- Email: [email protected]
Entrepreneurial renewal
Entrepreneurial Renewal Richard L, Osborne
G
reat ownermanaged companies are built in the will and wake of their entrepreneur's intensity, focus, work ethic, and capacity for risk. Brick by brick, they rise from the foundation of the entrepreneur's vision of the future and the presumption that he or she can rearrange the world to make that vision a reality. Driven by their owners' original business concept, determination, and focused energy, many such firms grow and prosper during their initial entrepreneurial phase. But at some point, most ownermanaged companies stop growing. We studied 20 businesses that had achieved profitable growth during their first 15 years or so of entrepreneurial life, but have failed to grow appreciably since, and we compared them to six others that had experienced largely uninterrupted growth. The 20 stalled companies included several consumer firms, but primarily served the industrial sector. All were managed by the majority owners, most of w h o m were first-generation entrepreneurs. The study group, with annual sales ranging from approximately $10 million to just under $50 million, was based in the Midwest, the majority selling to regional marketplaces. The six private companies that had achieved sustained growth had sales from $25 million to $150 million; they also operated largely in the industrial sector, but had extended their marketplaces to a national, and sometimes international, level. The study produced some interesting insights. We learned--not surprisingly--that the absence of environmental orientation (marketplace, competitors, and technological intelligence) was the primary difference between the non-growth and growth companies. But we also 58
learned that a secondary, contributing condition in about one-third of these stalled firms was the dissipation of their entrepreneurs' interest, energy, and aspiration. These entrepreneurs had paid the price of success. Eighteen-hour days, exposure to risk, absentee parenthood, and a single-minded lifestyle that put business building ahead of all other responsibilities combined to undermine the owner-manager's commitment to the company he had created. This article focuses on entrepreneurial power failure, its sources, and its reasons, and then proposes a program that can renew the faltering entrepreneur, restoring his purpose, promise, and impulse to achieve. We contend that when such renewal occurs, everyone benefits--employees, family, and the entrepreneur. ENTREPRENEURIAL P O W E R FAILURE
ntrepreneurs, the architects of marketdriven economies around the world, routinely generate energy and useful outcomes that surpass the output of their professional manager counterparts in large-scale organizations. Impelled by their entrepreneurial mission, they take risks, try new ideas, and rely on their own judgment in ways that are often simply not possible in a giant, bureaucratic company. But w h e n the entrepreneur's vision dims and the impulse to achieve diminishes, the company frequently experiences a rapid, sometimes tragic, power failure. Take the case of a 34-year-old entrepreneur who built an immensely profitable mutual fund marketing firm. Never having attended college, he tried his hand at everything from selling furniture to dealing blackjack in Las Vegas. At age 25, he decided to start his own company selling investment products door-to-door to farmers and ranchers. Nine years later, with 125 salespeople stretched across the Plains States, the still youthful entrepreneur had achieved his material dreams--two Mercedes, a gold Rolex, a $750,000 residence, and an annual personal income of a
E
Business Horizons / November-December1992
~J
stunning $1,500,000. By all accounts, he had everything, including a lovely young family. Except a purpose. The bromide "Beware w h e n all your dreams come true" fit him perfectly. He stopped paying attention to business and the business stopped growing. He decided to leave his wife behind. He developed a taste for vodka. His was a classic case of entrepreneurial "brown-out." But, as we discuss later, this entrepreneur's sto W includes a new chapter--a case of entrepreneurial renewal. Entrepreneurial power failure sometimes expresses itself more subtly. The owner-manager of a $25 million copper tube manufacturing comp a n y - a n intensely competitive business driven by commodi W pricing and strikes in Chilean copper mines--gradually succumbed to the despair of managing a company controlled largely by environmental forces over which he had little influence. His focus shifted from value creation to reactive, preservation-inspired strategies. Discouraged and weary, the entrepreneur lost energy and shortened his work day. Essentially, he retired in office, a short-term prerogative uniquely available to the executive who owns the business he manages. Inevitably, the enterprise paid for Entrepreneurial Renewal
the entrepreneur's in-place retirement. Sales declined and marginal profits became steady losses. But, as we shall also see later, this 50-yearold entrepreneur didn't settle for early retirement. Indeed, his instructive 12-year saga of self-renewal has led to 12-hour days filled with purpose and even fun, and a personal net worth of $60 million. SOURCES OF VULNERABILITY
D
iminished purpose and executive energy are not, of course, conditions confined to entrepreneurs. Executive burnout is observed in professional managers with diverse backgrounds, even though they do not own the businesses they manage. But we contend that entrepreneurs are peculiarly vulnerable to the temptation to step back from the rigors of organization building. One source of such vulnerability is the paradox of the exhilaration of the entrepreneurial journey and the sometimes unfulfilling rewards of achieving the targeted destination. Another is, ironically, the entrepreneur's largely ungoverned ownership power. 59
Figure 1 S y m p t o m s o f Entrepreneurial Power Failure • • • • • •
Intensified insular attitudes Reduced time commitment to the firm Increased risk aversity More likely to sequester information and authority Increasingly reactive management style Shorter planning horizon
the organization's stakeholders, at least in the short term. When the owner-manager decides to stop building, retire in office, or even stop working, he or she need not worry about a boss's reaction or the next performance review. The entrepreneur, w h e n weary of the chase, has the dangerous prerogative to place the enterprise, employees, and other stakeholders at risk by neglect or, worse, giving up the chase.
