Nav

Do Good Entrepreneurs Become Good CEOs? The 10X Challenge

My partner Scott Johnson wrote a thought provoking piece on what makes a good CEO. I wanted to share my thoughts on the “Moments of Truth” that an entrepreneur must navigate successfully to become a great CEO of a thriving business.

Every entrepreneur who is fortunate enough to start a business which grows quickly faces what I call “The 10X Challenge”. Simply put, I suggest that every entrepreneur will face very similar personal challenges at very similar moments in time. This theory applies equally to managing people, managing customers, and managing data or traffic. And each such moment of truth presents peril or opportunity for the entrepreneur.

Managing people is the first and most important job of an entrepreneur. Get this right (assuming of course that you have a good idea and strategy) and you will do well. The challenge: When you first start the company it may just be you. You make every decision. And when you add your first handful of employees you can still be involved in most every decision.

Once you reach 10 employees, give or take, you can no longer manage everyone. You have to hire managers. And give them both the authority and the responsibility to manage an important part of your business. I am going to guess that half of the entrepreneurs don’t get this right. They want to keep their fingers in every decision. Soon they are spread too soon. Worse, they can’t keep a good manager, who will refuse to be so tightly managed. Entrepreneurs who can’t make this transition are destined to run a very small business.

Next is growth from 10 to 100 employees. Generally, around 100 employees, companies transition from a functional management structure (VP sales, VP marketing, VP engineering, VP Finance) to a product line or business unit structure, or else hire or promote someone to a clear #2 position – a president/COO. Once again, a moment of truth. At this point the entrepreneur has to step back once again, and delegate authority and responsibility not just over a functional area, but over a product, a business unit, or a collection of functional areas. Many entrepreneurs who got it right at 10 employees actually choose to change their role at this point. They want to be entrepreneurs – not managers. It takes a strong sense of trust to bring in a #2 or put someone in charge of a product line or business. Yet another moment of truth.

At 1000 people, the company clearly has its strategy right. People are buying the product. And the company likely has a leadership position in the industry. Although there are big name founders out there who made it this far (Bill Gates, Scott McNealy, Larry Ellison, Steve Case) most don’t. At this point it is about leadership more than day to day management. Becoming the spokesperson for your industry. Becoming in a small way a local celebrity in your industry niche. This doesn’t suit everyone.

The 10X challenge similarly applies to how many customers you have (1, 10, 100) and how you manage them as well as the robustness of your technology (1 transaction per day, 10, 100, 1000 and so on). I’m sure you can think of other aspects of management where it applies as well.