My work in franchise development provides with the unique and exciting opportunity to have a direct line to the CEO and founder of a wide array of different types of organizations and businesses. Most of these businesses are innovative, unique and offer some strong value proposition to the market which has led them to the franchise model. Franchising is a distribution system which duplicates and model and grows a concept through third party investors in the form of franchisees. What is exciting is to see the transition of a business owner from an entrepreneur to a business leader as the system and people relying on his or her direction expands.
When a company enters the franchise model, in most cases they fit the description of a small business with annual revenues of $750k to $2 million, a staff of 5-30 people depending on the industry segment and a good local brand for their business. The owner is exactly what you think of when you think “entrepreneur”, they are fast paced, quick to make decisions, extremely independent and excellent at seeing opportunities and ways to grow. They are by definition rule breakers and have done the opposite of what they’ve been told to do since the day they were born in many cases. A small business owner has the ability to survive and I like to associate successful small business owners with warriors of some kind. They fight through so many obstacles and so many deterrents to succeed and stay alive. The skill set of an entrepreneur typically is weighted towards sales and business development, they are generally solid communicators and always are looking for ways to add revenues. Operations and management is generally a weakness and for the most part the business an entrepreneur owns is extremely intertwined with their day to day personal lives and finances. Entrepreneurs enjoy nice possessions and are looking at the company’s profit as their own which can cause problems when a new sports car shows up on the profit and loss statement. The same skill set that makes an entrepreneur successful also can be the kiss of death when the business expands and needs leadership who are capable and willing to manage the new responsibilities that come with it. Some of the best entrepreneurs I’ve worked with had ego’s too big to get out of the way and let the business they had created evolve to the next level of growth. I certainly have seen this in franchising where an entrepreneur refuses to hand over the reigns to a president or C-level who could help them move the business forward and the business never takes shape.
The failure rate for new businesses in the United States is an abysmal 90% plus according to the SBA, which lends itself to the type of mentality an entrepreneur must have to be successful owning their own business. They are literally fighting for their lives. For the ones that make it past survival and get to a point where the opportunity to expand presents itself there is a defining fork in the road that the entrepreneur must choose whether to become a business leader or just maintain entrepreneur status. Entrepreneur status certainly has it’s benefits and some choose to stay in this category, they have good income, make personal decisions with business, have no one to answer to and can treat the business bank account like their personal checking account. The difficult aspect of choosing the business leadership route is that it is a short term decrease in income as the new people, infrastructure, systems, technology and costs associated with taking the business to the next level come out of the bottom line of the business. It is also difficult to make the transition because of the same warrior mentality that got the entrepreneur to this point, with more people and leaders in the business, you need to be better at managing relationships and cultivating success for others in the business. Also, the transition requires that the entrepreneur now needs to answer to others…whether it be investors, leaders in the business or franchisees. Long term, this transition is what separates the incredible business stories we all read about, Ray Kroc, McDonald’s, Steve Jobs, Apple or Donald Trump in Real Estate.
So what are the qualities of leadership vs. entrepreneurship that make the two so different from one another? First, effective business leaders are not operating on emotions like an entrepreneur does in most of their day to day business. Great business leaders have strategic thinking skill sets and are able to look at the big picture. They understand systems, reporting and data and are able to steer the ship based on trends they see using this information. The entrepreneur might be driving a small speedboat, where the successful business leader is steering a cruise ship….turns take longer and there are more people on board. Business Leaders have a respect and understanding for “The Business” as it’s own living, breathing thing, it is not tied to personal finances at all. Leaders also are willing and able to invest in other leaders within the organization. They pay the right compensation to get the right talent and then continue to invest in training and empower the people they have entrusted to manage those particular aspects of the business. Great leaders have short, intermediate and long term goals in place and long-term takes precedence when making business decisions.
In my experience, not all entrepreneurs have the skill set or the interest in making this transition to business leadership; the good ones know this and are able to see their own deficiencies. The successful ones either learn to make the transition or go out and hire the right people to take on those leadership roles.