RENEWAL NOTICE Quest Versus Conquest Entrepreneurs are characteristically highly goaloriented; but it is the striving toward that goal they enjoy, not so much the fruits of its achievement. In our w o r k with scores of entrepreneurs, we have seen them energized by the quest for desired outcomes and largely unaffected by their achievement, whether the conquest be annual sales volume, profit levels, an acquisition, or the material rewards that derive from success. The classic entrepreneur is motivated by achieving; m o n e y and other tangible rewards are experienced as an achievement report card rather than as ends in themselves (Bird 1989). As ends, they can contribute to an entrepreneurial malaise, a kind of mid-life professional crisis. "Were the sacrifices worth it? Are these rewards commensurate with the devotion I have poured into building my business?" These are the questions asked b y entrepreneurs w h o are headed for "power failure." And so, as the entrepreneur moves from quest to conquest, ownership satisfaction declines and the temptation increases to exercise the ownership prerogative to withdraw from the essential emotional commitment on which the business depends.
Ownership Power Ownership p o w e r confers massive prerogative on the entrepreneur. On the one hand, it enables him to take risks, allocate resources, act decisively, and respond rapidly to opportunities. But such unchecked p o w e r can also result in diminished accountability to others, insular attitudes, and a solitary m a n a g e m e n t style. Our study of entrepreneurs has observed that ungoverned ownership p o w e r often leads to its abuse. Highly centralized authority, one-way communication, sequestering essential m a n a g e m e n t information, and underdeveloped, underutilized senior employees are frequent symptoms of the corrupting p o w e r of majority ownership. And unlike most others, entrepreneurs possess the prerogative to avoid the expectations of and accountability to 60
A
s w e have said, w h e n entrepreneurs experience personal p o w e r failures, they are not unique. Professional managers are susceptible to the same crises of values and purpose. However, owner-executives are unique in the timing and consequence of such disillusionment. First, if successful, they learn earlier in their careers that material rewards are often unfulfilling. Second, they have more freedom to translate disillusion into disinvestment of critical resources--time, energy, and the leadership d a n that inspires their companies. The senior employees and directors of seven of the 20 stalled companies mentioned earlier reported the behavioral changes in their leaders as s h o w n in F i g u r e 1. Needless to say, these changes reduce the organization's vitality and value creation potential; they threaten everyone w h o depends on the entrepreneur. When they occur, it's time for the entrepreneur to either renew his professional pride and purpose or face the need to develop an explicit strategy to exit the enterprise.
ENTREPRENEURIAL RENEWAL PROGRAM ike it or not, the entrepreneur is responsible to the employees, suppliers, customers, and communities that support the enterprise. It is a social compact, a trust. When an entrepreneur succumbs to floundering pride and purpose, the compact is threatened. Everyone is a potential loser, including the entrepreneur. Therefore, we propose a renewal program, as outlined in F i g u r e 2. These are actions entrepreneurs can undertake to restore their v a l u e - and re-create the vigor that characterized the time w h e n entrepreneurial pride and purpose were driving their professional lives.
