Founder-itis is a serious condition that occurs when one or more of the founders have remained in their position in an organization for far too long. They have remained physically, mentally and emotionally in a position that is preventing the organization from healthy growth. This condition can occur in small to very large organizations. I have witnessed very strong impacts of Founder-itis at large companies.
The cure for this condition is an emotionally evolved founder-turned-leader to fight against their natural tendency to hang on to what is comfortable, what worked in the early stages of the company to catapult its growth.
Long-term CEOs of successful companies such as Jeff Bezos at Amazon and Howard Schultz at Starbucks have broadened their horizons as the company has grown.
Successful founders who transition to long-term leaders by avoiding Founder-itis have learned these four key qualities.
Deals with ambiguity – When an organization starts out the management team may find themselves working around someone’s dining room table, in a basement or their garage. All the stakeholders communicate and keep each other up to date in real time because they can, literally, reach out and touch. Modern-day conference software works for small teams as they start a business. During this stage, the Chief Executive Officer (CEO) is engaged in very detailed decisions and aware of every move that is made. When it’s time to move effectively upward with a growing organization at some point, the CEO must effectively delegate those detailed tasks to move up to a more strategic role with the organization. Details they knew off the top of their head intuitively will have to be delivered to them in a report that is generated as a result of a quality process. The CEO must learn to deal with some ambiguity and trust the management team is effectively executing their responsibilities. Founder-itis comes in when the CEO will not let go of knowing small details and continues to micromanage staff. This is not an effective use of CEO or staff time.
Hires well and timely – CEOs of high growth companies hire professionals for positions that will challenge them and help develop the strategy as well as successfully execute it. If the CEO lets Founder-itis slip in and only hires puppets who will execute only on what they are told without challenging the status quo, they are holding the organization back from the ability to grow effectively. I recently heard a private equity partner state that is one of the things that holds back the execution of the strategy that fuels growth.
Leads and supports rather than controls and micromanages – If a CEO constantly talks about how easy a certain task is and should be with 1980s style processing; is not open to a suggested change in process, upgrade to a new system or hiring enough staff to complete tasks, they are choking the organization. Two examples I often see of this are processing payroll internally instead of outsourcing and gathering paper receipts and matching against a paper credit card statement. You may think that only happens in smaller companies; however, it has happened in companies that have over $50 million in revenue and operate in most of the fifty states. Such situations persist because one of the Founders thinks that since they had always processed payroll manually when it was their responsibility, it’s just not a big deal.
I also have seen recently where a very young company got hit with an $8,000 fine from the state department of revenue related to incorrectly processing unemployment. This happened as the founder wanted to save money and not incur the payroll processing fee. The fee was taken from their bank account before the receipt of the letter that explained the error and related fee.
Embraces pivots – Founders who believe they can keep doing what got them to their first $1 million in revenue are not pivoting. Founders need to realize their role has changed and it is essential for the strategy of the organization to change. The world is changing so fast – just when an organization is up to date with technology, it is time to change again. Embracing that change and the short term disruption it causes is not easy, but it is essential if the organization is to remain relevant, keep talented and engaged employees and execute sustainable strategy.
Leadership and sustainability go hand-in-hand and truly make a difference in a growing organization. Especially with today’s low unemployment, leaders must recognize part of their strategy is to provide a working environment that will keep top talent engaged. Expecting employees to be happy that they receive a paycheck while you expect them to deal with 1980s technology and stone age processes will lead to high turnover and unnecessary chaos and is a sure symptom of Founder-itis.
Recent posts discussed new regulations and the unintended consequences that companies are, or will experience as a result. ASC 606, already in effect for public organizations, affects nonpublic companies for annual reporting periods beginning after December 2018. The South Dakota vs Wayfair ruling last year has impactful implications for businesses who qualify to pay sales tax. Together these regulations are like tsunamis that are overtaking public and private organizations.
These tsunamis can significantly impact your business large or small. Organizations tend to frequently hold off on systems upgrades and acquisition integration noting they cannot afford it. The combination of these regulatory tsunamis transitions the conversation and makes it imperative systems work seamlessly together. The organization cannot afford for that not to happen.
These tsunamis share common implications to you – in order to complete the analysis of how each will impact your organization and to implement the proper accounting, you must have good clean customer data in a system with strong month-end controls; and you must have the actual executed customer contracts – all of them. In my experience with organizations of all sizes, these requirements are problematic because they just don’t happen. What I find is that customer data is scattered throughout multiple databases and spreadsheets, month end processes end up being shoot-from-the-hip events and customer contracts are in various states of execution due to lack of strong contract administration.
These issues are even worse for organizations that have decided we are going to work “smarter,” – a buzz word I hear associated with the elimination of the administrative assistant position. The Ivory Tower people who have just deposited a one million dollar sign-on bonus in their bank account for a C-level position at a public company are going to have a press release and investor call where they talk about how we are going to work smarter, etc.; then the staffing cuts happen. I see the administrative positions go fast.
The administrative assistant is often the traffic controller of the organization. Read my post, Who is your Betty about this critical role. Critical because, once that position is eliminated, contracts and corporate documents are all over the building, saved on laptops that may or may not be backed up somewhere and are reimaged when the person leaves. In the past year, every single time I have been involved with collecting customer contracts for due diligence or some type of project, the C-level person I am working with has had to call the professional on the other side of at least one contract and ask if they have a fully executed copy. This is a HUGE and embarrassing issue occurring in companies, regardless of industry and profit-status.
Accurate contracts and clean customer data are required for any hope of achieving compliance with ASC 606 Revenue Recognition and the interstate sales tax impacts from South Dakota vs Wayfair.
Sales Tax – the Wayfair case is highly technical when you dig into the guts of it, and I wrote about some of those technicalities previously. Here are a few points to keep in mind as the impacts of this ruling become more concrete:
The threshold for reporting Sales Tax is $100,000 OR 100 transactions. What about your college student making and selling hairbows cheerleaders around the country on Etsy to? They better not send 100 hairbows collectively to certain states unless they are prepared to collect and submit sales tax.
State and governmental entities that are in charge of regulating this probably do not have a plan on how they are going to accomplish this. Are they going to stop every long haul truck coming into the state? Look in every mailbox? I am not sure how they are going to find you!
Since the law is retroactive you may have a big liability out there that you do not know about. Why – because you cannot locate the contracts or analyze data because you have none that is clean. Instead, you may have to guess what states, how many transactions, how much it adds up to.
If your organization undergoes an audit or wants to pursue a capital raise or total sale – this can be a huge problem.
Respect your accountants and know they have a difficult job to maintain all of these controls. CPAs, in general, are not the best at standing up for themselves and making sure they have the right infrastructure. CEOs and Boards tend to hire in the Marketing and Sales areas and cut in the Accounting side. IT systems are not upgraded and maintained properly, which further complicates the job of maintaining clean data. Speak up – challenge the impact of short-sighted decisions.
Barker Associates helps small-to-large businesses, especially entrepreneurs, improve performance and increase financial stability. Contact Barker Associates at firstname.lastname@example.org.