The Four Main Factors for Entrepreneurial Failure or Success
In my professional life as a lawyer, financial innovator, fundraiser, and a serial entrepreneur with a public exit and two M&As, I have helped hundreds of entrepreneurs become capital ready and/or get the resources they need to succeed. I have deep respect for entrepreneurs and their commitment, passion and courage.
Entrepreneurs bring new ideas to life, create jobs, generate wealth, inspire us, change culture, and make the world a better place.
Entrepreneurship is not for the faint of heart. Starting a company is hard work, expensive, risky, and requires commitment and sacrifice. Unless you are independently wealthy or have high net-worth friends and family that will invest in you when your project is in its infancy, you will likely have to work really hard, make sacrifices, and risk your savings and your credit to create the legal and financial structure of your company and prove your concept, so that you can get the capital and resources you need to achieve success.
There’s a humorous but true saying: “An entrepreneur is someone who works 80 hours per week for no pay so they don’t have to get a real job.”
While entrepreneurs are often passionate and creative visionaries, many entrepreneurs lack the understanding of the time, resources and executable steps required to succeed. They often believe that their idea is the greatest idea ever conceived and imagine that they will be the CEO of the next unicorn. Sadly, only one out ten startups actually succeed.[i] This low rate of success is largely due to the following four factors:
The Four Main Factors of Entrepreneurial Failure:
1. Lack of market understanding and expertise;
2. Lack of critical planning and clearly understanding and aligning the team on the company’s Vision, Purpose, Mission, Goals, and Objectives (“VPMGOs”);
3. Lack of capital, not being “capital-ready,” and not understanding the process for obtaining capital; and
4. Ego and arrogance of management and lack of competent leadership.
Rather than just list the main reasons why entrepreneurs don’t succeed, I believe there is far more benefit in providing affirmative steps for entrepreneurs to achieve success.
The same four factors that cause entrepreneurs to “fail” can be inversely applied to helping entrepreneurs succeed:
The Four Main Factors of Entrepreneurial Success:
1. Understand and be(come) an expert in your market. For a company to succeed, it must generally address a market need and/or solve a problem that customers are willing to pay for at a price that will generate profits. Becoming an expert in your market is critical to acquiring and retaining customers, capturing market share, and becoming profitable. It is critical that you define your target customers, develop a sales and marketing plan showing how you will acquire and retain customers, a TAM, SAM, SOM analysis, SWOT analysis, and competitive matrix. Here are some critical questions that need answering:
- Why does the world need your company and its products and/or services?
- What problem/need are you solving/addressing?
- Is the market established, or are you creating a new market? If the latter, how will you educate people and customers on the benefits of your company and its products and services?
- How big is the Total Addressable Market (“TAM”), the Serviceable Addressable Market (“SAM”), and the Serviceable Obtainable Market (“SOM”)?
- What is the compounded annual growth rate (“CAGR”) of the market?
- Who are the market leaders? Are the market leaders competitors or potential partners or acquirors?
- What is unique or different about your company (e.g., innovation, quality, price, service, reliability) in relationship to the competition?
- Can you capture market share by providing products or services not offered by your competitors or that are higher quality, more effective, less costly, or otherwise differentiated?
- Who is your target customer and how will you acquire and retain them?
- What are your Strengths, Weaknesses, Opportunities and Threats (“SWOT”)?
Once you are able to answer the foregoing questions, you will have a critical piece of the foundational information required to be effective in understanding your product/service-market fit, developing fundraising materials, recruiting team members and strategic partners, and speaking to investors.
2. Take time to develop a clear statement of your Vision, Purpose, Mission, Goals, and Objectives (“VPMGOs”).
While fundraising and sales are often priorities for startups, I have seen numerous entrepreneurs waste precious time and resources, chasing the wrong customers, markets, investors, and resources, as well as having a misaligned team with the wrong skill sets.
Building a company is analogous to building a house. You start with architectural blueprints. You complete the foundation before framing and putting on the roof.
