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On the tenure of entrepreneurs

Entrepreneurs, successful ones, are unusual people. They are driven, they take risks, they make snap decisions, they work closely — even intimately — with a small cohesive team of skillful people who they trust implicitly and who all have the eventual success of the endeavor as their primary goal.

As the entrepreneurial organization grows, this trusted in-group is diluted. The need for other experts — legal, taxation, human resources, operations — overwhelms the original trusted groups’ skills. By good choices, this can be minimized for a long time, but inevitably the organization grows large enough that no one person can “hold it all in his head.” Communication becomes more difficult up and down the hierarchy (see the SNAFU Principle, below) and as more and more people join the endeavor who were not there from the start, the focus on the endeavor itself is inevitably weakened as more and more people have their own local concerns in mind.

These consequences of growth — bureaucratization, less effective communication, and an inherent fuzziness of focus — are exactly the qualities least like the successful entrepreneur’s strengths, and probably most like the companies the entrepreneur began his own company to escape.

It follows, then, that there comes a point in the growth of an entrepreneurial company at which the entrepreneur must be moved out of management. This can happen in many ways: the firm can be acquired, and the entrepreneur becomes a member of the board of the acquiring company, or receives some other sinecure; the company can hit a financial bad spot, and see the entrepreneur removed by major stockholders; or the entrepreneur who retains enough power may be moved aside to a position of apparent respect but little control, like Chief Architect, or Chairman of the Board without executive duties.

Occasionally — not often — the entrepreneur is sufficiently self-aware and self-actualized to recognize that “it’s just no fun any more” and then move on of their own volition. In general, though, the very qualities that make the successful entrepreneur successful are the very same qualities that make it difficult or impossible to give up the reins willingly. It is then necessary for the Board of Directors to find a way to remove the entrepreneur with as little damage as possible.

It would probably be easiest for all concerned if the Board could simply arrange a nice celebratory dinner, with great food and entertainment, and copious amounts of alcohol, after which the entrepreneur — now happy and relaxed — is dragged behind the restaurant by the board members and shot.

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