Chapter 3. Infancy

Figure 3-1: The Infant Organization

Product Orientation

Once risk has been undertaken, the nature of the organization changes dramatically. Cash is needed to pay bills. The focus shifts from ideas and possibilities to the production of results. For that, the company has to sell, sell, sell. Now that we want to control risk, we don't need more ideas. We need sales. "Don't tell me any more prod- uct ideas. I want to hear how much of our current product line you have sold."

While the founder talks about sales and should be preoccupied with bringing in sales, in reality the Infant organization is not sales-oriented. It's product-oriented. It's busy tinkering with the product, with the technology, with problems in production and performance. Is that normal? Yes! The organization needs to operationalize its product, which it has not done and could not have done in Courtship. If the company developed the product in the garage, it still needs to beta test the product in the marketplace; and, if that is successful, it needs to proceed to mass production. Those are activities that must take place and problems that must be solved before massive sales can begin. Some companies shy away from sales at this stage because they are aware that they cannot deliver.

So where are the financial resources coming from? The founders sell equity to finance the start up. They borrow to their eye- brows, and they endure a lot of sleepless nights.

For many fledgling companies, switching focus from ideas to results is trying. This stage is analogous to the period before and immediately after a wedding. Newly married spouses complain, "The romance has gone out of our lives. Before we were married, we used to talk all the time. Now that we're married we hardly see each other." And, the response to that is, "That's true, but before we got married, we agreed we wanted to have a family and buy a house. All that costs money, which we have to earn."

Infant companies find themselves in a similar quandary. During Courtship, there was time to talk and dream. With the undertaking of risk, there is no time to talk-only time to act.

On a social/political plane, we experience a parallel situation. Once a revolution succeeds, the first people who end up in prison are the idealists who started the movement in the first place. Why? Because the new social order has no need for more new dreams; it needs to fulfill the promises of the dreams that fueled the move- ment's origins.

At this stage of organizational life, what counts is not what someone thinks but what he or she does. The question founders must answer, and the question they ask their employees is, "What have you done? Have you sold, produced, or accomplished anything?" It's time to shun and discourage the dreamers of yesterday. "I have no time to think" is the typical complaint of the manager of an Infant organization. "There is just too much I have to do."

The Infant needs to sell, sell, sell. Selling is critical because without cash the young company won't survive. Nevertheless, I have found that many Infant businesses are weak on sales and that prob- lem can become pathological if they are preoccupied with the product, but not working to finalize it. They are perfecting it. They are continually coming up with new versions, new ideas. It's a never- ending process-not of continuous improvement, but of continuous perfectionism. The founder is more excited with starting something new than with finishing something "old." He is excited with the pos- sibilities the idea provides and with making it work. Selling takes a back seat, although it should not. This behavior can easily develop into a pathology; the company will run out of cash and out of finan- cial backers, and collapse.

Since the original edition of this book, I have worked with a number of startups, getting a clear picture of what happens up close. Invariably, the sales effort in Infancy is much weaker than it should be. The founder is the only salesperson because he or she knows the product or service better than anyone else, and the founder is also the product's most fervent champion. But founders have no time. They are busy with product design and debugging performance. They have to raise money to finance their companies, and they have to deal with whatever else falls on their desks. So sales gets only a portion of the time it should.

To develop a sales organization and to delegate the effort first requires stabilizing the product, creating sales policies and sticking to them, and developing sales-support materials that accurately depict the company and its product. All that takes time, and the Infant company does not have its time management in place yet. It responds to the squeakiest wheel. It is management by crisis. The true sales orientation does not develop until the company gets to Go-Go, the next stage in growth and development.

If sales orientation is insufficient for too long, the company will go bankrupt. The product is good; the market is there; and even financing could be there if there were sales. The company is a patho- logical case.

Leadership Transition

Infant companies confront a major paradox. The higher the risk they face, the higher is the requisite commitment to ensure success. In Courtship, the founders must be dreamers who can build commit- ment to the dream. Once the companies emerge as Infants, however, the risk is large, and they need hard-working, results-oriented founders who are not dreamers. The higher the venture's risk, the greater the wake-up shock when the organization is actually born. Not everyone can make the transition from prophet to action leader-someone who can actuate the prophecy. In transformations involving two leaders, there is almost always conflict between them: One clings to the ideal while the second needs to compromise the ideal in order to operationalize it and put it into action.