VPMGOs provides the blueprints and foundation for your business and are critical for effective and productive sales and fundraising. Often entrepreneurs pick out the fixtures and furniture before they ever do their blueprints or laying the foundation. Slow down to speed up. By clearly defining their VPMGOs, entrepreneurs can accelerate the development of their products/services, sales plan, and fundraising materials, and more rapidly and clearly make sales, raise money, and achieve our goals. Below are definitions of, and brief discussion for each of the VPMGOs:
· Vision Statement — A clear, inspirational and comprehensive statement of the Company in the future stating what the Company will accomplish, its impact, effect, and relationship with its customers, and its sphere of impact and influence.
I often use a rapid prototyping reverse-engineering exercise where I ask my clients to imagine having a video documentary being produced about their company in 5 years from now. Imagine the company has already achieved its success. What would you tell the interviewer about your company? In doing this exercise, I want you to feel it, see it, hear it, smell it, taste it and be immersed in the reality you have created, and answer these key questions:
- What are the qualities, skills, values and caliber of the people working with the Company? Describe their beliefs and behaviors.
- Who are your top customers, and how did you acquire and retain them?
- What are the Company’s core values?
- Does the Company’s purpose align with its values?
- What were your biggest challenges, and how did you overcome them?
- What are your greatest achievements that you’re most proud of?
- How have you impacted and influenced your customers and the world?
While the work above may be several pages in length, the Vision statement should be between two to four sentences in length.
The Vision exercise helps instill an emotional embodiment of the company as real and existing. Our somatic consciousness and the reticular activating system that often control our reality and what we attract are activated through this exercise and help us to subconsciously make intuitive decisions and attract the resources we need.
· Purpose Statement — A description of why the Company should exist in the world and the unique value it adds to the world, the problem(s) it solves, or the demand(s) it fulfills.
Entrepreneurs and founding team members typically discuss only the company, market and customer purpose questions but don’t often explore their personal reasons for committing to a startup (e.g., wealth, fame, glory, power, influence, freedom, sovereignty, impact, innovation) or their fears and concerns (e.g., failure, trust, responsibility, hard work, commitment, expertise, ability to obtain resources, dependence upon their team, competition).
By exploring both the company and personal purposes, team members can get clear on whether engaging in the startup both aligns with their purpose and has market significance. By addressing fears and concerns early, they can be cleared, which helps remove the energetic and emotional blockages leading to procrastination and poor performance, and allows the team to discuss and address these concerns contractually or through principles, processes, and/or policies.
· Mission Statement — A written declaration of the Company’s focus and that which it desires to achieve. The Mission Statement describes what the Company is creating, the target market, and the intended beneficiaries of the Company’s efforts.
Your Mission Statement should be broad enough so that it will not require change in the future while providing significant flexibility for the company, but still grounded enough to be executable. For example, “Our mission is to improve humankind’s quality of life with technology” would be overly broad. Whereas, “Our mission is to apply integrated non-invasive biotechnologies and holistic health approaches, including nutrition, exercise, and mental wellness, to improve the health and well-being of humans” is a more clear and executable mission statement, but still broad enough to allow the company significant flexibility.
A clear and executable mission statement provides the foundation for developing the company’s goals and objectives that form the basis of the Company’s strategic roadmap and executable business plan.
The Mission Statement should be between one to two sentences of between 10–35 words.
· Goals List — A list of outcomes and milestones the Company plans to achieve or obtain within a certain time and what resources (i.e., expertise, staffing, capital, technology, relationships) are needed to fulfill those desired outcomes and milestones.
Primarily, the Goals section answers What, When, Where, and How Much. In developing your list of goals, provide a detailed description of the goal, the resources required to fulfill the goal, and the date for the goal to be achieved.
The Goals List lays out the roadmap required to fulfill the Company’s mission and achieve its desired success. It is critical that the Company clearly define its goals and milestones.
The Objectives discussed below are more granular than the Goals and provide a detailed breakdown of the task required to fulfill each goal.
