After studying the formation of more than 150 companies over the past two years and talking with the heads of several venture capital organizations, we've concluded that engineers start 90 percent of technology-based firms. We should note that we discounted dotcoms and focused on firms in the computer and communications industries.
Perhaps this isn't startling, but if we focus on the disciplines that are generally found in engineers and entrepreneurs, we can see why so many individuals--and organizations--fail.
First of all, engineers are skilled in the planning, design and construction of a product or service. They solve challenging problems, make technological breakthroughs and develop successful solutions. They are stimulated by producing the next generation of technology and making it successful.
On the other hand, entrepreneurs organize a business and assume risk for the sake of profit. The entrepreneur is out to make money, take risks and beat the competition. He or she is excited by the challenge of starting an organization and making it successful.
The engineer is product-oriented. The entrepreneur is profit-oriented. These motivations are dramatically different.
The fundamental drives and motivations are so different that, all too often, the engineer can't make the transition to entrepreneurial businessperson. This inability to make the transition cripples many organizations in business as they go through their various stages of life.
Company Life Cycle
While many don't realize it, companies are a lot like people, in that they go through a complete life cycle.
First, there is the gestation period when the company is an idea that is talked about, and the parents-to-be plan big things for the child-to-be.
Birth occurs when the founders leave their present company, rent some office/storage space, obtain funding and start nurturing their first product or service in earnest. For the engineer and the entrepreneur, these are the fun years in the life of a company. Energy, togetherness, creativity and dedication are everything.
People work long hours and have fun for little or no pay (especially when compared to their contributions). During this stage, CEO can be an entrepreneur, an engineer or an engineer/entrepreneur because the small team worries less about titles and job descriptions and more about the task at hand.
During the formative years ($1 to $5 million), the organization begins to take shape and a management structure is developed. The engineer must spend less time on products (he or she is
still permitted this luxury though) and more time developing and managing others. During this period, the company grows from a core group to between 50 and 100 people, and a management style emerges.
Most engineers can survive as CEOs during this phase of the company's life cycle.
As the company approaches 100 to 150 employees and sales of $20 million, the company enters adolescence. Just as parents encounter problems with their children during this phase, the
founders of a company also begin to encounter problems. The management team is stretched thin, sales flatten, and the CEO suddenly has to acquire new skills to help the firm move on to its next growth level.
During the adolescent period, there are rapid growth spurts. A loose, fun organization must give way to one of greater structure.
During this period a more professional management approach is needed. At this point, the engineer (and sometimes the entrepreneur) often stumbles, steps aside, or is moved aside.
When sales surpass $20 million, the employee population has grown from 150 to more than 1,000 people, with all levels of expertise, capabilities, goals and desires.
To reach this stage of maturity, and to pass safely through it, management must acquire even more skills. The company is now highly organized and has a very structured environment. The CEO
needs professional management skills and must surround himself or herself with people who have superior management experience and capabilities.
The company is now positioned to be a true, major factor in the industry, and perhaps a Fortune 1000 company.
In some instances, dramatic product/service acceptance whisks a young organization through the formative years to maturity without permitting the infrastructure to properly develop.
These blips of meteoric growth often mask many problems. Since the structure and team are not properly in place, the system breaks down because the growth cannot maintain itself ...it needs the support of management and others within the firm.
The heads of these organizations have basked in the spotlight of success. They have become gurus for still other aspiring engineers/entrepreneurs. Their pronouncements have been held in awe. They have been sought after from every quarter.
When the system breaks down, it is often too late to save the company. Our heroes' words suddenly take on the flavor of the ravings of madmen.
Just as with life, there is a natural process of development in a company. Its leadership must experience a similar increase in skills. Those who develop these skills are able to bring the company through the critical periods and get them back on the road to solid success.
Those who can't are destined to help bury the company or are "retired" to let others get the growth and profits moving.
The key to the individual's success is balance.
According to Bill Davidow, general partner of the VC firm Mohr, Davidow Ventures, balance is a set of tangible and intangible skills. The tangible skills are general management, technological, marketing, financial and operational. Intangible skills are determination, leadership, team building, communications and human relations.
* General Management is fundamental to the success of any organization. Without a good foundation, activities are fraught with frustrations. Planning, organizing and controlling are essential activities.
* Technology plays a less important role for the CEO as the organization evolves and grows. An engineer often finds it difficult to give up his or her first love, but it must be done if he or she is to become effective managers of a growing organization. However, the technologist can't totally abandon his or her area of expertise, because many critical decisions require solid technical understanding as well as an awareness of industry technology trends.
* Marketing soon becomes the heartbeat of any organization and the CEO must develop strong product marketing skills--especially in the areas of positioning and strategic marketing. This means positioning the company in its target market and developing the kind of thinking that can help the company make its way through the marketing maze.
It is essential that the CEO understand who is buying the product, what they are buying and why they are buying it. This area is so important that many industry leaders feel that
the heads of companies should spend 25 to 30 percent of their time with customers.
In so doing, they find out first-hand what is happening in the marketplace and who their competitors are. They also learn a lot about the customer's wants and needs ... now and in the future.
