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Managers and entrepreneurs – what's the difference?

Managers are constantly asked to behave like entrepreneurs.

The other way round, entrepreneurs are often asked to behave like managers. The manager is supposed to develop the drive and opportunism of the entrepreneur, and the entrepreneur is expected to learn the methodical disciplines of the manager. The pressures on both have become more intense as the economy has become more competitive, more entrepreneurial, more demanding.

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But how real is the difference? The best study of Innovation and Entrepreneurship (his book title) is by Peter Drucker. He writes that entrepreneurs are not capitalists, or investors, or employers, although this is highly arguable - especially the last. Also, part of entrepreneurship is knowing how to raise, deploy and invest capital. Drucker is on safer ground in arguing that 'everyone who can face up to decision-making can learn to be an entrepreneur and to behave entrepreneurially'. If that is so, why do managers have so much trouble adopting the required behaviours - even though they are constantly urged to do so?

The general explanation is that entrepreneurship involves taking risks. While that is true, so does all human activity. The risk run in taking an entrepreneurial decision is no different from the non-entrepreneurial risk of, say, offering somebody a job. The classical definition of the entrepreneur is somebody who 'shifts economic resources out of an area of lower and into an area of higher productivity and greater yield'. That is hardly a risky proposition: the risk lies in a different definition, offered by Drucker - 'the entrepreneur always searches for change, responds to it, and exploits it as an opportunity'.

CHANGE IS CRUCIAL

The crucial word here is 'change'. Change carries the risk that your second state will be worse than the first. That is, you launch a new, innovative product: if it succeeds, all is well; if it fails, your job may fail, too. The calculation is the same one that tilts the balance of executive decisions towards 'No' rather than 'Go'. Approval commits the approver to a new course of action. 'No' preserves the status quo. The obvious answer, which is to create an atmosphere that encourages positive behaviour and discourages the negative variety, is also supposed to be very difficult to achieve. That, however, is a matter of perception.

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Most managers, for example, would believe it risky in the extreme to buy companies in a flash, as many as three in three weeks, without doing any more 'due diligence' than the strictly limited time allows. In fact, that sounds imprudent to the point of irresponsibility - but not in cyberspace.

That kind of shooting from the hip is incumbent on what Fortune magazine calls 'e-CEOs', the men (and a woman or two) who run the astounding Internet companies - businesses like Dell, @Home, Amazon, Intuit, Cisco, Double Click, Yahoo and CNET. Note two things about this list. First, the companies are American - not a European in sight. Second, the range of activity is vast: from PCs to personal finance, books to Internet routers.

There's a third point. Few readers will be able to identify all eight businesses. Yet these are already significant forces in world commerce, in many cases after only a short span of life. This phenomenon of high-speed rise to global force is so pervasive and strong that its overpowering importance can pass business people by, rather like the plane that travels overhead so quickly that you don't notice its passing. Try this quiz: how long did it take radio to reach 50 million consumers? And TV? And the Internet?

The answers are 38 years, 13 years and four years. Small wonder that in five years (1994-99) Internet users have expanded from three million to 163 million. In short, the world has never seen a phenomenon of this size and speed. Fortune is right to detect that the executives at the epicentre are forced to manage very differently from the conventional pattern. Where this analysis falls short is that all executives, and not just e-executives, will have to shift lifestyle and workstyle in this same, highly entrepreneurial direction.

The magazine's 'old model' manager is actually rather flattering. Many executives don't fit the description, either in part or wholly. But they would like to think that they fit the model, by being encouraging, alert, cordial, clearly focused, fast-moving, intolerant of ambiguity, sound in judgment. Their weak spots, says Fortune, are that they do not fully understand the new technology of information, and its challenge makes them nervous.

WISED UP AND WIRED UP

The e-CEO, of course, is wised up as well as wired up and responds to technological challenge with fanatical enthusiasm. But it's the non-IT characteristics that define the difference between the old model and the new. Answer yes or no to these questions:

1. Do you 'evangelise' about your company and its products and services - both internally and externally?
2. Are you aroused to the extent of competitive paranoia by threats and actual challenges from rivals new and old?
3. Are you 'brutally frank' in your views and criticisms?
4. Are you intensely focused on the key business and strategy of the organisation?
5. Do you take decisions and act at a speed that's near to instantaneous?
6. Do you like ambiguity and feel comfortable in unclear situations?
7. Is your judgment good?

