Britt Morris Thinks...: June 2007

I know many of you out there have started your own business in recent years. As a small business owner, I'm always looking for insight about running my own company. The following is a great nugget for those of you looking for ways to get to the next level in your startup. You've got something unique and inspiring, but how do you get to the "next bottom line"? This entire article was unapologetically stolen from the Wells Fargo Small Business Newsletter. I hope you'll enjoy this little piece of larceny.

Moving from Entrepreneur to CEO

According to the U.S. Bureau of Labor Statistics, 2006 saw the highest number of startups in the nation’s history, at nearly 700,000. Should these new small businesses succeed, they’ll all have one thing in common: the need to break through a “ceiling” that limits their potential for growth. According to Jack Stack, co-author of The Great Game of Business and CEO of diversified manufacturing firm SRC Holding Company, it’s usually the entrepreneur who stands in the way. We spoke with Stack about why small business owners eventually hit a wall and how they can move into true leadership roles.

Wells Fargo: In your view, what separates an entrepreneur from a leader?

Jack Stack: The entrepreneur is totally engrossed in making a product or creating service—they live and breathe it. But there has to be a point in time where they’re able to leave that focus and realize that the company becomes the product or service. Say you’re making a truck and you’re doing it in the absence of resources. You feel great every time one comes off the assembly line. But, at that point, you’re all about the truck and not the company that made the truck. In fact, until the day the wheels start falling off, resources become depleted and the business needs a more professional, managerial approach, you may not notice the difference.

Wells Fargo: So what is the difference?

Jack Stack: It’s a fine line between creating a great product or service and creating a great company. You need to walk away from that focus, although the immediate gratification of seeing your work bear fruit is tough to leave behind. The real difference is that, to succeed, you need to be a different company leader: You know you have to be patient, understanding and look at things from a longer-term perspective. It’s a wild step for the entrepreneur; a lot of people can’t make it and need to bring someone else in.

When you’re talking about building a great company, the balance sheet becomes your scorecard and you’re moving to where the company becomes the product. It’s a transition many people aren’t prepared to go through. Typically, an entrepreneur can take a company up to $12 million to $15 million in revenues before the wheels fall off. That’s the point at which you, as a CEO, need to move beyond “cash flow survival” mode and look at the company in a different way. At first, there’s no greater sense of satisfaction than delivering an order and beating the odds. But what are you doing for the long-term growth of the company?

Wells Fargo: How can an entrepreneur know when he or she has reached a “ceiling” and can’t go any further?

Jack Stack: When you and your people are working endless amounts of hours and you’ve taken the oxygen out of the room, you’ve hit a wall. You know when you’ve hit that wall when you second-guess everyone in the organization, when you begin to “optimize” instead of innovate— you won’t let go, because no one can do it like you. You become cynical and critical of your own organization and pull all the risk, entrepreneurialism and creativity out of it. When sales and your bottom line flatline, despite all the hours you’re putting in, you know you’ve reached the ceiling.

Wells Fargo: Where’s the line between managing and leading?

Jack Stack: Managing is hands-on; having the necessary controls and systems by which you can manage. Good managers look at deviations and variations within the organization and manage those. You can manage the numbers by knowing who’s doing what and using statistics to make sure everything is on track. Leadership is about getting people to see beyond what they’re doing today and seeing the vision for tomorrow. The leader manages for today, but also figures out where they need to be positioned three to seven years from now and has the organization put contingencies in place to reach those goals. His or her job is constantly building the dream and motivating people to share in and work toward that vision.

Wells Fargo: Do you believe leadership can be taught?

Jack Stack: It can be learned, but not taught. You need to experience it and go through the hard times. There is no substitute. You can’t just pick up a book or case study. This is an emotional experience more than an intellectual one. There is no instruction sheet.

Wells Fargo: In your view, what are the traits of a leader? Are there specific behaviors that help define leadership?

Jack Stack: After 40 years in business, I think the most important characteristic is having a sense of humor. People are intimidated by leaders, and you need to be able to laugh at yourself, communicate during stressful situations and get your points across without anger. You need to create an environment that puts people at ease and you have to make yourself approachable. When leaders take themselves too seriously, they scare people.

Wells Fargo: If you had to offer one key piece of advice regarding moving from an entrepreneur to a leader, what would it be?

Jack Stack: Open up the books and teach people the financials, so that everyone is on the same page. Numbers don’t lie and you can’t negotiate outcomes. When all your people understand the financials, they understand the realities of the company and what they can expect. And reality can’t be taught. Financial literacy teaches you and your staff the metrics—like cash flow and margins, debt-to-equity ratios, return on assets, etc.—that define success if they’re where they should be.

Wells Fargo: What will change for people when they take on a leadership role?

Jack Stack: They’ll feel like they’re making a difference—a real contribution beyond just the products and services they put out there.

Well, it's official. We've blown through patio season in the metroplex and headed straight into "dig a hole and hide from the sun" season. Such a nice time of year. Even though good times and pool parties are right around the corner, those high tone energy bills are on the way as well.

As many of you know, I also have a home renovation business. I have found in rehabbing houses one factor can improve your homes energy efficiency more than any other. New energy efficient windows. If your windows are more than 15 years old, you can be saving a boat load on energy bills. Depending on how old and inefficient your windows are, you may save up to 50% on your summer bills.

But if expensive windows are out of your budget, you might try another approach. Did you know that you can receive a discount from your energy company by installing more energy efficient items in the home. Here's something direct from the TXU site.

"The TXU Electric Delivery Low-Income Weatherization Program is one of several programs established through the Texas Electric Choice Act to encourage the installation of energy efficient technologies to reduce energy demand and encourage energy savings for all customers." For more information visit this information site.

Either option offers a great choice for moving towards a more energy efficient home. The best part is you won't just be saving yourself money, you may be saving a little piece of the environment as well.