures, “midmarket” is an inflection point where entrepreneurial companies must become “professionally managed” entrepreneurial companies (a favorite Verne Harnish term).  The entrepreneurial edge is still vital, but the company will suffer without professional management.

Years ago, Peter Drucker nailed this transition, which he dubbed a “change of phase”.  In People and Performance, Peter Drucker writes:

“The change from a business which the ‘boss’ can run with ‘helpers’ to a business enterprise that requires management is what the physicists call a ‘change of phase’ such as the change from fluid to solid.  It is a leap from one state of matter, from one fundamental structure, to another…The English biologist D’Arcy Thompson showed that animals supported by a hard skin can reach only a certain size and complexity.  Beyond this, a land animal has to have a skeleton.  Yet the skeleton has not genetically evolved out of the hard skin of the insect; it is a
different organ with different antecedents.  Similarly, management becomes necessary when a business reaches a certain size and complexity.  But management, while it replaces the ‘hard-skin’ structure of the owner, is not its successor.  It is, rather, its replacement.  When does a business reach the stage at which it has to shift from ‘hard skin’ to ‘skeleton’?  The line lies somewhere between 300 and 1,000 employees in size.  More important, perhaps, is the increase in complexity of the business; when a variety of tasks have all to be performed in cooperation, synchronization, and communication, a business needs managers and a management.”

In today’s environment, with global supply chains and competition, instant communication, more complex compliance requirements, and knowledge workers increasing relative to administrators and technicians, companies hit the complexity inflection point with fewer employees than in the past.  Rather than 300 employees, the line is probably crossed at 100, if not 50, employees.

This inflection point is an exciting place to be as companies grapple with the changes that accompany growth, but it can be a particularly challenging time for the owner/entrepreneur.  Owners should only manage to the extent that they’re able to do so effectively.  Where necessary, they must be willing to concede control to capable managers and a management team.


Entrepreneurs: Beware of Boredom

Wednesday, August 29th, 2012 by Troy Schrock

It is not uncommon for entrepreneurs to get bored when their organizations mature to a certain size.  Management becomes procedural, the business is humming, and life becomes all too routine and mundane.  Entrepreneurs can find this environment stifling.

Unfortunately, the reflexive urge is to engage in behaviors that may be destructive to the very existence of the organizations they started.  They pursue growth, jump into other executives’ domains, launch new ventures, or invest in other businesses – anything to break up the new monotony.  These moves aren’t always bad, but only if approached strategically.  They should not be done merely as desperate reaches for something different.

In starting his second restaurant, Union Square Hospitality Group founder Danny Meyer said, “[The first restaurant] was a great canvas, but I needed a new place to express my creativity.  I didn’t think I should alter a successful restaurant because I was restless.  I didn’t have to get all of my ideas into one place.” (as quoted in Small Giants by Bo Burlingham)

Restless entrepreneurs can learn from Meyer’s recognition.  Proper channeling of creative energy can lead to good results for the initial enterprise as well as any new ventures that may arise.


Nothing New

Wednesday, July 21st, 2010 by Troy Schrock

During the 1930s, 1940s, and early 1950s, my grandpa and his brother built and exited a number of different business ventures.  They began by helping their dad with his cattle business and launched into a full-scale dairy operation.  (I have a photo circa 1930s of a delivery van with “Schrock Dairy” and “Natural Milk & Cream” written in fancy lettering across the sides and back.)  From there, they launched a full-scale apple orchard business.  Then, with the full-gut commitment unique to entrepreneurs, they tore down all of their orchards and started a hybrid seed corn growing business.  They later added a fertilizer (anhydrous ammonia) business with multiple plants and distribution facilities across Illinois, Indiana, and Ohio.  This business was eventually sold to Standard Oil of Indiana.  (I guess anhydrous ammonia was the rage those days.)

Today, we are more than a half-century removed from these entrepreneurs, so naturally, we have different business concerns than they did, right?  My dad was recently reading through their correspondence and found two consistent themes:

  1. Get the right people in the right positions.
  2. Cash flow!   Cash, Cash, Cash.  It was never far from their minds.

OK, so maybe business really isn’t much different today!  The key issues facing entrepreneurs 75 years ago are the same for entrepreneurs today, and they will still be the same 75 years from now.