Consider Moses and Joshua. Moses was a prophet, and Joshua was a doer. The Bible tells us that God did not allow Moses to cross the Jordan River into the Promised Land. I don't believe God was punishing Moses. I suggest it was a reward God gave his faithful servant. If God had allowed Moses to cross the Jordan, Moses would have had to compromise his ideals, becoming a doer first and a prophet second. Rather than being eternally revered, Moses would have suffered the rejection and negation endured by later prophets who tried to bring their prophesies to realization.

Climate

A company in Infancy has little in the way of policies, systems, procedures, or budgets. A description of its administrative procedures easily fits on the back of an old envelope in the founder's vest pocket. Nearly everyone in Infant organizations, including the president, is doing something, usually handling one crisis or another. There are few staff meetings. The organization is highly centralized; it's a one- person show. It rushes ahead at full speed, eagerly ignorant of its strengths and weaknesses. Like a baby who hits instead of touches, Infant organizations have no way of knowing how much pressure to exert. These emerging organizations are prone to making excessive commitments because they are mistakenly confident that they'll be able to honor them. They overbook their schedules, and then they must postpone delivery dates. Nevertheless, they strive to respond to client complaints. Its members struggle to meet clients' needs, usually by working on weekends and holidays.

Infant organizations are very personal. Everybody is on a first- name basis, and there is very little hierarchy. There are no systems for hiring or for evaluating performance. They hire people when the need arises or whenever an impressive candidate appears. New recruitsInfancy 37 generally start working right away because Infant companies more often than not postpone hiring. And people get promoted for pro- ducing results or for knowing how to exert pressure on the boss.

At this early stage in the lifecycle, businesses are like newborn babies. They require frequent feedings in the form of operating cap- ital, and if they have to wait too long, they are very vulnerable. Most of them have no managerial depth. They have no capable leaders to replace their founders. They have no track record or experience, so a mistake in product design, sales, service, or financial planning can have fatal repercussions. Such mistakes have a high probability of occurring: These shoestring operations have no capital for establish- ing a complementary team that can make well-balanced business decisions.

No organization can remain an Infant forever. For the most part, the time and emotions necessary to keep an Infant alive far exceed the immediate economic returns it offers. If Infancy is pro- longed, pride of ownership wanes. The founder/owner becomes exhausted and gives up. In this case, the death of the organization is not imminent and sudden, as in Courtship; it is a prolonged process with the founders' continuously declining emotional commitment and steadily increasing complaints about "how bad it is."

Infant organizations characteristically:

• are action-oriented and opportunity-driven, thus

• have few systems, rules, or policies, thus

• perform inconsistently, thus

• are so vulnerable that problems become crises on short notice, thus they manage by crisis, thus

• the leader who does everything is loathe to delegate authority, and thus

• commitment of the founder is constantly tested and crucial for survival.

In many ways, Infant organizations are like living infants. In order to survive, they require two things: regular infusions of suste- nance and parental love and commitment. Deprived of adequate nourishment and care, Infant organizations can develop pathological problems and die.

Undercapitalization

We have to understand fully this need for periodic infusions of cash. Can you imagine inexperienced parents who plan for a nursery, toys, and cradle but forget about the milk? The milk a company needs is the working capital for such purposes as financing, increases in inventory, and covering accounts receivable. Without working capi- tal, the newborn organization can perish.

Some founders underestimate the amount of cash and working capital they will need. That mistake stems from the enthusiasm typi- cal of founders during the Courtship stage. A realistic view of cash needs is incompatible with building fanatical enthusiasm, and fear is not characteristic of Courtship: Faith (often blind) is. So, would-be entrepreneurs project extravagant sales and conservative capital needs. Instead of planning for the worst and hoping for the best as they should, they plan for the best and expect it. Forging ahead, many founders just hope that somehow their crying babies will get the milk they need. They rely on miracles. Miracles are part of the plan. They will happen because they have to happen. One can hope, but one must not rely on miracles.

