People who love to start businesses almost inevitably do not possess the skills to keep it going once it gets a little bigger. “A founder is often someone who is impulsive, opportunistic, technically brilliant, but strategically not very smart,” observes John Eldred, affiliated faculty in organizational dynamics at the Wharton School and co-president of Transition One Associates in Ambler, Pennsylvania. “They grow their business to the point where they can no longer manage it intuitively but have to manage it through systems and delegation.”
But if they are unable to make this transition, then key details start getting ignored or overlooked.
At this juncture a business needs to bring in the kind of leader who can shepherd it into the future — but that takes planning and relinquishing authority, something founders are often unready or unwilling to think about.
Eldred worked through college in a family business, the founder of which started several similar businesses, growing each one to 75 to 100 employees, then selling them. Although this was certainly one solution to the inertia that prevents succession planning, it was probably not the best one.
Eldred will speak on “Management Dynamics: Succession as the Decathlon of Business” at a New Jersey Technology Council conference on Thursday, November 6, at 8 a.m. at the Baltusrol Golf Club in Springfield. The program will also include panel discussions on “The Economy and the Credit Crunch” and “Effective Board Governance.” Cost: $250. To register, go to www.njtc.org. For more information, call 856-787-9700.
Eldred likens the experience of founding a business to running the decathlon. “You throw the shotput, pole vault, throw the javelin, run, jump over hurdles,” says Eldred. “It is completely exhausting.”
But to adequately describe what it feels like when a business has grown beyond the founder’s capabilities, Eldred takes his decathlon metaphor a step further: “You’re told at the last minute,” he says, “We’re appointing you; you can’t train; you have to do it in front of a whole bunch of people; you’re only doing it once; and you can’t screw up.” Then the obvious happens — the founder freezes up and starts procrastinating.
Another reason business founders may resist change, says Eldred, is a deeply embedded fear. “Many founders, since they don’t have outside interests to speak of, know that if they move on and detach from the business, they might die,” he asserts. “They don’t have anything else to interest them.”
Yet sometimes a business is lucky and an outside party whose own future is tied to a business’s success or failure initiates succession planning. A key customer, for example, may notice that the founder has gotten bored and is neglecting the business. “They may be satisfied in the present state — the company is, after all, shipping,” observes Eldred, “but they are not confident.” As a result, the customer starts to think, “Since we are planning for our future, and we’re not sure you’ll be there, we have to look for another source.”
Laws of succession. Even once founders have admitted that change is necessary, they may plunge into the process of finding a new leader without figuring out what kind of person they really need. A common approach is what Eldred calls the “Bubba Smith approach” to finding a quarterback. “You run in and attack the whole backfield, and see who is still standing,” he says. “You grab a bunch of people and try to figure out who will succeed without looking at it systematically.”
The correct approach, says Eldred, is not to start with the person but to look at where the industry is going and what kinds of leadership skills will be needed. “To figure out the likely future of the company, you go into the future and look back,” he says, “as opposed to starting where you are and looking out.” A company in an industry that is consolidating, for example, will need an excellent negotiator with skills in mergers and acquisitions.
The good qualities. Eldred also suggests several generic qualities that make for a good successor. First of all, the person must be tough minded. “To come into an ongoing business, you can’t have the Bill Clinton disease,” says Eldred, “a lot of neediness to be liked and telling everyone it will be fine.” People may have to be asked to leave, for example, and the time to do that is when the new person takes over.
Strategic competence is also critical, continues Eldred. The successor needs to contemplate changes in the business’s strategy, structure, and culture to get a better fit with what is emerging in the environment. This may mean dropping existing products and services, developing new ones, and considering strategic partnerships.
The successor should also be technically credible but not fixated on the technical details. “You don’t have to be the smartest person in the organization technically,” says Eldred, “but you have to know enough to get respect.”
And of course the new leader must be willing to admit mistakes and learn from them, but at the same time must aggressively set goals and organize people to go after them.
Finally, says Eldred, “the person has to really understand that the key way to get leverage is to ask great questions.” Eldred quotes writer Eli Wiesel — “Every question possesses a power that does not lie in the answer” — and then offers his own take on Wiesel’s words: “When you ask somebody a good question, they may give a good answer, but the question rattles around in your brain and connects neurons in a whole different way. That’s how adults learn best.”
Finding people who possess these qualities, however, is not easy. Sometimes a very good search firm can help, but it is essential to put a potential candidate through an assessment process. “You can’t just take them golfing,” notes Eldred. “It’s not a social process by itself.”
Once successors are in place, Eldred believes they must exhibit the following behaviors to be successful:
Use collective expertise of senior managers. “Some people think you should listen to a problem and erupt with a solution,” says Eldred. But usually when a business encounters a problem, say, with a key customer, it’s something that senior managers have dealt with before, either with this customer or another key customer. A person who listens to the people around the table may still make the decision, but only after taking into account the collective wisdom.
Provide continuity in the business’s core values. Today many businesses are finding that a shortcut to management control is to substitute values for hierarchy. Johnson & Johnson, for example, has hundreds of business units — too many to use a control model, says Eldred. So the company tries hard to encourage its people to internalize a set of core values, which then inform their behavior.
Recognize politics and deal with it. “There’s always going to be politics,” says Eldred. “It’s a form of conflict that needs to be worked out.”
Adopt strategic changes in the organization without blaming the predecessor. “There are always things that need to change that the last person didn’t do,” says Eldred. So make the changes but don’t fault anyone.
Eldred grew up in Philadelphia, where his father was a city fireman and his brother later became a street cop. His father died when Eldred was young and his mother worked in a variety of jobs, usually as an office assistant in healthcare.
Eldred received a scholarship to the Wharton School at Penn, where he took classes in the morning but continued to work in the afternoons.
After college Eldred served for two years in the Army, stationed in Berlin, Germany, during the height of the Cold War; there, he guarded Rudolf Hess, the last Nazi prisoner.
Eldred joined Du Pont, where for two years he was a fast-track manager. He had decided on a large corporation after seeing large companies steal patents belonging to the family business where he worked in college. This combination of experiences awakened in Eldred a lifelong interest in the best combination of merit and power to advance ideas, and he still teaches a course on politics and power.
In the late 1970s, Eldred moved to Jamestown, New York, where he was CEO of the Jamestown Area Labor-Management Committee, which he describes as “40 companies and their unions trying to do economic bootstrapping to improve productivity and bring people back from layoffs.” He even had his three minutes of fame on Walter Cronkite’s news show.
In 1979 Eldred returned to Philadelphia to teach at Penn and start his consulting business.
Eldred studied organizational behavior for four years in a graduate program but did not complete a dissertation. He is a cofounder of Wharton School’s family business program, which started in 1980.
Once a company has selected a successor with fairness and careful planning, the business should be in a far better position. Eldred observes, “A good succession process renews the spirit of all the stakeholders.”