Unfortunately, that's easier said than done. Below, check out the six most important methods leaders should adopt if they want to drive change in their employees' actions.
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Nagging, the study found, will work against you. The most effective leadership behavior in driving change, rather, is to inspire your employees. You can inspire your employees by working with them at an individual level to find out what their goals and aspirations are. They want to provoke a sense of desire rather than fear," Zenger and Folkman write. When a new manager came on board, she found that that the heroic crisis management was in fact a "symptom of a broken process.
Providing clear goals for the entire team will help you guide employees into positive behavior. Because the range of options—and problems—that founders of young businesses confront is vast. The manager of a mature company might ask, What business are we in? Entrepreneurs must continually ask themselves what business they want to be in and what capabilities they would like to develop.
Similarly, the organizational weaknesses and imperfections that entrepreneurs confront every day would cause the managers of a mature company to panic. Many young enterprises simultaneously lack coherent strategies, competitive strengths, talented employees, adequate controls, and clear reporting relationships. The entrepreneur can tackle only one or two opportunities and problems at a time. Entrepreneurs cannot expect the sort of guidance and comfort that an authoritative child-rearing book can offer parents. Human beings pass through physiological and psychological stages in a more or less predetermined order, but companies do not share a developmental path.
Microsoft, Lotus, WordPerfect, and Intuit, although competing in the same industry, did not evolve in the same way. The options that are appropriate for one entrepreneurial venture may be completely inappropriate for another. Entrepreneurs must make a bewildering number of decisions, and they must make the decisions that are right for them. The framework I present here and the accompanying rules of thumb will help entrepreneurs analyze the situations in which they find themselves, establish priorities among the opportunities and problems they face, and make rational decisions about the future.
Instead, it helps entrepreneurs pose useful questions, identify important issues, and evaluate solutions. The framework applies whether the enterprise is a small printing shop trying to stay in business or a catalog retailer seeking hundreds of millions of dollars in sales. The framework consists of a three-step sequence of questions. The hierarchical organization of the questions requires entrepreneurs to confront the basic, big-picture issues before they think about refinements and details.
Whereas the manager of a public company has a fiduciary responsibility to maximize value for shareholders, entrepreneurs build their businesses to fulfill personal goals and, if necessary, seek investors with similar goals. Before they can set goals for a business, entrepreneurs must be explicit about their personal goals. And they must periodically ask themselves if those goals have changed.
Many entrepreneurs say that they are launching their businesses to achieve independence and control their destiny, but those goals are too vague. If they stop and think about it, most entrepreneurs can identify goals that are more specific.
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For example, they may want an outlet for artistic talent, a chance to experiment with new technology, a flexible lifestyle, the rush that comes from rapid growth, or the immortality of building an institution that embodies their deeply held values. Financially, some entrepreneurs are looking for quick profits, some want to generate a satisfactory cash flow, and others seek capital gains from building and selling a company. Some entrepreneurs who want to build sustainable institutions do not consider personal financial returns a high priority.
They may refuse acquisition proposals regardless of the price or sell equity cheaply to employees to secure their loyalty to the institution. Only when entrepreneurs can say what they want personally from their businesses does it make sense for them to ask the following three questions:. Long-term sustainability does not concern entrepreneurs looking for quick profits from in-and-out deals. Similarly, so-called lifestyle entrepreneurs, who are interested only in generating enough of a cash flow to maintain a certain way of life, do not need to build businesses that could survive without them.
But sustainability—or the perception thereof—matters greatly to entrepreneurs who hope to sell their businesses eventually. Sustainability is even more important for entrepreneurs who want to build an institution that is capable of renewing itself through changing generations of technology, employees, and customers. In fact, a business that becomes too big might prevent the founder from enjoying life or remaining personally involved in all aspects of the work.
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In contrast, entrepreneurs seeking capital gains must build companies large enough to support an infrastructure that will not require their day-to-day intervention. Unlike a solo consulting practice—which generates cash from the start—durable ventures, such as companies that produce branded consumer goods, need continued investment to build sustainable advantages. For instance, entrepreneurs may have to advertise to build a brand name. To pay for ad campaigns, they may have to reinvest profits, accept equity partners, or personally guarantee debt. To build depth in their organizations, entrepreneurs may have to trust inexperienced employees to make crucial decisions.
Furthermore, many years may pass before any payoff materializes—if it materializes at all. Sustained risk taking can be stressful. Then you learn about all the things that can go wrong. And because your equity now has value, you feel you have a lot more to lose. Entrepreneurs who operate small-scale, or lifestyle, ventures face different risks and stresses. They may face financial distress if they become sick or just burn out.