L
Action 1: Acknowledge Responsibility While our w o r k with hundreds of entrepreneurs has found them to prefer pragmatic, action-oriented solutions to abstract discussions such as social compact, we have also observed m a n y owner-managers to be profoundly loyal to their Business Horizons / November-December 1992
companies' stakeholders. Accepting continued responsibility for those w h o have contributed to building the business is an expression of that loyalty, and the first step in entrepreneurial renewal. We contend that even though entrepreneurs have the p o w e r to ignore this responsibility, they do not have the right to do so. Of course, they have the right to sell the business or undertake some other exit strategy. But as long as they remain the owners, they are responsible for maximizing stakeholder value or they violate the trust on which the firm was built. Step one, accordingly, is to acknowledge responsibility, and to do what entrepreneurs do b e s t - - t a k e action. Our 34-year-old marketing entrepreneur did just that. Overlooking the Gulf of Mexico from his oceanfront condominium, a thousand miles from the business that paid for it, this young entrepreneur was confronted by a long-time advisor. "Either find a meaningful reason to build your business, or get out," was the blunt advice proffered by his professional friend. Unaccustomed to this kind of direct challenge, the entrepreneur was shaken from the malaise that surrounded his professional and personal life. Twenty-four hours later, the youthful millionaire made the decision to undertake a n e w mission. He had m a d e more m o n e y than he could spend. But the five key executives w h o had helped him build his c o m p a n y had not. So he decided to rededicate himself to these five loyal employees and help them to also b e c o m e millionaires. He telephoned each of them that very night, requesting that they join him the following afternoon to chart a course of organizational renewal. In the meeting that ensued, the entrepreneur announced his n e w vision and the enlarged roles he intended for these senior employees. For the first time, he called them partners and meant it. New- products were planned. He committed to substantial investments in the agent recruiting that was key to his sales-driven business. Finally, he and his new emotional partners invented a financial rewaM package that would m a k e them all very wealthy m e n if the n e w game plan was fulfilled. Seven years later, the marketing firm had quadrupled in annual sales, the entrepreneur had renewed his life, and all five of his partners had personal net worth exceeding the million-dollar goal that was inspired at the Gulf Coast renaissance.
Action 2: Create Core Values A core value statement acts as a corporate compass, shaping decisions and steering actions. In the privately held company, the owner's fundaEntrepreneurial Renewal
mental beliefs and commitments are central to the culture that regulates organizational directions, policies, and practices. But in talks with 46 senior employees of ten private firms, we learned they were frequently unclear or confused about the values that were driving their companies. Indeed, a survey of 100 owner-managed businesses identified only two that had articulated and communicated core values in written form, unlike m a n y larger, publicly held companies. Johnson & Johnson relied u p o n its statement of core values to navigate the treacherous waters of the well-publicized Tylenol poison crisis. General Electric spent three years creating core values to inspire a n e w employee culture that would support its repositioned, technology-driven businesses. For the flagging entrepreneur, creating and communicating core values can crystallize and energize a new commitment to the company. It can animate the owner's pride and purpose by defining and sharing the intention to fulfill stakeholder responsibility.
Action 3: Enlarge the W i n d o w o f O p p o r t u n i t y A working board of directors can enlarge the window of entrepreneurial opportunity, energizing n e w initiatives and helping to position the firm to attack marketplace needs and avoid environmental threats. Most boards of privately held companies are c o m p o s e d of family members and other insiders. Frequently they function with limited information and a narrow agenda con-
Figure 2 Entrepreneurial Renewal Program Action 1: Acknowledge Responsibility • To employees • To family • To other stakeholders Action 2: Create Core Values • Commit to fundamental beliefs that will animate the renewal program Action • • • •
3: Enlarge the Window of Opportuni W Establish a working board of directors, either advisory or statutory Appoint non-employee directors as majority Involve directors in core value creation process Focus the board on linking organizational capability to environmental opportunity
Prerequisite: Commit to a New Mission • Fulfill social compact with employees • Perpetuate business to sons and daughters • Prepare firm for eventual employee and management ownership succession • Actualize personal pride and purpose
61
