By looking at what entrepreneurs do well, the rest of us can learn something about strategic decision making and action.
It was 1997.
I was lucky enough, though I didn’t know it at the time, to score an internship as employee number 5 or 6 at E-Loan, Inc. Such was one of the benefits of being a college student in the heart of Silicon Valley: There were a lot of start-ups, and there was a lot of work to be done; so a guy like me with no experience beyond manual labor, retail, and a stint as a bouncer could find himself uploading the entire database of lending products to the start-up’s website every morning–performing the critical action of the company’s existence.
In the months I spent at the company, which spanned the launch of the website and the tripling of the employee base, I gained a lot of respect for what high-pace entrepreneurship actually is.
The rest of the E-Loan story is a lot like many others of the dot com era: Growth, then a hot IPO, then challenges, then acquisition, repositioning, and ultimately in the years that have passed, a company that resembles the original only in name.
The rest of my story is a bit different. I took that experience, along with some other quality early-stage investment experience, and ended up as a larger company consultant and diversified manufacturing executive. Those experiences have been exemplar of the sort of yin and yang learnings that my own life trajectory has offered; and that frankly inform the bulk of this blog.
Insight from all of that brings me to this:
Larger company leaders can learn from entrepreneurs how to occupy the “pinnacle” of strategy. That pinnacle is the moment of decision. It’s the decision seat.
Entrepreneurs do this well because, in essence, it may be all they have.
Large company executives do this poorly because they have the luxury of resources and time.
But they (perhaps, you?) can get better at it.
The Pinnacle of Strategy
What’s the pinnacle of strategy, and why the mountainous metaphor? In short, it’s the decision seat that stands atop the mountain or molehill of data, insights, analysis, and synthesis of a point of view.
As a McKinsey alumnus, I have been well steeped in (and am a proponent of) Barbara Minto’s “Pyramid Principle” method of thinking and communicating. The top of the “Pyramid” in action-oriented logic is a synthesis of a point of view. Only far too often, a point of view at the top of a pyramid lacks a pinnacle. That pinnacle is occupied by a decision maker, steeped in the rest of the pyramid, but willing to drive a decision.
Often–particularly in large company bureaucracies–the seat is vacant. That reality is what gives so many consulting reports their negative dust-collecting reputation.
The difference between entrepreneurs and executives
When it comes to occupying the pinnacle, entrepreneurs have no choice.
During my time at E-Loan and around numerous other start-up businesses, one thing became clear: Somebody was going to make a decision. E-Loan was in the business of underwriting mortgage loans in California when it started up. It, like many dot com businesses of that era, had no real automation when it came to processing the actual deluge of loan applications that came through its website. We were processing loans on paper. The popularity of the web being what it was, and the peculiarity of discount mortgages offered online being what it was, the company was quickly overwhelmed.
So, what happened? Did the founders ponder the data? Think about talent strategy? Run endless spreadsheets? Set meetings in order to plan? Call a board meeting?
They made decisions.
Hire 5 people. Set pricing at x. Weed out bad applications by doing y. It was all heady, seat of your pants decision making that was grounded in a strong appreciation for what had to be done and for the business model they thought would win. There was no “stop and study it.” It was “study it as we go.”
The greatest entrepreneurs, therefore, occupy the pinnacle of the pyramid even as the pyramid is being constructed. They sit on the scaffold, not on the bricks. They are hypothesis driven. They are (and I apologize in advance for going here) fundamentally inductive in their reasoning.
In short, they are action-oriented.
Contrast that with today’s executive management culture. Executives across industries lock into linear thought processes. They go from data, to facts, to insights, to risks, to options, to strategies, and ultimately to a hypothesis. And, then, they may or may not occupy the pinnacle. They are fundamentally deductive.
They have that luxury.
In short, they are, on average, ponderous and cautious.
What do big companies get wrong in their leadership cultures that entrepreneurs get right?
This is a story of incentives and how we respond to them.
Most of this difference comes down to the old adage about “messing up a good thing.”
For the entrepreneur, the “good thing” is still out there in the primordial soup of opportunity. She has to act in order to realize opportunity.
For the executive, the “good thing” is the here and now. It’s far too often the salary and bonus that accrue from just nudging the controls this way or that. The upside of taking a risk is minute in comparison to the downside of losing power, position, or prestige.
And, that is what large companies ultimately get wrong. They provide incentives for executives to protect their position, to manage risk vs. capturing opportunity, and ultimately to guard the status quo. Big, strategic decisions come with millions of dollars of study and sign off not because it’s necessary for large companies, but rather because no one really wants to sit on the pinnacle.
Entrepreneurs know that they get paid when they act.
Executives often get paid not to act. Often, they get paid very well, in fact.
This simple fact is evidenced by the bloated cash positions on some companies’ balance sheets (coupled with latent debt capacity) these days. Corporate executives, faced with decisions whether to invest or wait, have the luxury of waiting.
In the worst of cases, corporate executives earn rents based on time. “The longer I’m in the seat, the more money I’ll make.”
In almost every case, entrepreneurs create value based on action. “I’d better hire/build/sell or I’m out of cash.”
Would that a little bit of the latter mindset could seep into the former.
We are all strategists. Given that, we should all beware the “study further” cul de sac and focus on a healthy approach to action orientation.
Taking some tips from entrepreneurs, a few things come to mind that might bridge the gap between endless study and deductive processing of strategic problems and efficient, inductive decision making. These are applicable for you as an individual professional and for the highest level executive leading the most complex multi-national.
- Know what you (or your business lines) are about – I never met an entrepreneur who didn’t have a strong view of what his business is. I have met, dare I say, thousands of corporate employees who couldn’t tell you the financials of their company and, worse, how their job connected to them. I’ve also, sadly, met numerous executives whose point of view on what they or their company is about amounts to meeting a budget connected to a bonus structure even when they know it is destroying value (again, rents vs. value).
- Size up your pyramid – Study is a good thing. Finely considered decisions can be fantastically successful. The dirty little secret is that a healthy proportion of momentarily considered action is also successful in creating value. Know when enough study and analysis is enough. If you are building a pyramid, know whether you really need one made of bricks that will last 10,000 years or one made of Legos. This matters.
- Match pace of decision making with pace of business – If you and your competitors are slow moving, perhaps you have more time. Or, perhaps, you have an opportunity to outrun them. During the dot com era, the frenetic pace of decisions was matched to the land grab that was the growth of the Internet.
- Occupy the pinnacle – Every strategic act worthy of study is worthy of a decision. This is true whether you are thinking about your personal career or thinking about how to steer your business. Be willing to occupy the pinnacle of the pyramid; and remember, in the immortal lyrics of Rush‘s “Freewill,” if you choose not to decide…You still have made a choice.
- Know what incentives you are giving people– My final shot is at incentive structures. Do your company’s or your personal incentives (and by that, I don’t mean bonuses, I mean the holistic set of incentives a given person has) drive you toward action or inaction. Do people get rewarded for taking action, or for avoiding it? Do you? Whether you are an HR executive or a Board member, build a healthy appreciation for opportunity costs into your incentive system. Some incentive structures, if shareholders knew the behaviors they engender, would embarrass the board members and executives who enact them.
By bridging the gap between the “corporate risk manager’s” strategic approach and the entrepreneur’s approach, we can learn a lot about how to inject a little more action into our approach.
Occupy the pinnacle of strategy.