· Objectives List — Objectives define specific required actions to execute the Company’s Goals, including (1) a description of what is required, (2) the start and end dates, (3) the resources (e.g., capital, human, technological, market) needed, and (4) the persons responsible for ensuring the objectives are completed on time and in budget.
While the Goals form the basis of a Strategic Roadmap, the Objectives provide the basis of a grounded, time, resource, and budget-driven executable Strategic Plan.
I prefer to use a project management tool (e.g., Wrike, Notion, Asana, ClickUp) to enter the Objectives and Tasks into the project management tool so that there is greater accountability and tracking of the Objectives and Tasks and whether they are being fulfilled on time and in budget.
By having a disciplined and committed approach to achieving our Objectives, we will, in turn, achieve our Goals, and fulfill our Mission, Purpose and Vision.
If you would like to download the VPMGOs Questions and Process to further help you develop your VPMGOs, click here.
3. Understand what investors want and be “capital-ready” before fundraising.
Entrepreneurs are often visionaries and dreamers who possess active imaginations. They generally believe that they have the greatest idea ever and innocently assume that because they are passionate about their “amazing idea,” money will come pouring in to support it. Unless an entrepreneur has a proven track record of success, this rarely happens. If an entrepreneur is not “capital ready,” they will likely burn up precious time, money, and resources with little results. Often entrepreneurs can “infect” investors with their passion for their company, but when due diligence starts, they better be prepared to answer the tough legal, financial, market, sales, marketing and resource questions.
The large venture funds see about 3,000 applications and invest in about 20 deals.[ii] So why will your deal be one of the .07% that gets funded? It’s not just about your brilliant idea or your commitment, but more about (1) your and your team’s expertise and track records, (2) your understanding of the market and how to capture it, (3) how clearly and succinctly you articulate your opportunity, (4) the size and growth of the market opportunity, and (5) having a clear and executable plan to achieve success.
Capital Readiness is critical for efficient, productive and successful fundraising. In addition to completing the prior two steps of (1) understanding the market opportunity, competitive landscape and doing a SWOT analysis, and (2) getting clear on your VPMGOs, capital readiness requires the following work to be done:
· Organizational Formation — Choosing the right organization in the right jurisdiction is critical. If you are a growth company with an exit strategy including an IPO or M&A, then a corporation is better than an LLC. However, if you don’t intend on taking the company public or selling it, but instead making distributions to investors, an LLC would be a more appropriate model. Institutional investors favor Delaware entities, however, there may be compelling tax, legal or logistical reasons for forming your entity in another state. For example, if you live in California, the business in California, and most of the initial customers are in California, even though California has high taxes and one of the most arduous regulatory environments for business, it may make sense to incorporate in California.
· Pro Forma Financial Projections — Before completing a pitch deck and business plan, but after completing the VPMGOs and market analysis, I recommend doing pro forma financial projections. The financial projections will give you an early indication of whether you will have a viable, investible and profitable business. The financial projections should contain the following sections:
- Assumptions — Startup projections are often built on assumptions, which should be based upon real market data. These assumptions include product pricing and sales volumes, sales growth, costs of goods sold (“COGS”), reduction in COGS based upon economies of scale, product or service expansion, payroll salaries and estimates of operating and capital costs.
- Sales and Revenues Projections — Using the assumptions calculate the Gross Revenues, COGS, and Net Revenues
- Payroll Model — Payroll and outside services are likely to be the largest operating costs, and I advise doing a detailed hiring and retention budget. While I prefer seeing Payroll Models broken down into (1) Sales & Marketing, (2) General and Administrative, (3) Research, Development & Technology (if applicable). Often entrepreneurs calculate below-market salaries to make the profit & loss (P&L) statement look more appealing. You want your expenses to be as accurate as possible to determine how much money you really need and whether you have a profitable and investible business. Don’t forget to include taxes, benefits and bonuses, as well as annual increases in salaries. The totals from the Payroll model can be integrated into the P&L statement as a line item.