Another important area of expertise is sales and revenue forecasting. These are the forecasts that drive the company, so management must understand their methodology
* Finance. Human blood is red but a company's blood is green. From the very start, the engineer has to gain a whole new perspective of finance in order to control budgets. Then, as
things become more complex, the CEO must gain skills in general accounting, cost accounting, cash flow, asset management and so forth.
* Operations becomes important in an engineering-driven firm where management has to be concerned with the dispersal and use of its assets. Despite his personal likes or dislikes, the CEO should gain a basic understanding of material requirements planning (MRP).
It is important to balance the tangible or measurable skills with a philosophy of thinking that provides consistency in the management style. These intangible skills can sometimes carry, pull or push an organization through the rough times.
* Determination – combined with dedication and desire – is difficult to beat during the early phases of an organization's growth. That almost blind determination to do whatever it takes, and the willingness to go the extra mile, will motivate others.
* Leadership takes many forms and has many facets that help motivate those within the organization to achieve even beyond their own expectations.
- Trust is essential. People within the organization need to
feel that they can trust the CEO to do what is in their
- Good judgement comes from being observant and being able to
anticipate problems and solve them before they occur. In
addition, since no problem has only one solution, good
leadership requires the ability to evaluate all potential
- Initiative from the top is mandatory. It is vital for the
CEO to be sensitive to people and events and to know
exactly when it is time to take the lead in order to make
certain those things are done properly.
- Authority and respect must be earned by the CEO and given
to members of the team in order to be retained.
- Team Support is best explained by observing a motivational
seminar where team members strengthen each other. People
naturally rely on the CEO to make sound decisions under
stressful conditions. In addition, the members of the
organization like to, and want to, participate in these
critical products and decisions.
The tough products and decisions aren't to be given
only to a select few, but rather shared. They are what
get the adrenaline going and permit people to shine. If
there are failures along the way, people need support.
When there are successes, people need the accolades.
- Optimism is most often exhibited by your best salespeople.
The big sale, the big order and the big success are just
around the corner. During the various stages of a
company's growth, the CEO needs the confidence of the
- Principles must never be compromised. People have to know
where the CEO stands in order to have confidence in him or her as
a CEO ... and as a person.
- Focus on objectives, not obstacles. A CEO should have a
clear picture of what he or she is trying to achieve, and must
keep that picture in focus regardless of the obstacles that
must be overcome.
- Prioritize the things that have to be done. Don't make it
a long list because a long list is just like a long list of
New Year's resolutions. It's so long that they can't all
be achieved. Therefore, none of them are. With a short
list of priorities, the company never loses sight of its
- Credibility is vital in an organization. No one expects
the CEO to be right 100 percent of the time, but when he or she
is wrong, they should admit it. Nixon and Clinton wouldn't have gone
through their public flogging had they been upfront about their
shortcomings. No one really believes in infallible super
heroes. Okay, maybe not Clinton but Nixon certainly would have
fared much better than he did.
- Delegate responsibility and authority ... it's the only
way to keep good employees. If others aren't involved in
the success or failure of a product, they have no vested
interest in its success ... so its failure is nothing to
* Build a team of the best people available. Employee selection is one of the most difficult things that a CEO has to do. He or she can never be 100 percent certain that they are making the right decision until months or years after the decision has been made. The key is to hire smart and manage tough.
Identify the key positions in the organization, and spend an exceptional amount of time hiring the best people possible ... not for today, but for tomorrow. If a CEO is good, he or she should have no fear of being surrounded with superior people.
* Communications in an organization of any size is vital to its success. During the early stages, it is easy. As the firm grows in size and complexity, however, it becomes more difficult.
According to Cornell University, quality communications is very important. Only 7 percent of what is verbally communicated is actually understood by the target audience. However, 38 percent of the action and 55 percent of the attitude are received. In other words, 93 percent of
communications is not what is said, but how it is said.
As a result, it is important for the CEO to be:
- Genuine, open and honest
- Sensitive to the feelings of others
- Willing to listen actively, not passively
* Human relations is important throughout the organization, not only with the direct staff, but also with everyone. Call it a corporate culture, but it is an interrelationship with others in the organization that keeps them motivated and working toward a common goal ... corporate success.
Profile of Balance
The engineer who starts a company must make a transition from specific knowledge to proficiency in all areas. At the outset, he or she has to have strong communications, leadership and technological understanding. In addition, the engineer/entrepreneur needs the skills of marketing and management.
During the early stages of corporate growth, it is rare to find an individual who has all of these elements. In order to succeed, however, the individual must have a plan of action for developing and nurturing these skills and for overcoming deficiencies before they bring down the individual--or the company.
As the organization enters adolescence, technological expertise begins to take a back seat to determination and new tangible skills that include finance, marketing and general management. The intangible skills of communications, team building and leadership are vital at this point in the
organization's life cycle.
As the engineer/entrepreneur continues the transition to CEO of a mature organization, he or she adds other tangible and intangible skills. Complete proficiency in all of the areas isn't absolutely necessary. However, it is important that the CEO either has the skills, or is surrounded with superior people who have them.
Through it all, there is no substitute for desire, dedication and determination. These character traits, along with a good idea and a good team of people, can assist the engineer/entrepreneur in turning an idea into reality ... and success.
A balance of skills will help ensure the engineer/entrepreneur that his or her soon-to-be-born idea will not die a premature death.
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