I would like to sell the business, but who wants to buy a company with no infrastructure or employees? Entrepreneurs must reconcile what they want with what they are willing to risk. When Alsop launched the company in , he was in his mid-thirties, with a wife and three children. They worked for two years without salaries and invested their personal savings. To set meaningful goals, entrepreneurs must reconcile what they want with what they are willing to risk.
When entrepreneurs have aligned their personal and their business goals, they must then make sure that they have the right strategy. Many entrepreneurs start businesses to seize short-term opportunities without thinking about long-term strategy. Successful entrepreneurs, however, soon make the transition from a tactical to a strategic orientation so that they can begin to build crucial capabilities and resources.
Ventures based on a good strategy can survive confusion and poor leadership, but sophisticated control systems and organizational structures cannot compensate for an unsound strategy. Entrepreneurs should periodically put their strategies to the following four tests:. Even solo entrepreneurs can benefit from a defined strategy. For example, deal makers who specialize in particular industries or types of transactions often have better access to potential deals than generalists do. Similarly, independent consultants can charge higher fees if they have a reputation for expertise in a particular area.
An entrepreneur who wants to build a sustainable company must formulate a bolder and more explicit strategy. The strategy must also provide a framework for making the decisions and setting the policies that will take the company there. The strategy articulated by the founders of Sun Microsystems, for instance, helped them make smart decisions as they developed the company.
From the outset, they decided that Sun would forgo the niche-market strategy commonly used by Silicon Valley start-ups. Instead, they elected to compete with industry leaders IBM and Digital by building and marketing a general-purpose workstation. This strategy also dictated that Sun assume the risk of building a direct sales force and providing its own field support—just like its much larger competitors. To be useful, strategy statements should be concise and easily understood by key constituents such as employees, investors, and customers.
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A strategy that is so broadly stated that it permits a company to do anything is tantamount to no strategy at all. For instance, claiming to be in the leisure and entertainment business does not preclude a tent manufacturer from operating casinos or making films. Defining the venture as a high-performance outdoor-gear company provides a much more useful focus. Once entrepreneurs have formulated clear strategies, they must determine whether those strategies will allow the ventures to be profitable and to grow to a desirable size.
If they are, does the premium we can charge justify the additional costs we incur, and can we move enough volume at higher prices to cover our fixed costs? Disappointing growth should also raise concerns: Is the market large enough? Do diseconomies of scale make profitable growth impossible? No amount of hard work can turn a kitten into a lion. When a new venture is faltering, entrepreneurs must address basic economic issues. For instance, many people are attracted to personal service businesses, such as laundries and tax-preparation services, because they can start and operate those businesses just by working hard.
But the factors that make it easy for entrepreneurs to launch such businesses often prevent them from attaining their long-term goals. Furthermore, it is difficult to make such companies large enough to support employees and infrastructure. Besides, if employees can do what the founder does, they have little incentive to stay with the venture. Founders of such companies often cannot have the lifestyle they want, no matter how talented they are.
With no way to leverage their skills, they can eat only what they kill. Entrepreneurs who are stuck in ventures that are unprofitable and cannot grow satisfactorily must take radical action. They must find a new industry or develop innovative economies of scale or scope in their existing fields. Rebecca Matthias, for example, started Mothers Work in to sell maternity clothing to professional women by mail order.
Both hopes are usually futile. The next issue entrepreneurs must confront is whether their strategies can serve the enterprise over the long term. The issue of sustainability is especially significant for entrepreneurs who have been riding the wave of a new technology, a regulatory change, or any other change—exogenous to the business—that creates situations in which supply cannot keep up with demand.
Entrepreneurs who catch a wave can prosper at the outset just because the trend is on their side; they are competing not with one another but with outmoded players. But what happens when the wave crests? As market imbalances disappear, so do many of the erstwhile high fliers who had never developed distinctive capabilities or established defensible competitive positions. Wave riders must anticipate market saturation, intensifying competition, and the next wave.
They have to abandon the me-too approach in favor of a new, more durable business model. Or they may be able to sell their high-growth businesses for handsome prices in spite of the dubious long-term prospects. Consider Edward Rosen, who cofounded Vydec in But Rosen and his partner could see that the days of stand-alone word processors were numbered. Such forward thinking is an exception. Encouraged by short-term success, they continue to reinvest profits in unsustainable businesses until all they have left is memories of better days. Entrepreneurs who start ventures not by catching a wave but by creating their own wave face a different set of challenges in crafting a sustainable strategy.