The problem of undercapitalization grows more acute when companies succeed. That's just the opposite of what one might expect. The more a new company sells, the more working capital it needs to finance its receivables and inventory. I know of a retailer who, in order to increase sales volume, started selling on credit. The company did go bankrupt, but it wasn't on account of low sales. It just dried up. A company with sales increasing 35 percent or more annually will have trouble financing its growth from internal sources.

Founders can avoid the pains of undercapitalization during Infancy if, during Courtship, they really analyze what will be done, how it will be done, and who will do it-for both the short and long term.

For a healthy Infancy, there must be a realistic business plan, and cash flow must be monitored on a weekly basis. Cash flow should be the focus of record keeping. Accrual accounting is good for tax purposes and profitability analysis, but it doesn't track immediate survivability. Monitoring accounts receivable and inven- tory turnover is essential to avoid draining the Infant company's liquidity.

Infant organizations complain of being undercapitalized, and in their efforts to generate cash, they make several basic mistakes:

• They take short-term loans for investments that yield results only in the long run.

• They discount their prices to generate cash, but too often the dis- counts are so large, the sales don't cover variable costs. Consequently, the more they sell, the more they lose.

• They sell equity to venture capitalists who do not share their visions or interests.

Those mistakes can be serious enough to destroy companies. Initially when those solutions are implemented, the symptoms of the cash crunch seem to disappear. Over the long run, however, those treatments only aggravate the disease. The company ends up in even deeper trouble. And venture capitalists can tum out to be like the wolf from "Little Red Riding Hood." They approach with great big smiles. "All we want to do is help," they say. The real goal of venture capitalists, as it should be, is to earn substantial returns on their investments. Unfortunately, for some it also means: as fast as possible. Such traders put a clamp on a company's growth and eventually destroy a company by squeezing profits prematurely, in the short run. Founders should watch their organizations' cash flow, loan structure, and cost accounting and, if they bring in venture capital, they should make sure the investors agree to be there for the long haul.

Founder's Commitment

The second variable that can cause Infant mortality is the loss of the founder's commitment. Why is the founder's commitment critical?

Most Infant organizations have negative cash flow in the begin- ning. Their need for operational cash exceeds cash from sales. That creates pressure to be action-oriented, opportunity-driven, highly responsive, and flexible. Founders look for cash at any cost, leaving little space for rules and policies. They are experimenting and trying to define success. Rules and policies at this stage would suffocate the chance of satisfying client needs. Only when they can articulate suc- cess can they develop rules and policies to control and repeat that success. Having few rules and policies, and being very flexible and expedient about getting cash, leaders of emerging companies devel- op bad habits. They make decisions that set precedents.

For Infants, the cost of bad habits is low, but the benefits of getting the cash are high. As business gets bigger, and their client lists grow, the benefits of bad habits are no longer critical for survival, but the cost of bending to clients' demands in order to get the sale, postponing collections to avoid offending clients, and absorbing the cost of clients' continuous product adjustments can all skyrocket. Sales go up, and profits go to the basement. If a company makes too many concessions and bends too much to get a sale, it will run out of money and the founder will eventually lose control.

With few policies and rules, performance of Infant organizations is inconsistent. This is not unusual, but it makes Infant companies vulnerable. Their problems can become crises that turn management into a fire brigade. In an environment of management by crisis, it's not unusual to find very little delegation. And the one-person show has to be the founder's show. When the founder is not committed, problems go unresolved, becoming crises that can annihilate a com- pany. What does a founder gain by being committed? Founders of Infant organizations can expect to reap the following benefits:

• Twelve- to fourteen-hour days, seven days a week for much lower salaries than they would earn as employees elsewhere. The opportunity to make a million dollars is but a dim and distant dream.

• Weekly struggles to make payroll for employees who don't seem at all grateful.

• Getting to work long and hard, only to return home to a spouse and family who resent being "neglected."

Why bother?

During Infancy, the founder reaps few tangible rewards. The only thing that holds many young companies together is their founder's love and commitment to what their companies can and should be: the idea and commitment created at Courtship. Founders cannot let their dreams die. Their self-esteem is on the line. Their fledgling businesses are founders' tickets to immortality. They are their creations, their footsteps on a virgin beach, the monuments that will outlive them.

