THE REAL SECRETS OF
                              Reprinted from FORTUNE
                           November 15, 2004 Vol. 150 No. 10

What sets the great ones apart isn't how they start businesses. It's how they keep them

THERE SEEMS to be an unwritten rule that any discussion of innovation must begin
with the example of 3M and how a free-spirited soul there accidentally concocted the
Post-it note. That story, hashed and rehashed, serves as a reminder of how important
employee initiative can be, of management's eternal obligation to keep its ears open, and
so forth. But those aren't the actual reasons for sharing it. "We tell that story again and
again as the quintessential example of big-company innovation," says Guy Kawasaki,
managing director of venture firm Garage Technology Ventures, "because we can't find
any other examples."

 He's exaggerating, of course--but not much. The truth is that even big companies ignited
by a bright spark often flame out when it comes to sustaining it. As the cubicles fill up in
an organization, there's a natural drive toward structure and tidiness, reinforced by rules
and restrictions that cause most inventive types to run for their lives and start their own

 No surprise, then, that the founders of such businesses typically scout out the nearest
exit--or find themselves dropping through a trapdoor. Being exceptional at the early
phase of building a business, from rustling the technology to hustling the money, has
little in common with keeping venture capitalists happy or giving your high-powered
hires the freedom to do their jobs. And when it comes to succession, bullheaded
entrepreneurs reserve their relish for discarding one candidate after another (see
Redstone, Sumner). "With great entrepreneurs, as with great actors and Olympians, their
preemptive threat is boredom and they keep wanting to shake things up," says Warren
Bennis, distinguished professor of business at the University of Southern California.
Success breeds contentment, which affects the entrepreneurial impulse much as
Kryptonite acts on a certain resident of Metropolis.

 It's unfortunate that founders find themselves on the outs: Companies don't stop needing
them once they get off the ground. In fact, what businesses can use to keep growing,
especially in volatile markets--quick, name another kind--is a quality that successful
entrepreneurs secrete in overabundance. They have a natural inclination to see everything
as in dire need of rethinking or reorganizing. "Entrepreneurs are always questioning why
things are done the way they are," notes Thomas Kinnear, executive director of the Zell
Lurie Institute of Entrepreneurial Studies at the University of Michigan's Ross School of
Business. "They are out there challenging everything just about all of the time." That
drive to take risks can turn disruptive and even destructive. But harnessing and tempering
that instinct--so that it is constantly recirculating through the company--can keep the
inventory of ideas well stocked. Consider how Steve Jobs rejuvenated Apple by inventing
a new market with the iPod. And young Michael Dell keeps his company feeling young
by continually pushing new products, such as printers.

 True, founders who grow with their companies are anomalies. And it's tempting to see
them as freaks who just happen to possess the right mix of personality traits to pull it off:
a certain psychological openness, an overriding sense of pragmatism, maybe even an
unlikely touch of (learned) humility. They're just doing what comes naturally.

 Or so you think. But in the pages ahead you'll meet a cluster of company founders and
others who have kept the entrepreneurial spirit alive at their businesses long after
bureaucracy should have snuffed all traces of it. How do they do it? The answer is not in
any particular action they take--hiring that one recruit or setting some specific goal.
Rather, it's all in their heads. It's in their ability to avoid thinking of themselves as one
with their companies. "The most successful entrepreneurs think of their companies as a
separate entity from themselves," says Nancy Koehn, a historian of entrepreneurship who
is a professor at Harvard Business School. "It's incongruous, but they have a sense that if
they have done their work well, the proof will be in their companies outgrowing,
outpacing--and even outliving--them."

 THE FIRST job-threatening challenge for every founder comes disguised in what looks
like a stunning victory: the arrival of outside money. To reach that point an effective
startup entrepreneur has to have exhibited insane optimism, tuning out all but the loudest
yea-sayers. "You get up in the morning with the knowledge that you are smarter than
everybody else about this niche you've discovered," says guru grise Tom Peters. But
when the check comes, the money people who wrote it will think of themselves as fellow
stakeholders--which, by the way, they are--with a say over what happens next. Suddenly
the founder can't simply push ahead as he or she sees fit, details be damned.

 Some entrepreneurs are eager to step aside and escape the tedium of setting up human-
resource policies or buying information systems. Pierre Omidyar, eBay's founder, joined
hands with venture capitalists early on and helped them replace him as CEO, settling in
as chairman. (Explains a backer: "He knew the opportunity he had created could be
maximized by finding somebody like Meg Whitman.") The founders of Yahoo moved
into strategic roles aligned with their interests--studying the future, considering new
products. Even those Google guys hired adult supervision. If you felt strongly enough to
found a technology company, chances are you're most interested in thinking about where
that technology is going. Ask Intuit founder Scott Cook what he now does as chairman of
the executive committee at the $1.8 billion company he founded in 1983, and he'll
respond with one word: "Innovation." It makes sense. Cook's original mission was to
make idiot-proof financial software.