trolled mainly by the entrepreneur. Needless to say, such boards are not positioned to add major value. On the other hand, a reconstituted group of directors, whether advisory or statutory, that includes outsiders selected for their knowledge of the environment in which the firm operates, is in a position to stimulate ideas and strategic perspectives that go hand-in-hand with the entrepreneur's commitment to renewal. Given the proper mandate, information, and influence, the private c o m p a n y board of directors can provide a link b e t w e e n organizational capability and environmental opportunity. Moreover, the implicit voluntary relationship of mutual accountability and trust between entrepreneur and directors has the potential to become a kind of corporate conscience to the firm's renewal process. Commitments made to trusted outsiders, whether through a focused strategic planning process or through less formal expressions of intention, often evoke the pride of performance impulse that characterizes successful entrepreneurs. Such a board can enhance the entrepreneur's capacity to fulfill the aspirations of the firm's core values and commitment to its new" mission. The renaissance of the copper c o m p a n y entrepreneur described earlier occurred just that way. Inspired by his corporate lawyer, the owner agreed to replace his dormant family board of directors with a n e w group, including outside professionals, beginning a 12-year saga that transformed c o p p e r to gold, based on a commitment to redeploy the family's principal asset. In monthly board meetings, the board and the owner developed a relationship of mutual respect, voluntary accountability, and trust. The board skillfully pressed for a strategy to escape the flagging copper tube business. Its elements were: • downsizing the c o p p e r c o m p a n y by onehalf, retaining the most profitable products and customers; • moving the c o m p a n y from its high-cost Northern industrial base to a non-union facility in the deep South; • positioning the n o w profitable c o m p a n y for sale to an entrepreneurial purchaser; • acquiring a rapidly growing electronics manufacturer. Eventually, both companies were sold at a substantial premium and the proceeds of the sale were used to acquire an environmental services c o m p a n y for $6 million. Two and a half years later, the entrepreneur took the environmental c o m p a n y public for a capitalized value of $80 million, $60 million of which belonged to him. At age 62, the entrepreneur is working harder n o w than ever in his life. He heads a re62
spected firm that is written about in national journals. He is proud of his accomplishments. He describes his professional life as fun. He has a mission. And he credits the board of directors that helped create the vision that became a reality. PREREQUISITE: COMMIT TO A NEW MISSION
he steps to entrepreneurial renewal proposed here are not intended to be sequential. To maximize organizational renewal, they should be implemented simultaneously. Indeed, w h e n undertaken in concert, each step facilitates and reinforces the others. For example, the board of directors can contribute to articulating core commitments and, during such a process, develop insights about the entrepreneur, the senior employees, and the business that increase their ability to link corporate values and capability to the company's marketplace mission. Underlying the renewal process, however, must be the entrepreneur's commitment to a new mission. The young mutual fund entrepreneur described in the earlier case study decided to give his key employees the financial security and freedom they had helped create for him. The middle-aged copper tube manufacturer acknowledged that in-place retirement was a failure of responsibility to family members w h o held shares in his c o m p a n y and, equally important, to himself. Preparing the family c o m p a n y for perpetuation to sons or daughters can provide a powerful reason to renew. Or competitive impulses, stimulated by the continuing success of other entrepreneurs, may trigger the decision to begin building again.
T
ometimes the most profound commitment to renewal springs from self-knowledge and the realization that w h e n a c o m p a n y stops growing, it starts dying; that without pride and purpose, life doesn't work well for those w h o have spent most of it filled with both. Whatever the source of inspiration, the first and last step of entrepreneurial renewal is the commitment to a n e w mission. There are m a n y reasons for entrepreneurs to renew t h e m s e l v e s - - t o fulfill the trust of employees and stakeholders, or to provide a legacy of opportunity to second-generation entrepreneurs and key subordinates, Perhaps to begin again the journey of building and creating is simply to fulfill a destiny, the privilege and burden of the enterprise system of economic governance.
S
References
Barbara J. Bird, Entrepreneurial Behavior (Glenview, Ill.: Scott, Foresman and Co., 1989). Business Horizons / November-December 1992
Lawrence G. Foster, "The Johnson & Johnson Credo and the Tylenol Crisis," New Jersey Bali Journal, Spring 1983, pp 1-7.
Richard L. Osborne, "The Private Company Director: Strategies for Serving Entrepreneurs," Management Decision (U.K.), 2P, 4 (1991): 41-45.
Richard L. Osborne, "Core Value Statements: The Corporate Compass," Business Horizons, September-October 1991, pp. 28-34.
Noel Tichy and Ram Charan, "Speed, Simplicity, SelfConfidence: An Interview with Jack Welch," Harvard Business Review, September-October 1989, pp. 112119.
Richard L. Osborne, "The Dark Side of the Entrepreneur," Long Range Planning (U.K.), June 1991, pp. 2631. Richard L. Osborne, "Increasing Employee ROI in the Small Business," Business, January-March 1988, pp. 3741. Richard L. Osborne, "Planning: The Entrepreneurial Ego at Work," Business Horizons, January-February 1987, pp. 20-24.
Entrepreneurial Renewal
Richard L. Osborne is Professor for the Practice of Management Policy and Executive Dean, as well as director of the Center for Management Development, at the Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio.
