Success, defined in whatever monetary and emotional terms you choose, requires more than being able to form a company around your idea. Ideas, and the companies formed around them, come and go. Very few create any tangible lasting value or emotional fulfillment. Even more heartbreaking is the all-too-common situation in which an entrepreneur succeeds in starting a new enterprise only for the enterprise to stagnate and slowly die. Entrepreneurs are commonly removed when outside investors are part of a startup. The following true story of Adam is an excellent example of an entrepreneur that started a great company only to be forced out because he could not deal with the competitive and organizational pressures that entrepreneurial leaders must face. As we shall see over the next twelve chapters, entrepreneurs like Adam1 can succeed in seeing their ideas become value producing and self-sustaining enterprises once they are armed with a basic set of startup leadership skills.
Adam passionately wanted to be an entrepreneur from the time he was in high school. He taught himself to program computers, and by age fourteen he was already earning money making websites for local small businesses. He went to an excellent university and majored in economics while taking all the classes on entrepreneurship that were offered. Upon graduation, Adam sought more hands-on experience, accepting a job at a major computer company. He did well at the company but did not feel satisfied being “a cog in a big machine,” and after two years he accepted a job at a software startup. Although he wasn’t part of the startup’s founding team, he was given responsibility for a small group of programmers developing a new feature for the startup’s existing product, which improved the management of market research companies. Adam’s team delivered its product enhancement on time—a significant accomplishment in software development, a field in which almost all projects run behind schedule. When Adam felt his accomplishments were not properly acknowledged by the startup’s founders, he decided that he needed to start his own firm.
The opportunity was practically at hand—the startup, which had struggled to find new customers and to keep its existing customers satisfied, shut its doors within six months. Adam was elated to be out of a job; he felt he knew how to better address the software needs of the market research community, and now he had a chance to prove it. Just four years out of college, Adam launched his company, Gale Solutions (named after his mother). He raised money from two wealthy former classmates and a few family friends. He hired three people from the defunct startup: two former classmates and another person from the large software company that had first employed him.
Capturing the first few customers proved to be much harder than Adam had expected. Market research firms were interested, but he could not get them to actually commit to buying his software. He got a break when Josh, a top executive of a customer Adam had been courting, was hired to be the CEO of another market research firm. Josh, already familiar with Gale’s software, called and said he wanted to use it. The enterprise finally had its first customer. Adam and his team delivered the software, and after six months of working closely with Josh on some critical modifications, the software finally produced meaningful efficiencies. After two years Adam finally had a real example of how well his software worked. Armed with an excellent customer reference, Adam made six more sales in the next thirteen weeks.
Gale Solutions survived those first two years on family loans and Adam’s maxed-out credit cards. Fortune smiled on Adam again when Josh offered to introduce him to a well-known venture capitalist, Gerry. Josh gave Adam and his enterprise glowing recommendations, and Gerry soon offered to invest. Needing money and impressed with the reputation of such a successful venture capitalist, Adam gladly accepted a $3 million investment in return for 50.1 percent ownership of Gale. The investment enabled Adam to expand his enterprise and hire a sales force and a CFO.
Running his fast-growing company was a struggle for Adam, but he still relished it. He worked twelve-hour days dealing with customer issues, authorizing pricing for contracts with new customers, reviewing progress on new software updates, signing checks, working with his top engineers on new versions of the software, as well as dealing with employee issues. The more successful the company became, the more employee issues he had to deal with. One of these was of particular concern.
Adam respected his new VP of sales, who had run sales for a successful software supplier. Adam also respected his VP of product management, who was smart and fearless in negotiating final deal terms. But the two VPs hated one another, and Adam often had to stop their shouting matches. Adam felt they both made good points, but he was unable to get either of them to listen to what the other had to say.
Adam had another problem: his engineering team kept missing their deadlines for software updates. He sensed that the complexity of the software was getting beyond his engineers’ ability to control it. He was sure he could help them if only he could spend more time with the team.
Adam was disappointed that Gerry was not available to give more advice. He saw Gerry every six weeks for exactly two hours at board meetings, where Gerry asked excellent questions and gave very pointed advice, such as “You need a more experienced head of accounting” or “You have got to step up to fix the problem between product management and sales; hire a counselor if you must.” Adam hired an experienced CFO to improve accounting and other financial tasks, but the CFO’s son fell ill and she soon went on leave. When Adam spoke about hiring a counselor to the VP of sales, the VP responded, “We are doing just fine as we are!” and that he would quit if Adam inserted another person into the brew.
Although growing a company was exhausting, most nights Adam still fell asleep feeling very accomplished. So it was all the more devastating when Gerry took him to a rare lunch and, after congratulating him on some favorable customer reviews, told him that it was time for him to step aside as CEO. He needed to let a more experienced executive take over and build the company to the point where it could be sold for a hefty valuation.
“Where did I go wrong?” Adam asked, holding back his tears.
Gerry laid it out: “You have done a good job, but to make this company really valuable, we need to make changes. The sales force is good but not great. They argue way too much with the person you brought in for marketing. Invoices are sent out late, and you no longer deliver your latest software enhancements on time. Your success has finally brought competitors into the market, and they have more money to spend on sales and marketing than we can make in five years. They will blow us out of the water if we don’t change quickly. We need a strong, experienced CEO to make sure the company keeps growing and becomes valuable.”
Adam was speechless, so that was that.
Stories like Adam’s are repeated every day. Entrepreneurs that accept money from professional investors are more likely to be removed as CEO—as the leader—the more successful their enterprises become.2 It’s true that if Adam had not accepted money from Gerry, he wouldn’t have been pushed aside—but Gerry was right in his contention that the major competitors Gale Solutions’ success had attracted would have likely blown him out of the water. Adam was doomed to suffer major setbacks either way.
The real world is brutal, and most entrepreneurs do not understand what it takes to succeed with their dreams. Specifically, there is a big gap between getting a company to the starting blocks and getting the company to the point where it can stand on its own. This gap is where the entrepreneur and his enterprise are extremely vulnerable and where inadvertent mistakes can be economically fatal. When the enterprise is very immature and fragile, every new hire, every customer, project, strategy, crisis, or pivot has disproportionately large impacts on the future well-being of the enterprise—and on whether the founder can continue as its leader.
Books on entrepreneurship, many of them excellent, focus on how you start a company, and these books finish with their advice once a hypothetical stream of customers show up. This book is about building an enterprise from the initial idea to the point where the company has become profitable and is self-sustaining.
My standard for entrepreneurial success is a basic one: you have to get your enterprise to the point where it is self-sustainable. If you can do that, you have proven yourself to be a real entrepreneurial leader (EL). This goal is attainable, and not just for the lucky or the specially gifted entrepreneur; given the proper skills and insights, most entrepreneurs can ultimately become successful—they can become ELs.