The only problem I saw then was the differences of opinion with my partners, whose own ambitions, it seemed to me, kept them from allowing me to be an effective CEO.
If a person is incompetent, he cannot grasp what is actually the source of his problems. He therefore focuses his attention on some contrived reason for a specific problem, which of course does not help to solve the problem. This is how an unskilled computer user behaves when, in attempting to deal with errors, he completely reformats the hard drive and reinstalls the operating system. He does this over and over, but if the real reason for the computer errors is an overheated processor or memory failures, this will not solve the problem. Thus I, too, thought at the time that the only way to deal with the company’s problem was to reformat existing relationships. In the end, I did indeed reformat them, but not with the desired result. There were three partners, and I, finding myself in the minority, had to leave the company.
This sort of approach is common in small business that if something does not work out, an employee can change jobs, or the owner can open a new company, but as a rule, in this new endeavor he will sooner or later encounter the same problem again. I know many people who own several small businesses that are as alike as two drops of water in terms of their problems. This failure to change is tantamount to repeating third grade over and over again simply because the homework is too difficult in fourth grade-many actions are taken, but the result is poor.
After leaving that first company, I came to two conclusions. The first was that authority must be in the hands of one person, and the second was that there should be no co-owners at all. The first was true, but not the second. The problem was not in the number of co-owners, but in how I had managed the company and dealt with my partners. Fortunately, I stopped making such mistakes after that, and I was therefore able to create two successful manufacturing companies and one consulting company. But I did not immediately recognize the reasons for my first setback, and I had to seriously look into how to manage a group of people and organize their work.
The story of my first business is not unique. Many small companies are created based on the enthusiasm of a few people, grow to a certain size, and then at some point cease their development. But as is well known, that which is not developing is dying either quickly or slowly. Very often the great ideas of a company’s founders begin to be put into practice quickly and yield good results, and the business grows to a certain size, but then the company gradually withers and dies.
A friend of mine manufactures first-rate leather book bindings, and they are really very nice – wonderful leather, beautiful tooling, resulting in a very high-quality and aesthetically pleasing product. In my travels all around the world, I have seen many books in leather bindings, but I have not seen products of this quality in any other country. This enterprise is situated in Kiev, and about two dozen employees work there, most of them directly engaged in production. The company’s founder is a very intelligent, decent, and educated person. Employees work in that company for years at a time, and there is practically no turnover. The company pays a good wage, and relationships among employees there are quite relaxed and pleasant. It can be said with certainty that his business is a very stable small company. There is only one but here: His company has not grown for the last ten years.
When I spoke with him and asked him about his development plans, I saw that he wanted his products to be used by people throughout the world but that he was being held back by fear of the problems involved in expansion. He thought that the main thing keeping his company from developing was the threat of a reduction in quality and the difficulties associated with advertising and sales in new regions. Essentially he, like me in my first company, did not even see the true reason for the problems involved in expansion; he did not know how to organize the work or how to manage people, and what’s more, he was afraid to do so. Yes, he had a perfectly respectable income for a company of that size as well do satisfied customers. But despite being bogged down in the routine of operations, he himself worked with big customers, he himself managed financial affairs, ran production, and handled personnel. Such an array of duties would be hard to hand over even to his son, let alone a hired manager. No one would want to take on that whole headache. Looking at this situation honestly, the employees of this company had no prospect of advancement if the company did not grow. Therefore, even when a very talented and ambitious person joined the company as an employee, sooner or later that person left. Some company founders tell, with a mixture of pride and regret, that many of their former employees have started their own businesses. This is truly something to be sorry about. If these men and women have been able to found their own companies and have achieved some results, they could have made real contributions to their previous employers. It is obvious that a group of capable people can move mountains, but instead of a single company with tremendous results, the outcome is often several small and usually unsuccessful businesses.
The smaller a company, the less earning power it has. But what is interesting is that managers and employees of small companies have more problems than those of large companies. This is easy enough to understand. In a small company, most people are jacks-of-all-trades, performing a wide variety of functions. Thus quite often in a small trading company, a single employee takes orders from customers, works with suppliers, arranges deliveries, resolves conflicts, and collects receivables. A department head in a small company performs even more functions. It is therefore difficult to hire people to work in small companies, as a person must be prepared from the outset to perform a multitude of functions. Managing such employees in small businesses is even more difficult because when a manager requires one thing, an employee can always say that he is busy doing some other very important thing. It is also difficult to raise the level of professionalism of such people because there are too many different areas of activity, and it is even hard to know what training to send them to – computer courses or a seminar on advertising. It is hard to make an employee more productive when he or she has been doing too many different things; there has been no clear job definition for such an employer, so it is difficult to decide how to make that person more productive and focused through in-service training in computer courses or a seminar on advertising. And the most vexing thing of all is that, with all these difficulties, a small company does not bring in a large income, and this means that it cannot properly take care of its employees or make a substantial profit for its owners.
Take a look at the employees of successful small companies and you will find that they work long and hard, frequently more than the employees of big corporations. At the same time, they are paid less, and they have fewer opportunities for professional advancement and a more focused area of activity. Look at this from the point of view of a capable employee who wants to achieve much in life. What are his prospects in a small business? If he is very good, he will very quickly hit the ceiling. Even if he becomes the top manager in a small company, his problems will still outnumber his triumphs. At the same time, in attempting to achieve great results in his work, he will inevitably take on more and more related areas and accumulate duties, but for most of the time he will not be doing what he dreamed of, but simply coping with chaos. You could say that a small business has one thing going for it: It may grow into a big one.
In order for a company to continue growing for a long time, it must leap many hurdles, including people-management problems. As a consultant, I interact with a large number of managers and employees, and in small business, I often meet people who are not even aware of the rules of the game that they are playing or the laws of people management. Frequently, people who are simply good specialists become managers; they do their work capably but have no idea how to organize the work of their subordinates. Most of them think that a manager’s responsibilities are giving orders, establishing incentives, and imposing penalties. Even so, they don’t even know how to handle giving orders professionally, have no idea how to issue them correctly, how to monitor performance, or how to get