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Who are you? What do you stand for? What do you want? Entrepreneurs usually know the answers to those questions when they start up companies. But do their leadership teams? To make sure they do, top entrepreneurs develop a “blueprint” that will guide their companies as they grow from six to 60 to 600 employees, says Michael Useem, Wharton professor of management and director of its Center for Leadership and Change Management. In this installment of the podcast series for the Wharton-CERT Business Plan Competition, Useem discusses blueprints and other things that entrepreneurs need to develop successful leadership teams, including a knack for telling a good story.
The following are edited extracts of the conversation.
Arabic Knowledge@Wharton: When entrepreneurs launch start-ups, it is obviously critical to have the right leadership team in place. What kind of people should the entrepreneur look for?
Michael Useem: The act of being an entrepreneur is indeed an act of leadership. You are creating something out of nothing.One of the great defining qualities of leadership is taking circumstances we have now and getting to a better place, a new era, or in the case of an entrepreneur, taking an idea and turning it into reality.
Having said that, the act of getting an enterprise going should be followed by a self-conscious effort to build a team. You simply can’t do it all yourself unless you want to be a one-person show and keep the firm at about that size. The reason for that is pretty obvious. The functions that have to be filled are often technical. You just don’t have the time to engage in everything. Creating the initial team is absolutely critical — the top management team can come later as you expand beyond that.
Drawing on a long research tradition in my field, if you are looking to forecast the performance of a company and you can know everything there is to know about the chief executive officer — in this case, the entrepreneur — or you can know everything there is to know about the CEO plus the team, you definitely want the latter, in terms of getting the job done and then later for measurable performance. [It’s important] to have a team around you that appreciates your view of the world, understands the strategy going forward and can then map out who ought to be on that team, [making sure that] everyone is on the same page when it comes to the mission and vision and how to build and execute a strategy.
You want people who don’t look just like you. It’s kind of an old formula here. But your ability to be innovative as you build, your ability to be creative and smart about the world you are trying to capture as a start-up, depends enormously on the diversity of experience and background of the people in the room…. It’s great if you have people in there with different functional backgrounds — marketing, accounting, operations, supply chain, and people who have worked in different industries and different worlds. But having them there is only half the formula. Leading that team well, gathering their ideas, actively listening and integrating is a pretty good formula for development.
Arabic Knowledge@Wharton: Is there a difference between the team you need as a start-up compared to when a business is more established?And, if so, what is the difference? What skills do you need?
Useem: There would be the common ground. Whether it is running a huge company like GE or a rather large company like eBay or a start-up with, say, five or six people, that team has to have a united vision of where to take the enterprise. There has to be an agreement on the strategy for doing so. They have to be able to execute around that.They need to be people whom you can rely on, with impeccable integrity. They have to be effective at communicating what the company is and what it stands for to employees and — as you build out — customers and obviously private equity representatives or whoever may be backing the enterprise. Those would be the common threads.
In the early phases of a start-up, you want people who can do specific functions and just about everything else. In those early days, if somebody says, “Look, I only do accounting,” that’s probably not the person for your team. In later phases, though, by virtue of size and the daily activity of getting highly technical tasks accomplished — say, opening a new marketing campaign in China — you want people who are dedicated marketing people on that top team. But the formula does apply whether it’s for a start-up of only six people or at a mid-point of development with, say, 500 employees — that team is going to be as good as it should be if there is a commonality of purpose, if the mission is unequivocally clear and the team works [together]. That is not going to be the product of any accident. That will be the product of your ability to lead, mold and develop the team.
To give you case in point, when Meg Whitman came in as CEO at eBay in 1998, it had 28 employees. It was highly creative and, at that point, already looking like a highly successful Internet start-up. Having said that, the place was a bit chaotic. Nobody had schedules. There was no regularity to the rhythm of the company. Meg did create a top management team and brought order to the place in a way that was required as it went from 28 employees to over 15,000 employees.
