Arthur Andersen

The Trade-Off Game:
For Entrepreneurs Ages 18 and Up

By Ron Guerriero
Director, Emerging Business Consulting Group
Arthur Andersen, Boston

Apple, Lotus, Powersoft, Smartfoods, Snapple, Subway ... The list transcends industry and is tireless.

Hundreds of today's best known companies have a common mark. At some crucial growth crossroads, new management entered the scene - one way or another - to supplement or replace the idea person or people. They came to help the company make the transition from being small and successful to being big and successful. With some regularity this milestone is reached because the entrepreneur is not always the best chief executive; often he or she is ill-equipped to take the company to the next level. The visionary and the manager have different skill sets, different styles, different interests.

It has become conventional wisdom among entrepreneurs that one of the most common - and harmful - mistakes a founder can make is to not honestly evaluate what his or her role should be as a company leaves the runway. As an entrepreneur, then, you need to ask yourself: "Do I know how to fly" or even "Do I like flight?"

At some point during the early stages of growth, founders need to determine their company's goals and decide what their role should be as the company works towards those goals. Many founders rely on customized evaluation tools to guide them through this process. One such tool is called the "Trade-Off Game." This exercise helps entrepreneurs better understand their interests and aptitudes and how their talents compare with the company's needs. But to play the game correctly, the company must have a sense of what and where it wants to be in five years.

Five Years From Today This Company Will Be ...

A fundamental first step in the evaluation process is for the founder to articulate his or her longer-run business goals or vision. Not to be confused with detailed business planning, the vision merely sets out where you want to be in terms of growth and exit strategy in the not-that-distant future. Here are two five-year growth scenarios:

1. Growth from a successful $5 million company to an equally successful $10 million concern. While 100% growth is not to be achieved easily, it is likely in this scenario that the entrepreneur retains a large share of management responsibility for the company. He or she has more of a marketing and sales challenge (and hiring need) than a completely new set of business management pressures.

2. $5 to $50 million in 60 months or 5,900% growth in five years. This scenario represents a cultural and organizational revolution. In this wild equity market the presumption is that the company will be positioning itself for its launch into public ownership - a launch that will burn capital and quickly test the managerial fitness of the founder.

The chart above depicts the compression zone for growth. The steeper the growth curve, the greater the pressure placed on the organization, its capital and its people. In high growth situations like scenario number two, it is often essential to look outside the organization for talent capable of positioning the company for sustainable high growth. Moreover, the founder in a situation like this may need to relinquish day-to-day managerial responsibility. Where do you find the right talent? The X on the chart suggests the minimum revenue size at which the founder may need to recruit experienced executives from another organization - presumably executives that have managed the compression zone wisely and well.

The Trade-Off Game

Completing a compression chart can be an excellent way for a company to determine whether it's time to look outside the organization for talent to help the business grow. It can't, however, show the company's founder what his or her ongoing role should be in the growing company. Rather, it is a useful first step that can prepare the founder to play the Trade-Off Game.

The Trade-Off Game allows the founder to compare what he or she enjoys doing, and is good at, with what the company needs from a CEO. For the process to work, it must be an honest effort, preferably involving the founder and the company's independent advisors. Another prerequisite is vision (see above).

First, the founder makes a list of ten things he or she loves to do, or the ten business functions about which he or she is most passionate. At the same time, the company's advisors or consultants evaluate the company's needs over the next five years, developing a list of the 10 most significant responsibilities of a CEO if the company is to realize its five-year vision.

The results may look something like this:

Founder: Love to Do CEO Responsibilities
Predict the market's future Oversee/run all facets of the business
Design software Network in the financial community
Hang with programmers Interact with accountants, lawyers, etc.
Attend technical conferences Develop new business / build share
Solve technical problems Business strategy and planning
Develop good people Raise capital / File an IPO
Tech strategy and planning Establish policies and procedures
Eat fast food Use linen napkins
New product development Maintain a strong balance sheet
Recruit talent Retain talent

The next step is for the founder to choose items that he or she is comfortable and capable of doing from the CEO list; items that may not be on his or her love to do list. As a general rule, a founder participating in the Trade-Off Game should cross off two responsibilities from the "Love to Do" list every time he or she selects one from the "CEO Responsibilities" list. Then, upon completing the exercise, the founder should review what's left of the two column table and decide whether to continue serving as the company's CEO or recruit an experienced manager to run the company. The items that remain are a job description and the founder needs to consider if he can do or really wants to do the "new" job.

That Little Twitch You Feel, Its Pride; or What to do When Confronted by an Insurmountable Opportunity

An oftentimes insurmountable obstacle to the success of this process is pride. It is hard for the founder of a company to admit that someone else should become the CEO. Many entrepreneurs rightfully think of their companies as if they were children: they've given birth to their businesses, and now they want to help them grow.

By completing this exercise, founders can gain a clearer understanding of whether they are the right people to lead their companies to maturity and, equally important whether they want to do so. The Trade-Off game also provides an excellent tool for founders to protect themselves from becoming overextended.

While many who participate in this process decide that they want to continue to run their companies, many others realize that they would rather concentrate on the things they set out to do when they started their companies, such as product development or research. In handing off the "administrative chores" to others, they are able to focus on what they love to do most.

And while the Trade-Off Game was created to help founders make informed decisions about their roles in their companies, it can also be applied to other key positions within the company, such as CFOs and vice presidents.

The most important result of the Trade-Off Game is that it gives a company's founder the tools to make informed decisions about what roles need to be filled within the company, and insight into who should fill them. Often, the process helps the founder recognize, for the first time, that the company needs to start working to attract experienced talent to build a team. This is a vital issue for companies that are ready to grow. - ###

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