Seven Yes answers clearly establish your entrepreneurial credentials. It's only the last question that describes both the old and new model managers. The difference is that the new variety exercises that sound judgment on the run. That probably makes no difference to the quality. But the slower-moving manager's loss of time is, of course, irrecoverable. And the faster events are moving, the less you can afford the loss of time. As Thinking Managers has constantly stressed, 'wait and see' has become an unviable strategy. By the time you have finished waiting to see the future, it may be too late to act: some more entrepreneurial spirit will have seized and cornered the opportunity.

Here are some of the opportunities seized by entrepreneurial e-companies. Note that some are internal. Managers are accustomed to thinking of entrepreneurs as outer-directed. So they are. But you can often accomplish wonders for the external customer by interior innovations.

1. Dell opens a 'Premier Page' Website for individual corporate customers (5000-plus in the US). In return for customised, individual service, these customers give Dell $5 million of business a day.
2. Ford Motor has placed 500,000 'product design resources, production management tools and strategic information assets' on its Intranet, and gives each car and truck model its own site 'to track design, production, quality control and delivery processes'.
3. Pitney-Bowes links up with suppliers over the Web for just-in-time delivery, and reckons that one day it will need no inventory at all.
4. Sun Microsystems uses its Intranet to get recruitment referrals from existing workers.
5. NextCard has used Net advertising to sign up $30 million of new Visa balances in a single month, cutting the costs of acquiring its balances by 70% in the past year, and garnering twice the industry norm per average cardholder balance.
6. Federal Express uses the Web to keep customers informed about their shipments and to take orders, and now handles more calls over the Web than over its phone service.
7. Cisco gets complete reports on revenue, margins, orders, discounts and top ten customers every day the next day - which 'allows executives of a big corporation like Cisco (with 18,000 employees and annual sales of $10 billion) to stay in tight control without suffocating employees' entrepreneurial spirit'.

Preserving and developing that 'entrepreneurial spirit' is what it's all about. How can you get a conventional business to act like the e-corporation? In the first place, note that there's nothing truly revolutionary about any of the seven innovations mentioned above. Every company collects Cisco's numbers, keeps a check on shipments, advertises for new customers, recruits employees, liaises with suppliers, coordinates design, engineering and production (or tries to), and pays special attention to its major customers. The seven firms above had simply looked for and found better ways of carrying out basic functions.

THE 4S COMPANY

That's the guiding rule of the 4S company - Single-minded about its core business, Speedy in its response to all stimuli, Sociable in its maintenance of friendly relations, partnerships and alliances inside and outside the firm, and Shallow in its structure. It minimises layers, bypassing command and control structures to enable all three other S-functions. You need all four: miss out only one, and the whole edifice will tumble down.

You couldn't ask for stronger evidence than recent events at Compaq, often the subject of warm praise by Thinking Managers. Chief executive Eckhard Pfeiffer was the hero of the saga which in short order took Compaq from also-ran in market share, far behind IBM, to world leader. Pfeiffer's ability to grow sales and profits seemed inexhaustible. Yet there were nagging worries - also reported here - about Compaq's inability to match either Dell's direct marketing model or the management technology that underpinned the direct sales.

The consequence was that Dell was Speedier, more Sociable (with IT-enabled special relationships with suppliers and - as noted above - with customers), Shallower and more Single-Minded - especially after Compaq's acquisition of Digital Equipment. This was hailed as a strategic masterstroke. But it lumbered Compaq with a monumental task for which it had neither aptitude nor experience: the management of a mammoth merger, complicated in this instance by the fact that Digital was a tired company that had defied three major internal efforts to reform its culture and revive its success.

Its founder, Ken Olsen, was once singled out as 'America's greatest entrepreneur'. Like many entrepreneurs, however, he was a one-note man. The mini-computer market was one he deeply understood. But he couldn't get his mind round the personal computer market at all. It still took years before Digital was thoroughly undermined, even though Olsen faced (and fumbled) a simple choice: whether or not to become as powerful a force in PCs as in minis.

