The Transition From Entrepreneur To Leader

By Arlin Sorensen, O and Founder of the Heartland Companies which includes HTG Peer Groups

Without a doubt the biggest challenges most small businesses face revolve around people. I see these in two key areas:

1. leadership (or the people at the top)
2. employees (or the people who do the work)

The fact of the matter is that very few small businesses ever grow beyond 10 employees. In fact, U.S. census bureau data shows that barely 10 percent will ever overcome that barrier. That is a pretty staggering statistic. Does it make sense? I think so, and see regularly how it becomes the outcome for most businesses when I am leading peer groups or consulting in small businesses.

Let’s address the first of these major issues — the leadership challenge. Most small businesses are founded and operated by a person with an entrepreneurial mindset. Michael Gerber, in his book E-Myth Revisited calls these folks accidental entrepreneurs. They don’t necessarily set out to create a business. Often they are gifted at sales or service delivery and soon find themselves believing they can do it better than the company they work for currently, or they see an opportunity that is not being filled today. So they start a journey to create a company and serve some customers. Soon they are overloaded so they find another person like themselves who becomes their first employee, and the journey has begun.

Over time they gradually add a few more people all while running the business through direct interaction with each of the team members. You can do that for a while and even make all the decisions along the way. But at some point in time, often in the 5-to-10-employee range, things begin to break down.  The entrepreneur at the top becomes a bottleneck because everything has to go through him or her.  He or she always made all the decisions. After all, it is the entrepreneur’s business. But unfortunately that model doesn’t scale and soon things are really a problem and the staff and customers begin to express dissatisfaction with a company that they were previously very happy with.

It may be a single entrepreneur or a close group of a few people, but there is a bottleneck at the top of the organization. Until that is addressed, the problems will just continue and grow and eventually become a growth cap. That is why so many small businesses never grow — because the entrepreneur(s) at the top can’t adapt to the shift from entrepreneur to leader. It is a giant jump across a very big skills chasm, but it can be done if there is a desire to do so. That is often the first challenge as many entrepreneurs have no intention of becoming a leader and allowing others to be part of growing the company beyond their role as an employee. The cap becomes a lid and the company is stuck where they are, often for the duration of their existence.

Visualize it this way. You have a water bottle with a small opening. If you turn things upside down, the water will gurgle its way out but clearly the neck is too small to allow the liquid to flow freely. If you get a much bigger bottle with more space to have liquid, and maybe even a little bigger and longer neck, the problem is still the same. That is effectively what happens when you try to fix the problem by hiring more people. You have more capacity, but the bottleneck is still at the top and is the limiting factor as to how much can get out and at what speed.  It isn’t until you get something like a quart jar, with a big neck that has little or no restriction, that you see things flow freely without restriction. That is what happens when an entrepreneur is able to adapt to the role of leader and empowers the people under them.

What has to change to move from entrepreneur to leader?  Much of the change is a mind shift. It is understanding that rather than working “in” the business 24/7/365 that you have to spend significant time working “on” the business as well. Over time, for a growing company where the entrepreneur is truly committed to the shift, that becomes a total shift. However, in most cases, it is a gradual transformation. The key is that the transition should begin. Until that happens, no progress can be made. Accidental entrepreneurs seldom have business training, so even with a desire to make a change they often struggle knowing what that means. 

That is where outside input is important. The entrepreneur can learn to transition into that role of a leader through interactions with peers in a formal peer group environment as one method to begin to learn the ropes. A more effective and quicker method is to hire a coach who can walk with the entrepreneur and help make the transition smoother. No matter the method, it is likely most will need some sort of help from the outside. Leadership is something most of us have to learn, and the quicker we acknowledge that and invest some time and money in learning, the sooner we can move things forward in our organization.

HTG offers both solutions to help entrepreneurs make this transition to leaders. Our peer groups consist of other entrepreneurs from non-competing markets who are on the same journey. We also have a team of executive coaches and consultants available to help you go further faster if that is your desire. But somewhere and somehow, you need to find resources to help you make this transition. 

Here are some of the key shifts I believe an entrepreneur needs to make in order to move toward becoming a true leader in his or her organization:

Of course, this list is based on generalities and not every entrepreneur or leader falls into these buckets without exception. But it does give you a general idea of how the two mind sets might look at things. An entrepreneur is not focused on people as much as getting the job done. They have an idea and want to see it executed. That works well to a certain level, and in my experience that point seems to come when the company grows to around 10 people. After that, some change is required to take things to the next level.

In the next installment I’ll write about people and what we need to do to be sure the people on our team are as engaged as they can be.  That requires leadership, which is why it is important that we begin here. 

Arlin Sorensen serves as the CEO and Founder of the Heartland Companies which includes HTG Peer Groups.  When he is not traveling to speak and consult, he is home on his farm in Iowa with his wife Nancy.  He is a proud “Pop” to four precocious grandchildren who serve as daily reminders of why he is intentionally living to leave a strong legacy of faith and integrity.  He loves making a difference in the lives and businesses of small business owners. You can reach him at asorensen@htgpeergroups.com or on Twitter @asorensen.