The Biggest Impediment to Prime...The Founder's Trap

As a founder, you're obligated to remove yourself from the organization when it is time.

Can business organizations be similar enough in nature that they undergo a natural lifecycle with predictable stages and similar patterns of growth and behavior? Dr. Ichak Adzes, author of Corporate Lifecycles, believes so.

Businesses are created, grow, live, decay and die...just like humans. The successive stages of a corporation (discussed last post) include:

• Infancy,
• Go-Go,
• Adolescence,
• Prime,
• Fall,
• Aristocracy,
• Recrimination, early bureaucracy
• Bureaucracy and
• Death, Bankruptcy or shut-down

For the purposes of this post, we'll focus on the Go-Go stage because it is during this stage that the Founder's Trap manifests.

The Founder's Trap is a disease.

According to Dr. Adizes and Dr. Faust, every era of human history has specific diseases that organizations suffer from.

"When I say organizations, I have in mind, empires, movements, schools of thought, for-profit-organizations. Many companies were born, grew in some point, got into a trap where there was no way out and disappeared. The cause for this is a disease called Founder's Trap, " Dr. Adizes says.

What is this disease?

I will share my experience as co-founder of First Franklin. Following our "infancy" founding in 1981, we entered the Go-Go stage. A Go-Go company has a successful service or product that has rapidly growing sales and strong cash flow. First Franklin certainly fit that mold. From 1981 to 1986 we grew a 2,000%. We were not only surviving, we were thriving. We grew from a hard money lender and mortgage broker to a full-service mortgage banker, approved by the agencies.

With this success, everyone quickly forgot about the trials and tribulations of infancy.

Go-Go's feel they can succeed at everything and we were no different. My vision was readily unfolding and I was the prime mover of strategy, sales, products and loan production. To add insult to injury, I was the top originator sucking up resources, talent and time, while attending law school 4 nights a week at Santa Clara.

The Founder's Trap began when First Franklin couldn't separate itself from the founders. Symptoms include the founders refusing to delegate effectively or hire the talent needed to grow.

The needs of an organization change from a mortgage broker to banker - once Go-Go stage ends and the Adolescent stage begins. At First Franklin, we spent years in Adolescence. We tried going slower, faster but the decisive decision-making was no longer emergency caliber.

In this stage, the organization either matures and looks to grow successfully with shared authority and shared responsibility. If the founders refuse to relinquish these aspects of control, the organization is mired in the Founder's Trap.

Avoid the Founder's Trap.

I attended the MBA's inaugural President's Conference and met Gerry Faust, a speaker at the conference. It felt like Gerry was speaking directly to me...so I hired Faust Management and we began the diagnostic process. Gerry, and his team, asked if we were at risk of the Founder's Trap? It is easy to determine if you ask the following questions:

• Does the founder fear losing control?
• Can the founder let other's lead, and inspire the team in their own way?
• Will the founder release equity to leadership?
• Is the founder committed to a succession plan?
• Can the founder get out of the camera's spotlight?
• What will the company require from the founder at a later stage?

Adolescence to Prime

So what did Faust believe was the best way to get out of the trap?

Founder's need to bring in professional help from the outside during the transition between Go-Go and Adolescence, not before and not after that. This was the most difficult transition for First Franklin and for most companies in the corporate lifecycle because the changes are so fundamental, and the founder, me, appears to be an obstacle.

Getting to Prime with the Founder

To avoid the Founder's Trap, First Franklin had to change the way we communicated responsibilities, authorities, strategies and leadership. Or, in other words, we had to distribute the some of founder's responsibilities and equity - we had to let go and trust our leadership team.

In addition to building a more valuable company, the founder's job is to build a strong leadership team to address issues and distribute accountability. A quality team is required to succeed into the Adolescent stage and onto Prime. The founder must ensure the right people are in place to take the company to the next lifecycle. The founder must also treat the company like you would your growing child -with the understanding that your goal is to make the team self-sufficient long after your guidance diminishes. Maybe most importantly, you have to compensate them well for their dedication, commitment and time.

Epilogue

I hired Gerry Faust in 1990 and sold the business to DLJ Merchant Banking in 1994. In 1996, leadership bought First Franklin back and in 1996 and we sold the business to NationsBank in 1998. Nations Bank merged with Bank of America and we sold the business once again to National City Bank in 1999. Quite an amazing run. I stayed on as Chairman Emeritus until late 2003. My leadership team and employees are some of the most talented and respected leaders in the industry today.

Thank you Gerry Faust. May you rest in peace.