- Profit & Loss (P&L) Statement –The P&L statement shows a company’s ability to generate sales, manage expenses, and create profits. The P&L summarizes the Gross Revenues, COGS, Net Revenues, and Operating Expenses to arrive at the company’s Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), as well as calculate Net Income or Net Losses before and after taxes.
- Cash Flow Statement — The Cash Flow Statement provides a summary of the cash or cash equivalents entering and leaving the company. The Cash Flow Statement provides statements from operating activities, investing activities, and financing activities. In a startup, cash flow will initially come from loans, equity investments, and later sales and be reduced by operating and capital expenses. In startups, I prefer the direct cash flow method showing how much cash is on hand to pay ongoing expenses rather than changes in cash flow. From the Cash Flow Statement, entrepreneurs can easily determine how much cash will be needed to be raised.
- Balance Sheet — The Balance Sheet is a snapshot showing what the company owns (its assets), what it owes (its liabilities), and shareholders’ equity. While investors to like to look at a Balance Sheet, this document is less meaningful for startups, unless the startup has valuable IP or assets.
· Pitch Deck — This document is a presentation about the company that quickly introduces the investment opportunity to investors. Generally a Pitch Deck accompanies a verbal presentation. While deals have been closed using only Pitch Decks, typically they are used to introduce the company to investors and engage them in building a relationship and follow-on conversations, due diligence and investment. A pitch deck is generally between 12–20 pages in length and includes brief summaries of the following: (1) About the Company, (2) Problem-Solution, (3) Market Size, Growth & Opportunity, (4) Competitive Analysis, (5) Sales & Marketing Plan, (6) How the Company Makes Money, (7) Consolidate Financial Projections, (8) The Team, (9) The Financing Sought, (10) Use of Proceeds, (11) Exit & Liquidity Strategy, and (12) Contact Information.
· Business Plan — While many deals get funded with a Pitch Deck, the Business Plan discusses all the points in the Pitch Deck in granular detail rather than a summary presentation. Often entrepreneurs do a pitch and an investor gets excited and says, “I’m interested” or “I’m in”, but 95 times out of 100, the questions, due diligence and meetings with professional advisors ensue. This is when the entrepreneur needs to show the investor and her advisors that the entrepreneur knows his business and is a trustworthy investment. The exercise of doing a detailed business plan provides entrepreneurs with much greater depth to understand and expertly articulate their business and why it’s a great investment at a reasonable valuation. When a sophisticated investor and/or their attorneys and accountants start asking questions, you want to be able to provide succinct, clear, authoritative and factually correct answers. Being able to do this strengthens investor confidence in the entrepreneur and accelerates the investment process.
Also, when engaging in incentive plans, stock grants, options, warrants, compensatory stock, and other instruments, it is advisable to seek a tax expert (e.g., CPA or tax attorney) to mitigate phantom tax events and tax liabilities.
· Due Diligence Documents and Data Room. When investors get really interested in your company, they will generally want to do due diligence. By anticipating the documents and information a sophisticated investor will desire and making it available in secure and convenient data room, you can save yourself and the investor a significant amount of time. You’re also likely to get extra points for this foresight, preparation, and professionalism. At this stage, because you will likely be exposing sensitive and confidential documents, it is appropriate to ask for a confidentiality agreement.
In addition to accomplishing the foregoing steps to capital readiness, it is essential to efficient fundraising to focus on the most relevant investors and those most likely to say “yes.” At the early stages, friends and family are a great source of funds. They know you and have an inclination to help you. Often friends and family are willing to invest without extensive and time consuming due diligence. They also invest their own money rather than someone else’s and don’t have the fiduciary duties and obligations of those managing other peoples’ money (e.g., VC’s, RIA, Private Equity).
