The most obvious way–the one everybody usually talks about–is the attention-to-detail problem: Founders are micromanagers almost by definition, so they can become bottlenecks for decision making. But three other founder-related problems are harder to spot at first:
Management by rules of thumb. When a company is young and growing fast, it’s often essential that every contract signed generates cash, and free cash flow becomes the founder’s rule of thumb, dominating all decision making. As a company matures, though, it may need to change the rules of thumb that governed the early years, use other measures such as return on investment and market share.
Big fish in a small pond. Some founders, particularly in emerging markets, believe that the rules governing success in their home markets, where they have become successful, should determine their strategies as they grow. They often fail to realize how much of their success derived from local advantages (proprietary access to talent, capital and government relationships) that won’t be available as they expand abroad.
The head of strategy for one company described his company’s founders as some of the leading lights in South American business. But, he added, “they learned everything they know about business in our home market, from running what is frankly a domestic monopoly.”
That left them unprepared for the fierce competition as the company entered new regions. “The home-market rules simply don’t apply, but they keep wanting to go back to the original playbook,” the executive told me. “They don’t recognize that the game has changed.”
Long-march syndrome. It’s tempting for founders to stay fiercely loyal to the compatriots who helped establish the company in its early years. Loyalty can lead founders to defend not just people but the prejudices they bring to the business long after they have ceased to be valid. As professional managers join the company, they sometimes find themselves frustrated when it comes to challenging members of the original team, even if those original leaders are clearly wrong.
One India-based chief executive, the first nonfamily leader at a family firm, told me, “our founders are great, but they can’t distinguish people from policy. They are so loyal to the original team that they protect them even when those team members are simply wrong. I often think I am making a policy argument and then I find I’m seen as attacking a key member of the original team.”
Therein lies a challenge, because newer managers are the key to helping founders through the transition.
They should help institute the practices and systems that the company needs to get its growth to the next level, while the founder ensures that the company’s core spirit endures and is passed to the next generation. Of course, it would be equally troubling if newer managers were to rebel against everything to do with the original founder.
The founder will adapt or bow out, but losing the founder’s mentality is too heavy a price for a company to pay for not adapting in the right way.
James Allen is co-leader of the global strategy practice at Bain & Co.