63
G
reat ownermanaged companies are built in the will and wake of their entrepreneur's intensity, focus, work ethic, and capacity for risk. Brick by brick, they rise from the foundation of the entrepreneur's vision of the future and the presumption that he or she can rearrange the world to make that vision a reality. Driven by their owners' original business concept, determination, and focused energy, many such firms grow and prosper during their initial entrepreneurial phase. But at some point, most ownermanaged companies stop growing. We studied 20 businesses that had achieved profitable growth during their first 15 years or so of entrepreneurial life, but have failed to grow appreciably since, and we compared them to six others that had experienced largely uninterrupted growth. The 20 stalled companies included several consumer firms, but primarily served the industrial sector. All were managed by the majority owners, most of w h o m were first-generation entrepreneurs. The study group, with annual sales ranging from approximately $10 million to just under $50 million, was based in the Midwest, the majority selling to regional marketplaces. The six private companies that had achieved sustained growth had sales from $25 million to $150 million; they also operated largely in the industrial sector, but had extended their marketplaces to a national, and sometimes international, level. The study produced some interesting insights. We learned--not surprisingly--that the absence of environmental orientation (marketplace, competitors, and technological intelligence) was the primary difference between the non-growth and growth companies. But we also 58
learned that a secondary, contributing condition in about one-third of these stalled firms was the dissipation of their entrepreneurs' interest, energy, and aspiration. These entrepreneurs had paid the price of success. Eighteen-hour days, exposure to risk, absentee parenthood, and a single-minded lifestyle that put business building ahead of all other responsibilities combined to undermine the owner-manager's commitment to the company he had created. This article focuses on entrepreneurial power failure, its sources, and its reasons, and then proposes a program that can renew the faltering entrepreneur, restoring his purpose, promise, and impulse to achieve. We contend that when such renewal occurs, everyone benefits--employees, family, and the entrepreneur. ENTREPRENEURIAL P O W E R FAILURE
ntrepreneurs, the architects of marketdriven economies around the world, routinely generate energy and useful outcomes that surpass the output of their professional manager counterparts in large-scale organizations. Impelled by their entrepreneurial mission, they take risks, try new ideas, and rely on their own judgment in ways that are often simply not possible in a giant, bureaucratic company. But w h e n the entrepreneur's vision dims and the impulse to achieve diminishes, the company frequently experiences a rapid, sometimes tragic, power failure. Take the case of a 34-year-old entrepreneur who built an immensely profitable mutual fund marketing firm. Never having attended college, he tried his hand at everything from selling furniture to dealing blackjack in Las Vegas. At age 25, he decided to start his own company selling investment products door-to-door to farmers and ranchers. Nine years later, with 125 salespeople stretched across the Plains States, the still youthful entrepreneur had achieved his material dreams--two Mercedes, a gold Rolex, a $750,000 residence, and an annual personal income of a
E
Business Horizons / November-December1992
~J
stunning $1,500,000. By all accounts, he had everything, including a lovely young family. Except a purpose. The bromide "Beware w h e n all your dreams come true" fit him perfectly. He stopped paying attention to business and the business stopped growing. He decided to leave his wife behind. He developed a taste for vodka. His was a classic case of entrepreneurial "brown-out." But, as we discuss later, this entrepreneur's sto W includes a new chapter--a case of entrepreneurial renewal. Entrepreneurial power failure sometimes expresses itself more subtly. The owner-manager of a $25 million copper tube manufacturing comp a n y - a n intensely competitive business driven by commodi W pricing and strikes in Chilean copper mines--gradually succumbed to the despair of managing a company controlled largely by environmental forces over which he had little influence. His focus shifted from value creation to reactive, preservation-inspired strategies. Discouraged and weary, the entrepreneur lost energy and shortened his work day. Essentially, he retired in office, a short-term prerogative uniquely available to the executive who owns the business he manages. Inevitably, the enterprise paid for Entrepreneurial Renewal
the entrepreneur's in-place retirement. Sales declined and marginal profits became steady losses. But, as we shall also see later, this 50-yearold entrepreneur didn't settle for early retirement. Indeed, his instructive 12-year saga of self-renewal has led to 12-hour days filled with purpose and even fun, and a personal net worth of $60 million. SOURCES OF VULNERABILITY
D
iminished purpose and executive energy are not, of course, conditions confined to entrepreneurs. Executive burnout is observed in professional managers with diverse backgrounds, even though they do not own the businesses they manage. But we contend that entrepreneurs are peculiarly vulnerable to the temptation to step back from the rigors of organization building. One source of such vulnerability is the paradox of the exhilaration of the entrepreneurial journey and the sometimes unfulfilling rewards of achieving the targeted destination. Another is, ironically, the entrepreneur's largely ungoverned ownership power. 59
Figure 1 S y m p t o m s o f Entrepreneurial Power Failure • • • • • •
Intensified insular attitudes Reduced time commitment to the firm Increased risk aversity More likely to sequester information and authority Increasingly reactive management style Shorter planning horizon
the organization's stakeholders, at least in the short term. When the owner-manager decides to stop building, retire in office, or even stop working, he or she need not worry about a boss's reaction or the next performance review. The entrepreneur, w h e n weary of the chase, has the dangerous prerogative to place the enterprise, employees, and other stakeholders at risk by neglect or, worse, giving up the chase.