Arabic Knowledge@Wharton: What considerations should you keep in mind as you expand the team beyond the initial core group?
Useem: [There are two things], again from academic research literature and my guess is it would probably correspond to the experience of most people who have been in the throws of a start-up.Number one, you create a blueprint … of how you operate in the early months. Are meetings open? Do people receive compensation on a fixed basis or is it all stock driven? Is your idea the only idea that drives the company or is there some kind of collaboration to bring ideas from all directions? There are many ways to skin this cat.But the main point of academic literature is that once you create — as a leader and entrepreneur — a way of operating, it is really hard to change.Thus, being conscious about that blueprint in the early phases [is important] because it may last your lifetime. It’s critical to get it right at the outset.
Number two: When a company has six people, communication is direct.Camaraderie is usually fantastic.It is an energizing world to operate in.When it goes from six to 60 — or 600 — what’s going to carry your vision, ideas, strategy, methods, to those who are one, two, maybe three steps removed is your ability to create a common — call it — mindset, culture, or [set of] values and norms.
In the early phase, I wouldn’t worry about culture.But as this blueprint is mapped out pretty quickly, you need to think about the culture or mindset you want and become active in articulating that, saying, “This is who we are.This is how we operate.I reward people for doing these things.I represent the best of our culture.”It’s very important to build that up.
Arabic Knowledge@Wharton: How do you create a common mindset and culture?It seems like it would be very hard to do.
Useem: It is one of the toughest challenges in management — whether it is a start-up, a mid-term company or a mature company.We all think culture is vague.We can’t quite get our hands on it.If somebody asks you what the defining quality of American, Indian or Chinese culture is, we kind of know it when we feel it.It’s just sort of hard to put words to it.Having said that, culture comes down to what you value.It’s good to have four or five things that we value clearly articulated.
There’s also what sociologists call norms.You want implicit rules or ways of behaving. and we all are guided by our values.In most cases, we are inheritors of those values or norms.If we are raised in India, by the time we’re 10, we know how we are supposed to behave in public, how we are supposed to queue at a bus stop, all that sort of thing.
In building a company, though, we are the makers of culture, not just the recipients.We are not just the consumers of culture.To make the culture, there’s no rocket science.It is simply four or five steps of, in a sense, heavy lifting.You have to do it.It’s not easy.But it must get done.With everything you say and every gesture you make, unconsciously this happens.It’s not your conscious intent for the culture to come out of that.But in early start-up phases, people look at you as the definer of how they should behave.In the first instance, it is just you, how you operate: Are you quiet or do you explain?Do you come respectfully into a room or not?
As the firm develops, there are often what you might call rituals — that is, celebrations and confirmations.A new product goes out the door,champagne is popped and speeches are given.It is great to celebrate, but also reaffirming. Compensation, promotion and hiring even send out signals.Who are you hiring?Who are you letting go?What are you rewarding?It’s all part of what makes the culture.
Finally, we do not appreciate the power of storytelling. But when it comes to culture and its sustenance, there is almost no more important act on your part than offering your story.Give your account.For start-ups, that’s often the account of the creation.How did you get the idea?What angel investor did you first approach?What was the magic moment when you went from an idea to the first service or product going out the door?Offering that account in as graphic detail as you can is critical for shaping the culture.
Thinking about American culture, we celebrate our founding fathers.We think about what George Washington or Thomas Jefferson did. It’s very important to understand history to appreciate what they did.Every discussion, article or book we might read about [them] is helping us appreciate what American culture is.The same is true for a start-up.
Arabic Knowledge@Wharton: You have seen lots of companies, start-ups and large organizations.What are some of the most common pitfalls in building a leadership team and how can you avoid them?