The amount you need to raise will often determine who your target investors are. If you are looking for between $100K-$500K in total, then high-net-worth individuals, accelerators, and incubators are your likely targets. If you’re seeking amounts of $1M-$5M with minimum investments from $50K to $250K, then high net worth individuals, angel groups, and startup/seed focused venture capitalists (“VCs”) will generally be your target investors. If you are seeking $5M or more, VCs, institutional investors, ultra-high net worth individuals and their family offices are likely to be your targets.
Understanding the investment criteria of your target investors before you contact them is key. For example, if you are seeking VC investment, knowing the following will help you be much more efficient and productive in your fundraising:
· What is the size of their fund and is all funding raised?
· What is the average size of investment they make?
· Is the fund fully invested or do they have capital for new deals?
· What industries do they invest in?
· What stage do they invest (e.g., pre-seed, seed, Series A, Series B, Series C)?
· What technology readiness level or product readiness level do they require?
· What financial performance do they require (e.g., pre-revenues, revenues of $X, profitability of $X)?
· What is their target return (e.g., 20x in 10 years)?
· What companies are in their portfolio?
· Do they have geographical restrictions?
· What other requirements, restrictions, and preferences do they have (e.g., women or minority owned businesses, ESG)?
Once you have developed your list of the most relevant and likely investors to invest, determine whether you (or those in your network) have a direct relationship. It is much easier to get a meeting with an investor though a direct relationship or warm lead.
Armed with the expertise and tools above, you are now ready to efficiently and productively engage in fundraising activities.
4. Be an empowering and exemplary leader, build an experienced and relevant management team, learn the art of delegation, and create a governance structure that serves the purpose and mission of the enterprise.
· Empowering and Exemplary Leadership. I define leadership as standing for the greatness of another, helping them achieve their greatness, and being the first to do so.
Being the founder and have the title of “CEO,” doesn’t make you a great leader or entitle you respect as a leader. Leadership is largely earned through respect, trust and standing for the greatness of your team and your company.
Each entrepreneur/manager has their own leadership style. Some govern by fear (“the stick”), while others govern with inspiration and rewards (“the carrot”), while others govern with both the “carrot and the stick.” While fear and punishment have proven effective motivators in old style top-down bureaucracies, they are less effective in today’s world. If a leader desires to use the stick and punish their team for their wrongdoing and errors, it’s important to use the stick sparingly and be very clear on under what circumstances it will be used. On the other hand, showing appreciation, providing stock incentives and cash bonuses, providing an atmosphere that is loving and supportive, and giving praise can be great for morale, however, providing no disincentives for repeated procrastination, absenteeism, non-delivery, and subpar work can also be detrimental to the organization.
I have found that the most effective leaders are those that lead by example. They keep their word. They are committed to organizational success and do the work required to achieve it. They communicate clearly and inspire the best in others. The demand high quality products and services. They are humble and no job is too small or menial. The develop trust and mutual respect. They show their appreciation. They give authority equal to responsibility. They are clear on the quality of work and commitment expected from their team and the rewards, incentives, and bonuses for great work, and the consequences of subpar work, bad attitude, absenteeism and failing to meet deadlines.
Great leaders are also decisive, courageous, equitable, committed to the success of the company and their team, and are great at delegation,.
· The Art of Effective Delegation. Most great leaders are also great delegators. I’ve seen very few leaders that have the ability to micromanage teams. To micromanage teams requires almost superhuman skills such as a photographic memory; the ability to process massive amounts of communications, information, and relationships, as well as operational, financial and market factors; make a plethora of intelligent and informed decisions rapidly; communicate those decisions effectively; and efficiently produce a significant amount of deliverables by oneself.
Unless you’re one of the rare people that can micromanage teams, the art of delegation is essential for the success of your company and you as a leader.
Once you hire your team of experts, trust them and their expertise, engage in the art of delegation, and let them shine. The art of effective delegation initially takes a little more time and patience but saves significant time, resources, frustration, and modifications, while effectively achieving clear, aligned and superior deliverables.
The art of effective delegation requires (1) the delegee to have sufficient experience to deliver the assignment on time and at the level of quality required, and (2) a clear understanding and agreement between the delegator and delegee.