RENEWAL NOTICE Quest Versus Conquest Entrepreneurs are characteristically highly goaloriented; but it is the striving toward that goal they enjoy, not so much the fruits of its achievement. In our w o r k with scores of entrepreneurs, we have seen them energized by the quest for desired outcomes and largely unaffected by their achievement, whether the conquest be annual sales volume, profit levels, an acquisition, or the material rewards that derive from success. The classic entrepreneur is motivated by achieving; m o n e y and other tangible rewards are experienced as an achievement report card rather than as ends in themselves (Bird 1989). As ends, they can contribute to an entrepreneurial malaise, a kind of mid-life professional crisis. "Were the sacrifices worth it? Are these rewards commensurate with the devotion I have poured into building my business?" These are the questions asked b y entrepreneurs w h o are headed for "power failure." And so, as the entrepreneur moves from quest to conquest, ownership satisfaction declines and the temptation increases to exercise the ownership prerogative to withdraw from the essential emotional commitment on which the business depends.
Ownership Power Ownership p o w e r confers massive prerogative on the entrepreneur. On the one hand, it enables him to take risks, allocate resources, act decisively, and respond rapidly to opportunities. But such unchecked p o w e r can also result in diminished accountability to others, insular attitudes, and a solitary m a n a g e m e n t style. Our study of entrepreneurs has observed that ungoverned ownership p o w e r often leads to its abuse. Highly centralized authority, one-way communication, sequestering essential m a n a g e m e n t information, and underdeveloped, underutilized senior employees are frequent symptoms of the corrupting p o w e r of majority ownership. And unlike most others, entrepreneurs possess the prerogative to avoid the expectations of and accountability to 60
A
s w e have said, w h e n entrepreneurs experience personal p o w e r failures, they are not unique. Professional managers are susceptible to the same crises of values and purpose. However, owner-executives are unique in the timing and consequence of such disillusionment. First, if successful, they learn earlier in their careers that material rewards are often unfulfilling. Second, they have more freedom to translate disillusion into disinvestment of critical resources--time, energy, and the leadership d a n that inspires their companies. The senior employees and directors of seven of the 20 stalled companies mentioned earlier reported the behavioral changes in their leaders as s h o w n in F i g u r e 1. Needless to say, these changes reduce the organization's vitality and value creation potential; they threaten everyone w h o depends on the entrepreneur. When they occur, it's time for the entrepreneur to either renew his professional pride and purpose or face the need to develop an explicit strategy to exit the enterprise.
ENTREPRENEURIAL RENEWAL PROGRAM ike it or not, the entrepreneur is responsible to the employees, suppliers, customers, and communities that support the enterprise. It is a social compact, a trust. When an entrepreneur succumbs to floundering pride and purpose, the compact is threatened. Everyone is a potential loser, including the entrepreneur. Therefore, we propose a renewal program, as outlined in F i g u r e 2. These are actions entrepreneurs can undertake to restore their v a l u e - and re-create the vigor that characterized the time w h e n entrepreneurial pride and purpose were driving their professional lives.
