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Business Insights from Andrea Hill

When I consult for entrepreneurs I invariably encounter some version of this problem. The entrepreneurs who have hired me like the idea of enhanced planning and communication, but they always balk when they realize that they, too, must use the systems that are being put in place.

You Can't Tell Me What to Do!

06 February 2008

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People get confused between order and chaos, creativity and noise. Maybe not all people, but a certain category of people suffers from this malady more than others (besides teenagers, I mean). That category is entrepreneurs who have grown their business past the up-and-coming stage and are now faced with the established-business phase.

I can understand how this happens. The entrepreneur is an idea guy or gal. They are turned on by a business concept, and they throw themselves happily and energetically at the task of turning the idea into cash. In the process, they take on any role that must be filled, they try out crazy ideas that happen to work, and they work insanely long hours. Because they don't have any money to begin with and they're constantly afraid of losing what they've gained, they take a long time to hire anyone and they do so sparingly.

As the business matures a few interesting things begin to happen. The first thing is determining the answer to the question exit or keep going? If an entrepreneur is very lucky, if they have built a firm foundation, and if they want out, they may be able to sell to someone else. At that point any self-respecting entrepreneur does it all over again with a new product or service.

If the entrepreneur does not want to exit, doesn't have something saleable, or can't find a buyer, they keep going. Changes begin to happen that are very small at first, but over the years they add up. The entrepreneur (or their spouse) gets tired of working so many hours. Customer demands begin to require better, faster attention. The requirements of some of the disciplinary areas of business – whether it be marketing, finance, operations, or IT – become too challenging for the entrepreneur (yes, anyone can learn how to do QuickBooks, but the accounting function of a business is generally beyond the scope of most non-accountants). So the entrepreneur begins to hire experts in specific areas in order to avoid messing up something they don't understand and more importantly, to advance the business beyond their personal abilities to do so.

Once you hire some people, they begin to hire more people. There are a number of good reasons for this. The first is that the people the entrepreneur has hired do not want to work 60, 70, or 80 hours per week. Many entrepreneurs struggle with this. They think "Well, I do it. What's wrong with everyone else's work ethic?" The problem with everyone else's work ethic is that they are not paid to work 60, 70 or 80 hours per week. And there are very few entrepreneurs who make the ultimate reward of working 60 - 80 hours per week worth the trade-offs. So, the people the entrepreneur hired, who are working 40-50 hours per week, hire other people who will also expect to work 40-50 hours per week. And as the business grows, more people are needed. Even with efforts designed to improve efficiency and assist the business in growing staff at a lower rate than the growth rate of sales, a growing business will hire more people.

Here's where the confusion between chaos and order, creativity and confusion begins to cost. The entrepreneur is generally a person who dislikes any restrictions on their freedom. They don't want a boss, they don't want to follow rules, and they don't want to be told what to do. Creation of systems is not their strong suit. Not only that, but they resent any system to which they are subjected. But the dynamics of communicating and planning with 3 people are significantly different than the dynamics of communicating and planning with 20 people. And the challenges expand exponentially with each doubling of the workforce. Systems, the very thing renounced by the entrepreneur, are necessary to grease the wheels of a group of people trying to work together effectively.

I don't believe bureaucracies are effective, so please don't assume that I am advocating for their perpetuation. Many management improvements have been introduced in the past 20 years that reduce bureaucracy, nearly all of them related to a matrixed organizational approach.

No, the tools I am advocating are the tools that systematize what can be systematized so workers have more energy and time left for creativity. Things like project management approaches, new product development systems, and content management disciplines solve for the most common causes of miscommunication and mistakes. What are those common causes? They are 1) assuming all of the people who need information have the information, 2) accidentally leaving out people who need information, 3) failing to pass on the relevant information to the next decision-maker, 4) failing to put disciplines in place that guide and monitor time spent on tasks, and the big one 5) failing to recognize early enough when the goals and objectives are not clearly understood or even shared.

When I consult for entrepreneurs I invariably encounter some version of this problem. The entrepreneurs who have hired me like the idea of enhanced planning and communication, but they always balk when they realize that they, too, must use the systems that are being put in place. What they resent is any restriction on their personal operating approach. What they complain about is that things are getting "more complicated," that "creativity will go out the window," and that "all these systems will cost us a fortune."

Despite much talk about Microsoft losing its entrepreneurial edge, they were awarded 1,687 patents in 2007, up from the mid 600s in 2004 and the mid 700s in 2005. That's one patent for every 46 people on their international payroll that year. IBM received 3,148 patents (one patent for every 113 employees), Samsung 2,725 (one patent for every 93 employees), and Intel 1,865 (one patent for every 55 employees). There is no doubt that a small organization can react more quickly than a large organization. But how are these entrepreneurial firms measuring their current creativity? One measure – patents per year per employee – would suggest that anything less than one patent per year per 46 employees would be unacceptable, if your goal is to compare the relative creativity of a small process-free organization with the relative creativity of a process-encumbered organization such as Microsoft.

If current creativity isn't up to snuff, there is a strong possibility that lack of procedure to enhance communication and planning is getting in the way. Yes, when an organization commits to following a project management discipline, there are steps that must be taken that did not exist before. But what people fail to consider is all of the steps that will disappear – the steps of correcting communication mistakes that have gone unnoticed until the project is well underway, correcting information sharing mistakes that have led to product development errors, correcting interpretation errors that have led to creating features that customers do not want or do not need, and the list goes on and on. Each failure in communication and planning must be accounted for at some point in the process. Implementing processes such as project management and product development disciplines simply account for required communication and planning steps up front, leaving the organization with more time and resource to do the creative work.

Anyone who has ever raised a teenager knows that it's not difficult to confuse simple communication requirements (call if you won't be home by 10:00, let me know where you are going) with unreasonable restrictions on personal freedom. But our goal as human beings is to get past the hormone-laden years of adolescence and into a mature adult frame of mind. We should have the same goal for our businesses.

(c) 2008. Andrea M. Hill