Useem: Number one is the lack of commitment to building leadership in the people on your team.If it is a young firm, you often are bringing in people who are not terribly far along in their careers at the company.Leadership for most people is not a natural skill.We are not wired for it.Most of us have to acquire it.If you are an entrepreneur, by definition, you know how to lead.You wouldn’t be there unless you had a lot of the talent that we use to define leadership.The first calling is to become self-conscious about developing your team.There’s nothing arcane about this.Off-site retreats … taking your team to look at another start-up or just spending the day together are all small acts of leadership development.
Number two, as the company evolves … the act of letting go is absolutely vital.Letting go means, on the affirmative side, you are extremely good at communicating your intent.It is what military officers refer to as Commander’s Intent.In business, we would tend to call it Strategic Intent.Laying out what you want done — such as an officer taking a force into Iraq or Afghanistan and saying, “Our intent is to get to this space,” and then setting up a fortified compound and engaging in field missions.
But if you have developed the people on this part-two team, don’t micromanage.If the leadership is there and your intent is clear, they have the formula.Their leadership is developed.They know where you want to go.[It’s about] letting the team get the job done.
Number three requires a tolerance for errors.You are going to make errors, to say the obvious here.This is a risky venture.Uncertainty is high.The people you delegate to — let’s say the top six — are in turn going to be delegating and they need room to act.If you look over their shoulders a whole lot so their decisions are better, fewer errors might be made, but a whole lot fewer decisions will get made.As the company goes from six to 60 and then to 600, it is a formula for one-person control, which works well at the outset, but it is doomed to failure as you grow.
Arabic Knowledge@Wharton: Entrepreneurs sometimes have problems giving up control.Even if they do delegate, they may be tempted to intervene from time to time and reassert themselves.Are there any words of advice you could offer about how entrepreneurs should deal with this issue?
Useem: Here are two or maybe three words of advice.Number one, learn how to bite your tongue.Number two, learn how to walk into a meeting — this is a matter of … self-discipline.Just track what happens in that meeting.If there are six people, are you talking 20% of the time or less?Fine.If it is more than that, you are missing an opportunity to let decisions get made by other people.
Number three, put yourself through a self-guided discipline, leadership and development exercise.Lots of books can tell you how to do that.A good executive coach will quite clearly tell you how to do that.Many universities and other providers offer programs that can do the same thing.But [it’s about] learning to delegate strategic intent without micromanagement — it is not a natural skill for most people.
Let me add a fourth.I learned this from working with people in the armed services. When a very senior Army, Marine or Air Force officer is in a room with subordinates, it is awfully quiet until the senior officer begins to speak.If one is not careful, this is true in the private sector, too. Your ideas will tend to dominate what people think when they walk out of the room.One method those in the armed services, and in the private sector, use is to say, “Today we have no ranks.”Sometimes Army officers will take off the insignia and the discussion indeed is more free-flowing.
Another day-to-day device on the ground that serves the purpose we are talking about is when a discussion begins, rather than offering your own clear-minded approach or solution to a problem, ask the most junior person in the room to begin.You are going to hear a fresh view [from someone] not already influenced by people in the ranks above them.
Arabic Knowledge@Wharton: What advice could you give to an entrepreneur who wants to build a leadership team to sum up everything we have talked about so far?
Useem: Let me compliment anybody here who is an entrepreneur because it is one of the most vivid illustrations of what leadership is all about — taking us from where we are now to where we ought to be.Nelson Mandela took South Africa from what it was to a multi-racial, democratic society.An entrepreneur is, in a sense, doing much the same thing … with all the elements required to lead — vision, strategy, execution.
The commitment and identity of the entrepreneur is vital.You have got it if you are an entrepreneur, but your entrepreneurial instinct and ability to see what should be done have to be mapped out and carried through the organization.Having a great top team is vital.Building a culture to go with that is vital.And all the elements of those two areas and others that we have talked about are not natural for a lot of people.You need to remind yourself that your task is not just to see what is needed technically in a market or to work with customers and private equity investors… to build the firm. Your task is to build a world around you that, once you go from one to quite a few more than just one, has the requisite skill sets, culture, norms, values and leadership qualities.