L
Action 1: Acknowledge Responsibility While our w o r k with hundreds of entrepreneurs has found them to prefer pragmatic, action-oriented solutions to abstract discussions such as social compact, we have also observed m a n y owner-managers to be profoundly loyal to their Business Horizons / November-December 1992
companies' stakeholders. Accepting continued responsibility for those w h o have contributed to building the business is an expression of that loyalty, and the first step in entrepreneurial renewal. We contend that even though entrepreneurs have the p o w e r to ignore this responsibility, they do not have the right to do so. Of course, they have the right to sell the business or undertake some other exit strategy. But as long as they remain the owners, they are responsible for maximizing stakeholder value or they violate the trust on which the firm was built. Step one, accordingly, is to acknowledge responsibility, and to do what entrepreneurs do b e s t - - t a k e action. Our 34-year-old marketing entrepreneur did just that. Overlooking the Gulf of Mexico from his oceanfront condominium, a thousand miles from the business that paid for it, this young entrepreneur was confronted by a long-time advisor. "Either find a meaningful reason to build your business, or get out," was the blunt advice proffered by his professional friend. Unaccustomed to this kind of direct challenge, the entrepreneur was shaken from the malaise that surrounded his professional and personal life. Twenty-four hours later, the youthful millionaire made the decision to undertake a n e w mission. He had m a d e more m o n e y than he could spend. But the five key executives w h o had helped him build his c o m p a n y had not. So he decided to rededicate himself to these five loyal employees and help them to also b e c o m e millionaires. He telephoned each of them that very night, requesting that they join him the following afternoon to chart a course of organizational renewal. In the meeting that ensued, the entrepreneur announced his n e w vision and the enlarged roles he intended for these senior employees. For the first time, he called them partners and meant it. New- products were planned. He committed to substantial investments in the agent recruiting that was key to his sales-driven business. Finally, he and his new emotional partners invented a financial rewaM package that would m a k e them all very wealthy m e n if the n e w game plan was fulfilled. Seven years later, the marketing firm had quadrupled in annual sales, the entrepreneur had renewed his life, and all five of his partners had personal net worth exceeding the million-dollar goal that was inspired at the Gulf Coast renaissance.
Action 2: Create Core Values A core value statement acts as a corporate compass, shaping decisions and steering actions. In the privately held company, the owner's fundaEntrepreneurial Renewal
mental beliefs and commitments are central to the culture that regulates organizational directions, policies, and practices. But in talks with 46 senior employees of ten private firms, we learned they were frequently unclear or confused about the values that were driving their companies. Indeed, a survey of 100 owner-managed businesses identified only two that had articulated and communicated core values in written form, unlike m a n y larger, publicly held companies. Johnson & Johnson relied u p o n its statement of core values to navigate the treacherous waters of the well-publicized Tylenol poison crisis. General Electric spent three years creating core values to inspire a n e w employee culture that would support its repositioned, technology-driven businesses. For the flagging entrepreneur, creating and communicating core values can crystallize and energize a new commitment to the company. It can animate the owner's pride and purpose by defining and sharing the intention to fulfill stakeholder responsibility.
Action 3: Enlarge the W i n d o w o f O p p o r t u n i t y A working board of directors can enlarge the window of entrepreneurial opportunity, energizing n e w initiatives and helping to position the firm to attack marketplace needs and avoid environmental threats. Most boards of privately held companies are c o m p o s e d of family members and other insiders. Frequently they function with limited information and a narrow agenda con-
Figure 2 Entrepreneurial Renewal Program Action 1: Acknowledge Responsibility • To employees • To family • To other stakeholders Action 2: Create Core Values • Commit to fundamental beliefs that will animate the renewal program Action • • • •
3: Enlarge the Window of Opportuni W Establish a working board of directors, either advisory or statutory Appoint non-employee directors as majority Involve directors in core value creation process Focus the board on linking organizational capability to environmental opportunity
Prerequisite: Commit to a New Mission • Fulfill social compact with employees • Perpetuate business to sons and daughters • Prepare firm for eventual employee and management ownership succession • Actualize personal pride and purpose