Infants require lots of work and many sleepless nights. What do they give in return? Even when new babies smile, it's not because they recognize anyone: They have gas. But despite no evident return, parents are committed. The same is true for company founders. In Infancy there is no tangible return. Talking about potential future profits is like talking about what a baby will be when it grows up. It's just talk.

What keeps founders going is the commitment they make dur- ing Courtship. If their commitment evaporates, their companies die. The highly focused commitment to their organizations might be so strong that it strains founders' personal lives. Understanding that led me to insist that founders who sign up for my lectures on organiza- tionallifecycles bring their spouses. I present the following analogy: Postpartum women are tired. Some suffer depression. The newborn baby exhausts them. An unsympathetic husband nevertheless wants to fool around. His wife might beg him to leave her alone because she is worn out. If the husband is not empathetic, he might become annoyed and complain, "Ever since you had the baby I no longer exist."

When the husband pushes his wife to choose between him and the baby, whom does she choose? No matter where in the world I have asked that question, people always give me the same answer: She chooses the baby.

Founders who have just established their companies feel like those new mothers. They dreamed about their ideas and built their commitment over time, maybe for even longer than nine months. Now that they have taken the risk, they are totally preoccupied with their new "babies." When they come home after a grueling day at work, they are still absorbed in the problems of service and quality. They are preoccupied with anxiety about pressure from the bank. Their spouses want their share of attention. But the exhausted founders can hardly talk. The unsympathetic spouses are furious: "Ever since you have your company, you no longer have a family. We don't count. Only your ego trip counts."

If the spouse keeps pushing, who wins, the company or the spouse? Yes, you are right. The company wins, and it's time to call in divorce lawyers. The spouse erroneously perceives the company as a competing lover. The spouse fails to realize that the founder has given birth to a baby.

What does a smart mother do after she gives birth? She shares the baby, and when the husband comes home, he should change, feed, and rock the baby. "It is our baby." Similarly, smart founders share their company problems. "It is our company, honey, not just mine."

Starting a company means putting your personal life on hold.

Founders often have to make a choice: the company or the fam- ily. An Infant organization requires constant attention. Founders continuously face problems for which they are ill-prepared: dissatis- fied customers, lousy suppliers, reluctant bankers, unproductive employees. There are no precedents, rules, policies, or organizational memories to which they can turn. Each decision sets the precedent, and making decisions from scratch requires an abundance of energy. Getting the cash necessary to make ends meet requires more sales, and more sales create the need for more resources that require more cash. The need for more cash renews the need for even more sales. That endless circle means that founders work long days and rarely sleep at night.

The founder of Mexico's Banco de Commercio told a gathering that when he started the bank, his wife asked him why. "To start a business," she said to him, "is like going to sleep young and waking up old." It requires full attention, total dedication, and total commit- ment. It's like a long dream. To many, it's a nightmare.

In a successful marriage, the husband is supportive of his wife after she gives birth to their baby. By the same token, founders' spouses need to be understanding and supportive during Infant stages of their companies. Prudent founders enlist the cooperation of their spouses, encouraging them to share the joy and pain of cre- ation. Without the support of their families, founders generally have to forfeit either their families or their companies.

A founder's commitment can disappear for more reasons than an unsympathetic spouse. If their cubs have been handled by humans, mother wolves will abandon their babies, leaving them to die. What causes such behavior? A mother wolf rejects her cubs when her scent is no longer on them but someone else's scent is. Likewise, when an Infant organization is manhandled by outsiders, the founder may no longer identify with the company. Many founders give away shares during Courtship or sell off pieces of their companies to venture capitalists and other external investors in order to secure an adequate supply of capital. If there is continuous intervention from those outsiders' hands and the founder no longer considers the company his baby, he will abandon it. Without the commitment of the founder, the company will languish and die.

That kind of rejection can occur in a larger organization as well. New departments and satellites are like new organizations in that they need high commitment. If every time the "baby" wants to do something new, corporate headquarters requires dozens of forms and formal requests, the new unit's founder may walk away, saying "If you make the rules, you can run the show."

