Advice for Entrepreneurs: Learn to Delegate Responsibility

BALTIMORE —  Running a business is a lot like raising rabbits, or so it seemed to Andrew Carnegie. And modern-day entrepreneur John Henry, a fan of business biographies, says his contemporaries could still learn a thing or two from the famous steel magnate.

As a boy in Scotland, Carnegie wanted to raise rabbits at his poor parents’ home, but his mother said the family couldn’t feed them. Undeterred, young Carnegie rallied his friends to take care of the rabbits, promising to name one after each friend in exchange for their work gathering food.

The rabbits thrived, Carnegie wrote in his autobiography, and he learned that organization, not raw effort or pure brains, was the key to making a growing enterprise work.

“If they understand the rabbit story,” said Henry, chairman and chief executive of Crop Genetics International Corp., “they understand everything.”

Delegation Vital

Unfortunately, many entrepreneurs don’t get it. One of the things that routinely hampers growing businesses--and sometimes even kills them--is the inability of the boss to make the adjustment from be-everywhere, do-everything company czar to orchestrator who can effectively delegate day-to-day work and focus on the big picture.

In other words, many bosses never figure out how important it is to get the other kids to feed the rabbits.

“Most of us grew up with this Protestant work ethic,” said Frank A. Adams, president of Grotech Partners, a venture capital firm based in Timonium, Md. “What it comes down to is, ‘If I want to be successful, I’ve got to do it myself,’ all of which is a good tenet, but it don’t have much to do with managing.”

People who have run growing companies, as well as others who have invested in start-ups that are now thriving, say the hands-on boss is indispensable early in the life of the business. But, just as a child needs to be let out of the house to become an adult, a business needs to function outside its top manager’s sight to mature from a small to a mid-sized company. The key is knowing when to begin and how to guide the delegation.

There are two schools of thought about when delegating needs to begin. One school says it’s usually time to add a first layer of management help when sales reach $4 million or $5 million. That’s when an entrepreneur needs to identify people who are good at the things the boss doesn’t do well, said Charles W. Newhall, general partner of New Enterprise Associates, a Baltimore-based venture capital firm.

“The critical issue at this point is that the entrepreneur brings in people with independent minds,” he said. “The classic mistake is to hire a recent college graduate to be chief financial officer.”

Second Transition

This school says that a second transition hits the company when its annual sales reach anywhere from $10 million to $50 million, depending on the expert. That’s when a founder-chief executive needs to create a true management team, including the first elements of middle management, and to step firmly out of the daily flow of the business.

“Now everything must be delegated,” Adams said. “The job becomes managing the important details through other people.”

The second school avoids naming a specific sales figure at which changes should begin; it says an owner should be able to hear the chairs squeaking and figure out when it’s time to start adding managerial grease.

“It’s when the job isn’t getting done as well as it should,” said James Barrett, president of Genetic Therapy Inc. in Gaithersburg, Md. He said there are usually obvious signs: Checks bounce if finance isn’t being run well; product returns rise if there’s a problem in manufacturing; sales drop because of problems in marketing.

Both schools of thought agree that the first sign a company is running raggedly should prompt some serious self-evaluation by the boss.

“You need to start with an honest assessment of what you’re good at. From there, there’s an honest assessment of what your staff’s good at,” Adams said.

Then, he said, look hard at what the business needs and whose skills answer the company’s problems. “If the answer is I’ve got the skills and my staff doesn’t, you have to question whether you did it honestly,” Adams said.

Joseph Kelly, chief operating officer at Crop Genetics International, said tricks as simple as the chief executive’s keeping a log of what he did for a week can also guide delegating. “It should jump out at you what you did wrong,” Kelly said. “If you made the decision to pick out the secretary’s chair, you’ve got a problem.”

Managers can build extra candor into their evaluations by setting up formal and informal structures to keep them honest, Barrett said. They can take customers to lunch and ask for answers instead of orders. They can build networks in their industry whose members will tell them what their company is doing wrong.

More formally, network members can serve as outside directors whose independent judgment can check the often-rampant entrepreneurial ego. “If your board is your mother, your father and your wife, you’re not going to find out much that you don’t know,” he said.

But even after the decision to start delegating more authority and listening to more viewpoints is made, doing it right is still tricky. It’s hard for many entrepreneurs to entrust important tasks to subordinates who are new to the company or who are taking on more authority than before.

But Henry and Kelly say managers can lay the groundwork for trusting subordinates by setting high standards so everyone can see excellence is expected. It starts with little things.

“Letters don’t go out around here with mistakes in them,” Kelly said. “Once you work with a guy, he gets the idea. And once he’s thinking that way, it’s easier to hand things off to him.”

Adams said managers can build trust by giving new or newly promoted staff members small jobs first, as the company begins to experiment with more delegation.

Top executives should watch for their subordinates’ candor about how they’re doing and their ability to recover from mistakes. Then, if the small jobs go well, the staff members should be worked up to bigger tasks and then broad areas of responsibility.

“A CEO builds confidence and an employee gains confidence in the same way--through little victories,” he said.

The best way to learn to trust subordinates is to hire experienced managers, not just people who “will do.” Spend the money, even if it seems like a stretch, say entrepreneurs and advisers.

Another critical factor in successful delegation is diversity in a company’s corps of top managers.

“I don’t think the five of us would ever be what you’d call friends,” Henry said. “But you don’t want mirroring. You want a variety of perspectives. You couldn’t get a more diverse set of backgrounds than ours.”

Diverse expertise helps a company manage operations better than the do-it-all boss ever could. It also frees the boss to plan and think more. One thing to think about is how to stay on top of things now that the boss isn’t doing the work directly any more.