THE REAL SECRETS OF ENTREPRENEURS 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 growing. By: JOSHUA HYATT 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 companies. 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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