Such external intervention might originate in government, which, through rules, laws, and regulatory requirements, can create an environment in which only large and well-established companies can compete. In start-up companies, founders may be so over- whelmed by the legal and accounting costs of compliance that they become alienated and quit.

When government intervention is minimal, people assume that whatever "is not forbidden is apparently permitted." But with intense external control and governmental intervention, people assume the opposite: "If it is not permitted, it is apparently forbidden." Thus, in societies where the government is deeply involved in regulating economic affairs, the entrepreneur might perceive that he will have to ask permission for everything: It appears as if everything is forbidden. Asking extensive permissions stifles entrepreneurship. Added to the normal risk of starting a business, this factor can destroy initiative.

Swedish law requires boards of directors to include elected employees. Furthermore, it's very difficult to fire anyone. A well-established company may be able to afford the cost of compliance, but for a start-up company that frequently changes direction and continually redefines success, the price of compliance can be prohibitive. It would be so difficult to alter corporate structure or reconstitute a board of directors that many would-be founders anticipate losing control even before they start their enterprises.

Autocratic Leadership Style

Many consultants, spouses, and other observers criticize founders of Infant organizations for not delegating, for working too hard, and being too opinionated. But such behavior comes with the territory of starting a company. For a company to succeed in Infancy, its founder must be enthusiastic, passionate, and resentful of anyone's interfer- ence. Such zeal is universal. Have you ever seen movies about the animal kingdom? All animals protect their young, allowing no stranger to approach. As human animals, founders fiercely protect their Infant organizations. They do not delegate. They insist on a one-person show with centralized, autocratic management. According to my theory, this problem is normal on the typical path (abnormal on the optimal path), and it should disappear once the organization out- grows its Infancy. It's abnormal and can become pathological if it continues after the organization has gone beyond the Infant stage of the lifecycle.

There is one more reason why Infant organizations have auto- cratic leadership: management by crisis. Because Infant organiza- tions are fighting to survive, they cannot postpone decision-making. With no significant experience or track record, there is little organi- zational memory, and few, if any, rules or policies. Many decisions set precedents, and the company lurches from crisis to crisis. Everyone gets used to thinking, "If it's not a crisis, we have no time for it." In such an environment, it's normal to have only task-oriented employ- ees. Those manager cowboys live by the motto, "Shoot first. Ask questions later." There is no time for planning or thinking because everyone is busy doing.

Those cowboys find the survival mode's hard work and dedica- tion personally exhilarating. Their lights burn late into the night. Their families go for days without seeing them. Singles often marry their coworkers. It's guerrilla war. Only the strongest survive, and those who do, establish close friendships in the high-stress situation.

With no titles, organization charts, or hierarchy, MBAs often have a difficult time functioning in an Infant organization on the typ- ical path. Their questions about job descriptions, structure, strategies, goals, compensation, benefit plans, and career-succession ladders are met with dumbfounded amazement. "Let's see," the founder of an Infant company might answer, "your job is to do anything and everything that needs to be done. As far as career succession, you are start- ing at the top. The harder you work, the higher you go. Any more questions? Ask me." The one-and-only.

When I started the Adizes Institute, I was fortunate to get one of my brightest MBA students as my first employee. Sitting in my kitchen, he asked me about his career-succession ladder. That was a reasonable question. I remember teaching him that well-run organizations must have long-range goals and objectives. Company leaders must translate those goals into specific plans of action, one of which is career development for managers. But sitting in my kitchen, with a company that consisted of just him, me, $5,000 in the bank, and no idea of how the unique and innovative consulting firm would work out, the question was ludicrous. My response to his question was, "Henrick! You are standing at the top of the ladder, but that ladder is underground. You want to rise? Great! Start pumping the ladder up."

For an MBA who has been taught to make strategic and policy decisions-that is, to think like a boss-it can be quite discouraging and depressing to have a "one-and-only" boss. Furthermore, business-school skills appear useless in an Infant organization on the typical path. An MBA's questions about long-term goals and strate- gy are unanswerable. Infant organizations do not prepare definite long-range plans and strategies. The Infant lacks the necessary prod- uct and market experience. It has a vision, a dream, an intent. But plans and measurable goals are vague. There is no experience yet.

