How does one govern an organization?  The word govern derives from the Greek word to steer.  Today we commonly prefer to say “manage”, but manage has a more active and direct connotation.  How does one steer an organization?

Steven Blank says that there are 3 phases to an organization: the search phase, the build phase, the execution phase.  While strictly speaking each of these phases could be of any size, we most commonly see search phase companies as small startups (<150), build phase are growing companies classified as small businesses (<500 employees) and execution phase companies are medium to large (500-1000+) companies.

Early stage startups are commonly run by a founder or group of founders.  These founders can oversee everything, be involved in every meeting, they can steer the ship directly day-by-day.  But when they grow, particularly when new management is introduced and the founders step back or leave, companies entering the “build” phase of life struggle.  This is known in academic papers as “the entrepreneurial crisis”, when good companies live or die.

Thus, the question becomes: how does one govern an organization when one person can’t govern it personally?

When I struggle to uncover new insights and get stuck in a problem, I find it useful to conceptually change the context of the problem to see what emerges (for instance, if you aren’t sure what you should do, ask yourself what you think your competitor or peer at another company does and then ask yourself if your doing that).  So lets make it personal: How do you govern your family?  After all, the family is the oldest form of human organization on earth.

Do you have management systems in your home?  Do you have policies?  Do you have procedures?  Do you have By-Laws?  Do you have a training or on-boarding system?  The answer to all these questions is: “sort of”.  If you have bed times for the kids, you have policy.  If you have a bed time routine or dinner time routine you have procedures.  Any checks-and-balances, such as asking the kids about their homework and possibly checking it, constitutes a type of management system.  As for by-laws, every family has some principles, core values, and foundation rules by which they operate.  And so, yes, families do indeed have all these things.

But I’m willing to bet that in your family none of these things are written down.  In fact, you probably rarely think of these things in isolation, aside from an incident which requires you to “re-think how we do thing”.  The reason is obvious: the governors (Father and Mother) are always present.  The rules need not be codified and written down because the “rule makers” themselves are always present in one form or another.  In such an arrangement the rule makers don’t just create legislation, they also enforce it, decide and execute judgement, consider, amend, and re-interpret it.   Nothing is lost because parents can consider the behavior they want the family to exhibit while at the same time balance compassion, love and understanding with the individual.

So why do early stage companies function so well?  Because the founder(s) can do it all and be there all the time to steer the ship, like a parent, always able to fully balance both what needs to be done with why it needs to be done, for the betterment of the whole.  This is why small companies can function at such a high level of performance with little to no governance…. who needs the rules when you have the rule-maker?

As organizations grow they become too large for this type of over-sight.  More importantly, at some point individuals who have the protectiveness and investment qualities of a parent bringing up children, steps away.  If the organization is too big for the people who built it to continue to govern it, how can outsiders expect anything better?  They can’t… a new way is required.

Within a family, the most common scenario in which this dilemma is encountered is when hiring a baby-sitter.  You will likely convey a list of rules and regulations to the baby-sitter, you may even write them down.  If the baby-sitter does a good job, next time you’ll simply remind them of the rules, and if they continue you may not have to state them at all.  This demonstrates a transference of some acceptable sub-set of your desires as the loving primary care-giver to a secondary party.  They key point being “sub-set”, you don’t expect a baby-sitter to replace you, rather they just stand-in for a short period of time.  Over longer periods of time you’ll resort to friends or extended family who aren’t you, but you trust to honor your wishes within reason because they fundamentally understand how you approach things.

Within organizations we apply this same solution, exempt, the loving primary caregiver may simply never come back home.  This is why hiring is so important in a growing company.  We call this “cultural fit” and too often we think of this as simply being a “kool person to work with”.  When we entrust parts of our growing company to others we need to ensure new employees and particularly manager, understand our philosophy and general worldviews which frame our actions, so that they too can act accordingly.  Writing down our rules (no TV after 8PM) and procedures (before bed, brush your teeth, go to the bathroom, read a story, then sing a song), only helps ensure continuity and broad boundaries; the philosophical and cultural similarity to interpret them in a similar way requires trust and shared experience.

Leading and steering an organization as it grows is a challenge that exceeds the capabilities of any single individual.   There are many things we loose as we distribute the governance, but this is a result of replacing a single complex human mind with pieces of lifeless paper that contain the “what” and the “how” but can not truly capture the complexity of the “why”, especially as circumstances change the the implementation of “what” and “how” change around the “why”.  The advantage of distributed leadership is specialization and experience tailored to the specific area to be governed, and the ability to innovate in that area.  However, the risk of divergence amongst leaders over time is extremely high.   This again points to the importance of understanding, hiring for, and maintaining your culture.

This time in a companies life is exciting, particularly because as leadership is distributed the organization begins to feel “alive”, it gains a heart beat, much like an organism growing from a single system of cells into a complex inter-dependent lifeform composed of a many individually complex system.  At some point in growth we can no longer understand all the parts of a company completely and instead understand the company as being its emergent properties….. and that’s the birth of an independent entity that has a chance at sustainability.