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trolled mainly by the entrepreneur. Needless to say, such boards are not positioned to add major value. On the other hand, a reconstituted group of directors, whether advisory or statutory, that includes outsiders selected for their knowledge of the environment in which the firm operates, is in a position to stimulate ideas and strategic perspectives that go hand-in-hand with the entrepreneur's commitment to renewal. Given the proper mandate, information, and influence, the private c o m p a n y board of directors can provide a link b e t w e e n organizational capability and environmental opportunity. Moreover, the implicit voluntary relationship of mutual accountability and trust between entrepreneur and directors has the potential to become a kind of corporate conscience to the firm's renewal process. Commitments made to trusted outsiders, whether through a focused strategic planning process or through less formal expressions of intention, often evoke the pride of performance impulse that characterizes successful entrepreneurs. Such a board can enhance the entrepreneur's capacity to fulfill the aspirations of the firm's core values and commitment to its new" mission. The renaissance of the copper c o m p a n y entrepreneur described earlier occurred just that way. Inspired by his corporate lawyer, the owner agreed to replace his dormant family board of directors with a n e w group, including outside professionals, beginning a 12-year saga that transformed c o p p e r to gold, based on a commitment to redeploy the family's principal asset. In monthly board meetings, the board and the owner developed a relationship of mutual respect, voluntary accountability, and trust. The board skillfully pressed for a strategy to escape the flagging copper tube business. Its elements were: • downsizing the c o p p e r c o m p a n y by onehalf, retaining the most profitable products and customers; • moving the c o m p a n y from its high-cost Northern industrial base to a non-union facility in the deep South; • positioning the n o w profitable c o m p a n y for sale to an entrepreneurial purchaser; • acquiring a rapidly growing electronics manufacturer. Eventually, both companies were sold at a substantial premium and the proceeds of the sale were used to acquire an environmental services c o m p a n y for $6 million. Two and a half years later, the entrepreneur took the environmental c o m p a n y public for a capitalized value of $80 million, $60 million of which belonged to him. At age 62, the entrepreneur is working harder n o w than ever in his life. He heads a re62
spected firm that is written about in national journals. He is proud of his accomplishments. He describes his professional life as fun. He has a mission. And he credits the board of directors that helped create the vision that became a reality. PREREQUISITE: COMMIT TO A NEW MISSION
he steps to entrepreneurial renewal proposed here are not intended to be sequential. To maximize organizational renewal, they should be implemented simultaneously. Indeed, w h e n undertaken in concert, each step facilitates and reinforces the others. For example, the board of directors can contribute to articulating core commitments and, during such a process, develop insights about the entrepreneur, the senior employees, and the business that increase their ability to link corporate values and capability to the company's marketplace mission. Underlying the renewal process, however, must be the entrepreneur's commitment to a new mission. The young mutual fund entrepreneur described in the earlier case study decided to give his key employees the financial security and freedom they had helped create for him. The middle-aged copper tube manufacturer acknowledged that in-place retirement was a failure of responsibility to family members w h o held shares in his c o m p a n y and, equally important, to himself. Preparing the family c o m p a n y for perpetuation to sons or daughters can provide a powerful reason to renew. Or competitive impulses, stimulated by the continuing success of other entrepreneurs, may trigger the decision to begin building again.
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ometimes the most profound commitment to renewal springs from self-knowledge and the realization that w h e n a c o m p a n y stops growing, it starts dying; that without pride and purpose, life doesn't work well for those w h o have spent most of it filled with both. Whatever the source of inspiration, the first and last step of entrepreneurial renewal is the commitment to a n e w mission. There are m a n y reasons for entrepreneurs to renew t h e m s e l v e s - - t o fulfill the trust of employees and stakeholders, or to provide a legacy of opportunity to second-generation entrepreneurs and key subordinates, Perhaps to begin again the journey of building and creating is simply to fulfill a destiny, the privilege and burden of the enterprise system of economic governance.
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References
Barbara J. Bird, Entrepreneurial Behavior (Glenview, Ill.: Scott, Foresman and Co., 1989). Business Horizons / November-December 1992
Lawrence G. Foster, "The Johnson & Johnson Credo and the Tylenol Crisis," New Jersey Bali Journal, Spring 1983, pp 1-7.
Richard L. Osborne, "The Private Company Director: Strategies for Serving Entrepreneurs," Management Decision (U.K.), 2P, 4 (1991): 41-45.
Richard L. Osborne, "Core Value Statements: The Corporate Compass," Business Horizons, September-October 1991, pp. 28-34.
Noel Tichy and Ram Charan, "Speed, Simplicity, SelfConfidence: An Interview with Jack Welch," Harvard Business Review, September-October 1989, pp. 112119.
Richard L. Osborne, "The Dark Side of the Entrepreneur," Long Range Planning (U.K.), June 1991, pp. 2631. Richard L. Osborne, "Increasing Employee ROI in the Small Business," Business, January-March 1988, pp. 3741. Richard L. Osborne, "Planning: The Entrepreneurial Ego at Work," Business Horizons, January-February 1987, pp. 20-24.
Entrepreneurial Renewal
Richard L. Osborne is Professor for the Practice of Management Policy and Executive Dean, as well as director of the Center for Management Development, at the Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio.
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