Entrepreneurs can avoid many of the problems associated with growing a business by recognizing the differences between employees and entrepreneurs. There are two important distinctions we can draw between entrepreneurs and employees.
- How each gets paid for what they do.
- Employees get paid to work effectively in a role. If an employee is not being effective, the correct course of action is to speak to his/her manager. It is the manager who is accountable for the output of the employee.
- Entrepreneurs get paid for results. As an entrepreneur, you are selling a product or service. You don’t get paid until someone buys that product or service from you. The entrepreneur is accountable.
- The tolerance for risk.
- Entrepreneurs are willing to take the risk that someone will pay them for their product or service. The employment agreement is one wherein the employee is paid to work effectively and the employer assumes the risk of selling the output. Their thinking can be expressed as follows: “If the products are slow getting out the door, I’ll work overtime, if need be. I’ll mortgage my house (again) to get the extra resources that are needed. If we produce products more quickly, I’ll make more of them, sell more of them and make more profit.”
- Employees opt for less risk. The thinking can be characterized as follows: “I’ll work my steady 40 hours per week and get paid for exercising judgment. However, if I do my job and our products are slow getting out the door because our technology is outdated or another department got behind, that’s not my problem. If our products go out the door more quickly, that’s not to my benefit.”
As a business grows and adds employees, the entrepreneur is often required to become a manager. In many instances, this poses a dilemma for entrepreneurs. When you hire someone, the decision is based upon “trust” which entails belief about the person’s capabilities to perform in the role. “Do you trust him in that role?” means “Do you believe he can do it?” The role you assign an employee in your organization reflects the trust or confidence you have in their capability to perform the assigned work.
Most entrepreneurs start their businesses because they love what they do, not because they love being a manager. Most are experts in their chosen field, not in management.
In the start-up phase, most entrepreneurial organizations have cash flow challenges and focus on getting and serving clients more than on building organizational capability. As a result, they often have no formal structure or role descriptions.
Initially, entrepreneurs hire those who they know and trust, rather than those who are fit for a role. Hiring decisions are based upon relationship and not necessarily competence and suitability in the role.
Since entrepreneurs are also concerned about overhead, they prefer to pay bonuses based on profit or output to share the risk. Often, entrepreneurs expect employees to think and act like them.
As a consequence of these ad hoc decisions, employees are often confused about what the entrepreneur expects of them and of their accountabilities. Through lack of role clarity, work is duplicated or falls through the cracks.
In turn, entrepreneurs are frustrated because:
- They have to work below their capability.
- They can’t get employees to go the extra mile unless they pay a bonus.
- Their employees just don’t get it.
As a result of all of the above, employees burn out and leave, quit or stay. The organization becomes more dysfunctional. With the cycle of constant staff turnover and the learning curve associated with each new employee, client service suffers. The pattern of seamless service that’s necessary not only to keep clients satisfied, but also to keep up with the workload, is constantly disrupted. As you struggle to keep up with servicing existing clients, the opportunities to attract new clients slip by. As a result, the business does not grow or goes through ups and downs.
When entrepreneurs get to this point, they often begin to lose their zest or passion for the business. It just isn’t fun anymore. The good news is that there is a solution to the problem. I’ll describe the solution in an upcoming blog.