Today the choices 'definitely exceed what was available just a couple of years ago by perhaps one or two orders of magnitude'. There are also far more 'opportunities to put these variables together in different combinations and more freedom with which an entrepreneur can operate to provide something that is unique in the market-place, using new tools'. The speaker is Gideon Gartner, now on his second successful round as an information entrepreneur.

A DIFFERENT MODEL

After founding the Gartner Group (and selling it to Saatchi & Saatchi), he came back to found Giga. His account of the two foundations expresses important truths about entrepreneurship. The entrepreneur typically sets out to create 'a different model'. If everybody in an industry is attacking the market in the same way, that is your opportunity to be completely and tellingly different.

To his great profit, Gartner saw that his old business, originally a maverick itself, hadn't changed its model since 1979. Yet 'the IT industry had changed dramatically'. The technology shift was huge, 'the new platforms...were totally different than they had been in 1979, so I felt there had to be an opportunity'.

This is a double-sided coin. Success eventually imprisons the entrepreneur in a mindset that ceases to be relevant to a changing market. At the Giga Forum in May, one of the researchers set out a compelling argument about Microsoft. Bill Gates fundamentally did not want the market to change, but it changed anyway. The same was true of Digital's Olsen. What goes wrong in these circumstances can be easily summarised. The customer goes off in a different direction, and the company attempts to stay on the same course. That is how the entrepreneur reverts to a sterile form of non-entrepreneurial management.

The key is the much-overworked phrase 'customer satisfaction'. A vital difference between the entrepreneur and the manager is that the latter pays lip-service to the customer, while the former truly meets the customer's requirements. In the mid-1990s, Giga research found that Microsoft customers were very dissatisfied, and that some would 'do anything to get away'. Microsoft people refused to accept this evidence. Like IBM in the 1980s, they wouldn't listen to messengers who brought bad news.

The entrepreneurial manager listens to what the customers say, seeks out criticism, never suppresses it - and acts on what has been heard. Microsoft is now trying to do precisely this. Gates and his president, Steve Ballmer, genuinely see the need to shift the company from product focus to customer focus. That's why they have launched 'Vision Version 2', which, according to Business Week, is 'a sweeping overhaul of the thinking and structure of the company'. Part of VV2 involves stepping back and letting the heads of eight new product groups, all focused round the customer, make key decisions themselves. The supremacy of Gates and Ballmer has been a bottleneck. By making all major decisions and a host of minor ones, they have slowed down responses and created dissatisfaction.

Their cycle is typical. It runs from entrepreneurial to managerial and then to strenuous attempts to become entrepreneurial again. That third stage occurs when, as at Microsoft, the original markets become saturated. The first temptation is to try to screw more revenue from the market, whether the customers like it or not. To bolster its revenue growth, Microsoft resorted to 'conduct unbecoming' - charging more to existing customers, while giving them less. The entrepreneur, knowing better, seeks to provide new products and/or services to the customers already served, and to find new buyers for both old and new offerings.

GROWTH OPPORTUNITIES

There are growth opportunities galore in Mircosoft's markets, but they do not arise from the PC operating systems and associated applications that have powered its rise. According to Ron Enderle, a Giga vice president, the age of the personal computer is drawing to an end. 'Appliances' will take over, meaning phones and palm top computers that connect with the Internet and set-top boxes that will do the same. That shifts control of the market to the service provider - and away from Microsoft and Intel.

In this turbulent e-world, nothing is fixed for long - and that is the world in which all managers are compelled to seek their futures. You cannot make build change on unchanged foundations. The organisation, and the methods of those at the top, have to change to achieve changed purposes. Gates is absolutely right to have asked himself these four tough questions:

1. Are we making what customers want and working on the products and technologists they will want in future?
2. Are we staying ahead of all our competitors?
3. What don't our customers like about what we do, and what are we doing about it?
4. Are we organised most effectively to achieve our goals?

The questions are right, but the answers are what matters. The management and the methods built by entrepreneurial success eventually solidify and become deadweights. The entrepreneur starts from scratch. That is the test for all would-be manager/entrepreneurs: to restart the organisation as if from scratch.

Robert Heller