They must build on their initial strength by developing multiple strengths. Brand-new ventures usually cannot afford to innovate on every front. Few start-ups, for example, can expect to attract the resources needed to market a revolutionary product that requires radical advances in technology, a new manufacturing process, and new distribution channels.
Cash-strapped entrepreneurs usually focus first on building and exploiting a few sources of uniqueness and use standard, readily available elements in the rest of the business. Michael Dell, the founder of Dell Computer, for example, made low price an option for personal computer buyers by assembling standard components in a college dormitory room and selling by mail order without frills or much sales support. A model based on one or two strengths becomes obsolete as success begets imitation. But they will find it much more difficult to replicate systems that incorporate many distinct and complementary capabilities.
A business with an attractive product line, well-integrated manufacturing and logistics, close relationships with distributors, a culture of responsiveness to customers, and the capability to produce a continuing stream of product innovations is not easy to copy.
Entrepreneurs who build desirable franchises must quickly find ways to broaden their competitive capabilities. Intuit realized, however, that competitors could also make their products easy to use, so the company took advantage of its early lead to invest in a variety of strengths. Intuit enhanced its position with distributors by introducing a family of products for small businesses, including QuickBooks, an accounting program.
It established a superior product-design process with multifunctional teams that included marketing and technical support. And Intuit invested heavily to provide customers with outstanding technical support for free.
After defining or redefining the business and verifying its basic soundness, an entrepreneur should determine whether plans for its growth are appropriate. Different enterprises can and should grow at different rates. Setting the right pace is as important to a young business as it is to a novice bicyclist. For either one, too fast or too slow can lead to a fall. The optimal growth rate for a fledgling enterprise is a function of many interdependent factors.
Finding the optimal growth rate for a new enterprise is a difficult and critical task.
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To set the right pace, entrepreneurs must consider many factors, including the following:. Economies of scale, scope, or customer network. When scale causes profitability to increase considerably, growth soon pays for itself. And in industries in which economies of scale or scope limit the number of viable competitors, establishing a favorable economic position first can help deter rivals. The ability to lock in customers or scarce resources.
Rapid growth also makes sense if consumers are inclined to stick with the companies with which they initially do business, either because of an aversion to change or because of the expense of switching to another company. Similarly, in retail, growing rapidly can allow a company to secure the most favorable locations or dominate a geographic area that can support only one large store, even if national economies of scale are limited.
If rivals are expanding quickly, a company may be forced to do the same. Resource constraints. A new venture will not be able to grow rapidly if there is a shortage of skilled employees or if investors and lenders are unwilling to fund an expansion that they consider reckless. A venture that is growing quickly, however, will be able to attract capital as well as the employees and customers who want to go with a winner.
Internal financing capability. When a new venture is not able to attract investors or borrow at reasonable terms, its internal financing capability will determine the pace at which it can grow. Businesses that have high profit margins and low assets-to-sales ratios can fund high growth rates. A self-funded business, according to the well-known sustainable growth formula, cannot expand its revenues at a rate faster than its return on equity.
Tolerant customers. When a company is young and growing rapidly, its products and services often contain some flaws. In some markets, such as certain segments of the high-tech industry, customers are accustomed to imperfect offerings and may even derive some pleasure from complaining about them. Companies in such markets can expand quickly. But in markets in which buyers will not stand for breakdowns and bugs, such as the market for luxury goods and mission-critical process-control systems, growth should be much more cautious.
Personal temperament and goals. Some entrepreneurs thrive on rapid growth; others are uncomfortable with the crises and fire fighting that usually accompany it. The third question entrepreneurs must ask themselves may be the hardest to answer because it requires the most candid self-examination: Can I execute the strategy? Entrepreneurs must examine three areas—resources, organizational capabilities, and their personal roles—to evaluate their ability to carry out their strategies. The lack of talented employees is often the first obstacle to the successful implementation of a strategy.
During the start-up phase, many ventures cannot attract top-notch employees, so the founders perform most of the crucial tasks themselves and recruit whomever they can to help out. After that initial period, entrepreneurs can and should be ambitious in seeking new talent, especially if they want their businesses to grow quickly. Entrepreneurs who hope to turn underqualified employees into star performers are almost always disappointed. In determining how to upgrade the workforce, entrepreneurs must address many complex and sensitive issues: Should I recruit individuals for specific slots or, as is commonly the case in talent-starved organizations, should I create positions for promising candidates?