Nobody starts a company looking forward to the day when he can be consumed by
interminable budget and planning meetings. Both founders and their companies are better
off if the entrepreneurs listen to their own passions and set up a role for themselves as the
entrepreneurial engine in residence. "Some leaders don't realize when the intensity of
their attention has started waning," says Bennis. "They need to have the energy to freshly
reimagine their jobs." The shrewdest founders have enough self-awareness to avoid
reaching the point where they can't do their jobs effectively and get flayed by the board--
as happened, say, with Kenneth Olsen, ousted founder of Digital Equipment. Not to
mention Polaroid's Edwin H. Land and An Wang, founder of Wang Laboratories.

 Such ugly fates may be less likely these days because entrepreneurs have seen how badly
things can turn out if they don't find a way to adapt. "We now have entrepreneurs who are
able to stay away from the day-to-day decision-making," says Jeffrey Sonnenfeld,
professor of management practice at Yale's School of Management. "They have a lot of
respect for their successors, and they don't feel threatened at all."

 A key difference may be that this crop of founders started out so young--anybody want
to hear about Dell's dorm room again?--that they like forging a kind of (youthful) elder
statesman role for themselves. They seem to anticipate that at some point the business
will need someone with different skills running it, and they don't take it personally.
"What we look for always is a commitment to the business enterprise and its success,"
says Dan Levitan, managing partner at Maveron, a Seattle venture capital firm that he co-
founded in 1998 with Starbucks creator Howard Schultz. "That requires an objective
understanding of what you do well and what you don't do well."

 Levitan points out that Schultz, who bought Starbucks in 1987 when it was a lowly 11-
unit chain, not only serves as chairman but also as chief global strategist, having given up
the title of CEO four years ago. That gives him the freedom to wander the stores, bonding
with baristas and coming up with ideas about whether Starbucks ought to start peddling
music, and if so, how. (The apparent answer: Corner the market on Ray Charles CDs.)
"He's a constant presence, reminding the company that even though it is big and
successful, that doesn't mean Starbucks can't execute each cup of coffee better," says
Levitan. "I've often thought Howard's blood was brown." This sounds as if it comes
straight out of one of those inspirational posters they sell at airports, but the goal really is
for employees to drink in his intensity. "A lot of times the corporate culture was built
around the founder, and the founder is the living, breathing embodiment of it," says Heidi
Roizen, managing director of Mobius Venture Capital in Palo Alto. "Many of these
founders become iconic." Roizen served as a vice president at Apple in 1996, before
Steve Jobs returned. "That company was so built around his sense of design and
innovation, it was lost when he wasn't there," says Roizen. "The company felt like it was
missing a piece."

 Of course, a founder can only assume the role of innovator-in-chief if he attracts the
caliber of people who can be entrusted with fighting the day-to-day flames. Tom Peters
says that archetypal entrepreneurs such as Bill Gates or Dell "have the ability to
appreciate people who are independently minded. These companies are places where
strong-minded people with contrarian points of view do well." Gates, with his quadruple-
digit IQ, is known for hiring on the basis of raw intelligence. Sergio Zyman, an Atlanta
consultant who was formerly Coke's chief marketing officer, describes Microsoft, where
he consulted, as "a place where every day the people just turned around and yelled at
each other." That fiercely creative hubbub leaves Gates free to "work on keeping the
intellectual energy alive," says Roizen. "And who better to do that than the person who
came up with the market-leaping idea in the first place?"

 THEORETICALLY founders could keep successfully reinventing their companies
forever if it weren't for one problem: They croak. Some of them even seem to understand
that will happen, though in most cases their HR people are too afraid to tell them. In any
case, it's likely that sometime before that final reckoning they'll cease being involved in
roughly 99.9% of their company's decisions. That's why, as fuzzy-feely as it sounds, they
have to find a way to make sure that they embed a tradition of innovation deep inside the
company's culture. "They have to create a system by which they rhythmically mandate
the launch of new businesses, and they have to invest in that system before they need the
growth," says author Clayton Christensen, a professor at Harvard Business School. "It's a
key element of the long-range strategic planning process inside any company."

 To keep his managers on the lookout, Michael Dell, for instance, has split the company
into smaller and smaller pieces that can act pioneering and entrepreneurial. "He keeps
cutting business units in half as they grow," says Michael Treacy, cofounder of GEN3
Partners, a product-innovation firm in which Dell was an original investor. "He narrows
the focus of each executive so that he or she can go to a much deeper level with the
innovation." (For more on innovation strategies, see "Large Problem.") Such
decentralization is critical, according to Peters, because it fosters an atmosphere of
"multiple entrepreneurs." At Southwest Airlines, co-founder Herb Kelleher, who ceased
being CEO in 2001, paid careful attention to the priorities he was setting from day one.
He pounded the company's upstart mentality--any innovation that drives the cost structure
down or that passengers are willing to pay for is welcome aboard--into the brain stem of
"every single baggage handler," says Koehn, the historian. In other words, don't expect
Southwest to start serving in-flight meals anytime soon. But, Koehn says, the company
will keep working on innovations that help it reduce fixed costs, such as figuring out how
to turn the planes around faster.

 Thanks to Kelleher, that impulse is in Southwest's genes. "An awful lot of a company's
innovative spirit is in its fundamental DNA at birth," says Peters. "There are institutions
that have been able to stay energetic decade in and decade out. One hates to go back to
insanely hackneyed examples, but look at 3M."

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