Often a manager chooses a bright, but inexperienced, team member to do an assignment, gives them unclear and vague orders, fails to ensure that the team member understands the assignment, and then blames the team member when the performance doesn’t meet manager’s poorly communicated requirements or the ability of the team member to read the manager’s mind.
The more clear and specific the delegator is with the delegee, the more likely the delegator will receive the results the delegator desires. This includes providing detailed description about the assignment, the level of priority, the time in which it is to be completed, a suggested roadmap for completing the project and suggested similar resources. However, just being specific in communicating the task is not enough. After communicating in detail specifically what the delegator expects, an effective delegator must also (1) ask the delegee to articulate their understanding of the assignment, (2) actively listen to the delegee’s understanding of the assignment, and (3) confirm that a clear understanding about the assignment is reached with the delegee.
While some small non-mission-critical tasks may not require this level detail and communication, the more important and urgent an assignment is, the more critical the need is for effective delegation.
Even a small task poorly delegated can lead to disappointing results. For example, the delegator, who is vegetarian, says to his new EA, “please grab me a sandwich and a beverage for lunch.” She brings back a club sandwich with turkey and bacon and coke rather than a veggie sandwich on gluten free bread and veggie juice. The delegator could have easily said, “I’m vegetarian. Please go to “Whole Foods and pick up an organic gluten free veggie wrap and an organic green juice with no fruit in it.”
If, as a leader, you don’t have time for effective delegation, you will likely spend considerably more time, money, and resources correcting and redoing deliverables, and having missed deadlines, misunderstandings, disappointments, and poor morale.
Effective delegation provides great efficiency, results, alignment and high-fives, not only for the C-Suite, but all teams and interactions where the articulation, alignment and agreement on clear deliverables, timelines, resources and budgets is required.
· Building an Experienced and Relevant Management Team — It’s critical to the success of an organization to hire the right people and the right time. By engaging in the VMPGOs discussed above, your organization will have a much clearer understanding who to hire and when. Aside from a great resume and experience, it’s important to have a great cultural fit.
For example, I’ve often seen startups hire executives from large corporations to provide the “luster” of credibility and experience for their fledgling organizations. Many of the large corporate executives have become accustomed to large budgets, large salaries, and minions that do their work. While they have significant industry experience, they have little or no start up experience. They often don’t have an understanding of guerilla tactics and how to creatively operate on a shoe-string budget. They have the resume and experience, but are often a poor cultural fit.
Other large corporate executives bring a wealth of industry experience and contacts, want to make a difference, and desire to take meaningful action without the slow bureaucratic constraints found in many large corporations. They are humble, willing to adapt, do the hard work, and accept a lower than market salary. In these cases, a large corporate executive may be a wonderful fit and great asset.
I’ve also frequently witnessed a phenomenon in startups I call the “Warm Body Syndrome.” The Warm Body Syndrome occurs when people who lack relevant skills are hired because they will work for low wages, for free, on deferral, or for stock and seem like passionate and bright people. I’ve also seen the Warm Body Syndrome show up where competent people are hired for a specific area of expertise but are asked to do tasks for which they are not competent (e.g., asking the CFO to do graphics). The Warm Body Syndrome rarely achieves success, but rather results in wasted time and resources, subpar deliverables, procrastination, and issues of expectation and entitlement.
Also, hiring people without the necessary skills or at the wrong time generally ends up leaving all parties frustrated and the Goals and Objectives unfulfilled. Prior to hiring or retaining team members, I would advise that entrepreneurs get really clear on their Goals and Objectives, as well as define the skills, expertise and characteristics of the people needed to execute your Goals and Objectives. Once this is accomplished, hire or retain those people who can expertly execute your Goals and Objectives at the appropriate time.
· Governance — In order to provide a governance model that facilitates the agility, adaptability, and resilience required for business in the 21st century, it is critical that we choose a governance structure that supports our business and ecosystem of stakeholders including our customers, shareholders, employees and contractors, channel and strategic partners, society, and the environment.
