Why Entrepreneurs Fail

It’s all too easy to get into the negative zone and sometimes not even realize it.  In business the classic example is the entrepreneur, who is usually creative and willing to take risks.  This person may invent some gadget and then put together a company.  Soon there are eight people working in a dimly lit garage.  The people are filled with hope and enthusiasm.  They work well together, and they work hard.  Their primary goal is to grow the company, and they are most creative in their efforts.

If they are successful at this stage, there is usually a big jump.  They move to an office building, and now there are eighty people working.  At this point new problems begin to emerge.  Eighty people need coordination and management.  Proposals are made to bring in more professional managers, better information systems, and more effective accounting tools.

At this point the entrepreneur often resists.  He or she is, after all, a creative person who is usually excited by taking risks, at least calculated risks, and is probably going to condemn anything that looks like a “bureaucracy.”  The entrepreneur argues that all available dollars should be invested in the central goal, which is to grow.  Often this is accompanied by a passionate speech reminding everyone about the days back in the garage and how the company got where it is today by its ability to respond creatively and get the job done.  What no one likely realizes is that the plea of the entrepreneur is split.  This person is playing growth (positive) off, not against control (positive), but against bureaucracy (negative).

And so the organization continues to pursue growth and ignore the need for structure.  The more successful it becomes, the greater becomes the need for coordination.  Problems become more frequent and intense.  Because employees cannot value the positive parts of the “Control” quadrant, they keep slipping farther out into the “Create” quadrant and ultimately drift toward tumultuous anarchy.  At this point they are producing less and less value.

Often at this point the entrepreneur – the founder, the parent figure – loses his or her job, fired by the board of directors.  It seems inconceivable.  Lots of people who are organizers then get hired.  The creative people begin leaving.  The new leaders save the company.  Value increases.  As they celebrate, they say, “No more of that creative crap around here.”  But all too soon the organization gets stale and begins to slip to the outer edges of the “control” quadrant.  There is less capacity to adapt to the changing preferences of the customer.  In fact, the customer has become the enemy.  The company begins to create less and less value.  If it survives at all, there is another revolution within.  And so the cycle goes, on and on.

Everyone in the foregoing scenario tends to believe that his or her situation is unique.  The entire process is often explained in terms of personalities.  Everyone is angry about the mean-spirited “politics” that have occurred.  If these people were to read these paragraphs, they would be shocked to realize that someone unassociated with their situation could describe it so closely.  Yet what is actually happening is totally predictable.  They are playing out a cycle that has gone on many times before.  They cannot see it because they do not have the advantage of the Competing Values model.

(Letters to Garrett, p. 115-117)

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