The Secret: Transitioning From Founder Leadership to Professional Management Without Losing Your Soul

founder

I was talking with a colleague at a recent summer gathering, and she is seeing the same thing I am: lots of firms that were started by Baby Boomers are being “rolled up” by Private Equity into groups of like companies.  In nearly every case, these vibrant, individual firms experience a huge shock to their systems when they are folded into “professional management.”

With calls out there for regaining the “founder’s voice,” you would think that these firms would have sought after expertise, and be asked to contribute to the group’s goals.  The reality is much different…

Taking a Step Back

In a founder’s firm, growth is not just a goal, it’s a reason for being.  In most cases the founder has paid a steep price for their independence, in many cases bootstrapping their early company while holding down a job.  They have gotten up early and worked weekends for the simple goal of developing something that would provide them with independence.

Once a firm scales, it retains a great deal of the founder’s fingerprints.  When it comes to growth, experimentation is encouraged.  Resources are made available, and once it’s got the boss’ backing, no internal barriers will keep the shiny and new from getting a fair hearing in front of a client or customer.

In fact, every time I visit a firm, and they take me on the tour, I always hear the founder’s story – even if it was 75 years ago.

This isn’t to say that the innovative work goes unchallenged.  The founder or her delegates will ask hard questions about applications, channel fit, and margins.  There will be go/no go decisions, but they will be biased toward experimentation and success.

What it’s Like in the Big Firm World

Once a firm has “made it,” complexity is a fact of life.  Operations has powerful incentives to improve the current offerings and take cost out of the enterprise every year.  Sales and marketing optimize reach and channel to assure that year-over-year market share goals are met.  Stakeholders expect that their equity will see appreciation, and get very edgy when the firm does not deliver.

Rather than embracing new products and services with open arms, processes are established to “protect” operations from onboarding a product or service that will degrade the metrics or tarnish the brand in any way.  These long checklists feel like a trip to the DMV for a new driver’s license for the previously nimble firm.  I once worked with a firm that had a 68-page checklist for their “large project” sales team that needed to be completed before a project would be considered by the group.

Rather than pursuing a project on intuition, new projects are built on deep surveys and data sets, where the “team” sets new product objectives and goals. Multiple meetings are needed to get projects on the “agenda,” These are then pursued by a product manager and a program manager towards completion. In the midst of this, a sponsor is usually “appointed.” Experiments are viewed as risky quickly extinguished.

Decision making is crisp and machine like, and if benchmarks are not met, the project is ended so the “resources” can be applied to higher probability of success projects.

How the Transition Feels

The transition is bewildering at best and demotivating at the worst.  Formally very contributive individuals feel like they are stuck in a spider web of bureaucracy, and in many cases the best and brightest are at risk of a quick exit.  Having been through this a time or two, I can tell you that the acquiring firm makes it worth your while to stay (usually a year) for a substantial incentive.  It is truly amazing how many people punch their ticket at 366 days and move on.

Having watched this play out in M&A a number of times, the usual outcome is that the product lines that were in place at the time of the roll up transition over, but much of the promise of the “in process” R&D is never fulfilled.

The Secret to Get the Best of Both Worlds

The insight that makes a nightmare into a workable transition is to realize that the issue is the crossing of challenge functions.  By challenge functions,  I mean the positive resistance, aka the homework, an individual and team need that will enable them to access the resources of the firm and pursue new products and services.  These expectations become the benchmarks and define the crucible in which vibrant new products and services occur.

When the founder is in charge, you have one set of hurdles to cross with a new idea, but when a firm has built the scalable infrastructure, quite another.  In the small firm, these hurdles are largely based on  intuition and alignment with leading-edge customer trends.  If it is in the founder’s interest area, the hurdles to getting resources applied to the idea are fairly low.   While this is initially attractive, eventually it results in a large quantity of “misfit toys” – projects that were started and never quite stopped.  The risk here is that new areas outside the zone of the founder will go uninvestigated, and new visionary team members will not have the needed license to develop their own strategic skills, building a brittle group wholly dependent on the founder.

Contrast this with a well-structured large firm where there are typically three zones of challenge functions: the “R&D” team, the “Advanced Development” team and the “Product Development” group.

  • The R&D team is the place for small intuitive bets.  These bets should have great promise and massive aspirations, but be very constrained from a budget point of view.  The entire agenda should be about proof of existence and risk reduction, with leadership that is skilled in supporting and challenging in both.
  • The Advanced Development team is the place to take those items that have shown themselves worthy of a limited beta investment.  The program at this stage is structured around showing true value and manufacturability.  This team has the role of a dual challenge – validating benefits for a client or customer (usually through a joint development agreement) and validating that the process and business model are a match for the firm.  Leaders here are ambidextrous: knowledgeable both in the technology, and also in the business.
  • The Product Development team is the zone where we take the de-risked work of the previous teams (or in market insights) and build scalable products and services for the operations team.  The challenge functions here are all about reliable value creation and scale.  Once this gate is passed, the operations team needs to be able to build these all day long without a glitch.

By parsing its own operations, the larger firm is now a very attractive environment for a company that’s being acquired.  Rather than losing talent, they will likely retain it and allow it to gain in value.  By applying principles from my work on Complete Growth Leader, the value of the product lines, and the talent can be scaled.

The Bottom Line

As stated above, we need both structures (and challenge functions) active in the combined firm.  The best practice is to develop clear boundaries where the intuitive work that founder-like visionaries is applied.  To retain the founding visionary leadership, it needs to be built into the acquisition strategy on day one.  

It is also very challenging to do.  The acquired visionaries are used to roaming untethered and creating a structure that accords them the organizational gravitas and decision making takes some significant work.  My experience is that most acquiring firms give the visionary leader a senior role running a larger part of the firm, which looks good on paper, but is not what they really want or where their true interests lie.  A much better approach is to carve out a significant new zone of growth and resource them with a promising leader or two from the core firm.

Once you’ve gotten good at this, it’s a very big deal to be “the acquirer of choice” by having a well-structured set of teams for the newly acquired firm to work into and become part of.  When you do this, you’ll beat your business growth targets consistently, because of the relatively low valuations accorded the in process R&D.  With the markets betting against you, very substantial returns can be generated (look at the early days of Cisco for instance).

We’ve only scratched the surface here today, and if you are an acquirer or a founder considering an acquisition, we should talk.  The easiest way is to give me a call at 847-651-1014 (direct) or click here to set up a no-strings-attached phone call.

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