The manner in which the founder and founding team govern their organization generally creates the culture and DNA of the organization. In today’s world, hiring the best and brightest (especially in tech and next gen products) is critical for the success of companies. I have found that entrepreneurs and companies that provide the following are often the most successful:
o A culture of organizational and personal excellence that is inspiring, collaborative, valuing, and team oriented;
o An adaptable, flexible, and nimble governance structure
o Competitive salaries, incentives and benefits. (While providing competitive salaries and cash bonuses may be difficult for a lean startup, stock incentives, deferrals, royalties and other mechanisms may be used to make up for a lack of cash);
o Programs that enhance employee performance, wellness, and growth;
o Allow for ideation, innovation, risks and mistakes;
o Openness of information and organizational integration;
o A commitment to conscious environmental, social, and governance (“ESG”) policies; and
o Personal flexibility and enjoyment coupled with clearly articulated roles, responsibilities, quality requirements, and deliverable schedules.
Our society has become enamored with safety, security, predictability and standardization. This cultural meme led to the adoption of the standardized Hierarchical Bureaucratic organizational model characterized by a monolithic rigid structure, standardization, bureaucratic and disempowering processes, risk management, ineffective communication and myopic solutions with a culture of command-and-control authority based on title, blame and finger pointing, fear, competition, information siloes, and administrative bottlenecks. While these organizations were effective in the industrial age to aggregate large numbers of people to work together toward a common goal, this organizational model will struggle to survive in the fast paced information
There have also been some modifications to the Hierarchical Bureaucratic structure in the latter half of the 20th century (e.g., functional structure, divisional structure, matrix structure, and TQM/Six Sigma), as well as some Post-Bureaucratic models (e.g., flat organizations, team organizations, network organizations, virtual organizations, and consensus organizations).
The late 20th century and early 21st century, saw the advent of Complex Adaptive Systems Organizations (“CASOs”) such as Adhocracies, Biomimetic Organizations, Chaordic Organizations, and Fractal Organizations that sought to adapt to our rapidly changing world and adopt more humane and natural organizational structures. I’m a proponent of an integrated governance structure that I refer to as “Situationally Adaptive Organizations” or “SAOs”.
SAOs are adaptable, multi-structured hybrids that provide an organizational toolchest, rather than a single organizational tool, so that the most appropriate organizational structure and resources can be optimally applied in response to rapidly changing and varied situations. The SAO organizational structure is also adaptable, evolutionary and mutable allowing for shift of structure to optimize results based upon circumstances such as urgency, importance, specialization, economics, information flows and security. Additionally, experience determines authority not title.
For example, in an SAO, if there is a fire, the most qualified person to fight fires would be designated as the commander-in-chief until the fire is put out (experience has authority over title). In this example, the organization changes from its standard daily operating policy (e.g., a holocratic and biomimetic flat nuclear organization) to a single point of command. If the janitor is the person with the most experience in fighting fires, then he becomes the commander-in-chief, not the CEO, until the fire is out. Holding a democratic vote or obtaining consensus to determine who wants to get the hose, the pale and shovel while the headquarters burn down would not be optimally responsive to the fire. When the emergency from the fire has been resolved, the janitor’s elevated leadership status returns to his role as the janitor and the organization returns to its standard nuclear and flat operating structure. When an issue arises regarding how best to clean and maintain the company’s facilities, the janitor makes the decisions, not the CEO.
For additional information and depth on governance and organizational structure, please see my article entitled “Situationally Adaptive Organizations (“SAOs)” by clicking here.
I hope this article has been helpful in providing entrepreneurs with the information they need to succeed. To be included in our mail list to be notified of workshops, articles and other helpful information, please click here.
Mark Chasan is a lawyer, entrepreneur with a public exit and two M&As, a financial innovator who has participated in over $500 million in financing, and a change-agent that supports living-systems innovation and eco-social entrepreneurs to foster the Regenerative Economy.