"If we knew what to do, we would do it. We're still trying to find out what we actually have to do," a founder once told me. Out of the new experiences, patterns emerge, and later they will form the basis for projecting the future and for setting long-term goals and strate- gies. With no real experience about what works, a detailed plan is only a frustrating practice in futility. At this stage of the lifecycle, on the typical path, the prevailing and expected style is management- by-the-seat-of-the-pants. That style cannot and should not remain as the dominant style when the company moves to the next stage of the lifecycle.

Infant companies need to test ideas and gain experience first- hand. But because they are also likely to be short of cash, they can- not afford to let people learn from mistakes. Good experiences are achieved with good decisions. Good decisions are based on good judgment, and good judgment is derived from bad experiences-so- called mistakes. Since their Infant companies cannot afford too many mistakes, founders must keep a close eye on everything. They centralize everything. There is no real delegation of authority, and that's the way it has to be. Subordinates are errand boys or gofers who assist the founder. This is normal. If they delegate, without any system of controls, founders might inadvertently and unintentional- ly lose control. I once saw a cartoon in the Wall Street Journal: Two unshaven homeless men dressed in rags are sitting on a park bench sharing a bottle of wine. The caption says, " ... and then my consul- tant told me to delegate."

Employees are usually not so capable as the founders. If they were outstanding leaders who could make decisions of the same high quality, they would be starting their own companies. Often employ- ees of Infant companies are people who joined temporarily and decided to stay. Rather than having been recruited, they wandered in or just happened to be available. After a while, they become indis- pensable. The founder can't afford to fire them because they know too much, and it would be too much trouble to replace them.

As I showed earlier, zealous commitment is mandatory for a suc- cessful Courtship, but it can become a pathological problem in Infancy if the founder does not let go of a bad idea and adapt to reality.

During Infancy, the founder's hard work, refusal to delegate, and focus on short-term results are the crucial elements of organizational survival. Those same traits, however, can become a pathological stranglehold on a company in Go-Go, the next stage in its lifecycle.

If an organization is to develop, its management must also develop. Note that "development" does not imply more of the same. It means change. Development is both qualitative and quantitative. If the founder cannot mature and change his or her style, the organization will need a change in leadership.

Infant Mortality

A healthy Infancy balances growth with cash availability. Founders of healthy Infant companies feel in control of their operations. There is support at home, and none of the daily crises are fatal. They work long hours, refuse to delegate, make every decision and enjoy doing so.

Figure 3-2: Infant Mortality

Infant mortality occurs when founders suffer from ennui, when they are alienated from or lose control of their creations. It also occurs if the company irreparably loses liquidity.

No organization can remain an Infant forever. The energy required for takeoff exceeds the energy necessary for maintenance. One cannot long sustain the energy level required to get an Infant company off the ground. Enthusiasm and commitment wear thin, and the company dies. Time is of the essence. A prolonged Infancy is a sign of pathology.

When its cash and activities reach a level of stability, an organi- zation will emerge from Infancy and move into the next stage of the organizational lifecycle. By relative stability I mean cash flow is healthy; customers start bringing in repeat business; brand loyalty is developing; supplies stabilize; and production no longer presents daily crises. The founder finally has time to breathe. The baby is able to sleep through the night. Once this stabilization occurs, the Infant organization moves into the Go-Go stage of the lifecycle.

Problems of Infancy

Normal	Abnormal
Product orientation	Premature sales orientation
Questioning investors	Doubting investors
Commitment not threatened by risk	Commitment destroyed by risk
Negative cash flow	Unanticipated negative cash flow
Sustained commitment	Loss of commitment
Lack of managerial depth	Premature delegation
Few systems	Premature rules, systems, procedures
No delegation	Founder's loss of control
One-person show but willingness to listen	No listening; arrogance
Mistakes	No room for mistakes
Management by crisis	Unmanageable crises
Supportive home life	Nonsupportive home life
Supportive board of directors	Nonsupportive board of directors
Changing leadership style	Unchanging or dysfunctional change in leadership style
Short-term Infancy	Prolonged Infancy
Short-term financing for short- term investments	Short-term financing for long-term investments
Benevolent dictatorship	Dictatorship