Managers vs Entrepreneurs

What is the difference between a manager and an entrepreneur? Is one better for society than the other? These are questions that frequently arise during our mentoring sessions with young college graduates who are at the beginning of their professional careers.

Management, as a scientific discipline, and managers as practitioners of it, are concerned with the control and maximization of a firm’s resources. These resources may include capital assets, human resource assets, customer assets, and processes. Managers thrive in and prefer relatively predictable and stable environments which enable them to steadily and incrementally improve utilization, nurture talent, cut costs, eliminate waste, and shorten development cycle times to extract more profits from same assets. That said, the ability for a manager to effect change in an organization is constrained by the inertia of his assets. A five percent annual improvement in productivity at a large industrial firm, such as GE, is considered to be an extremely successful result.

Entrepreneurs, on the other hand, are innovators and disrupters who are naturally antagonistic to the stable environment and incremental approach espoused by managers; they have little interest in maintaining the status quo since since they cannot effectively compete against established players with well-oiled processes. The individual entrepreneur has no assets to start with and moves quickly to adopt new approaches and aggressively tackle opportunities in new markets and can thus afford to be disruptive as they have no well-established assets to lose. In the end, their advantage stems from the speed with which they can move in rapidly changing environments.

In many cases, the relationship between entrepreneurs and managers is an adversarial one, fraught with misunderstandings and caricatured impressions of each other. Managers look upon entrepreneurs as whimsical and even capricious in their approach to business whereas entrepreneurs view managers as stodgy, hidebound, and potentially as impediments to change.

The irony is that every successful entrepreneur ends up creating assets that need to be continuously kept productive and optimized by someone with managerial expertise. As a startup expands, the entrepreneur must transform himself into a highly effective manager, otherwise he risks serious damage to his own business; but that is very hard to do. As a firm starts to grow rapidly, the founder’s skillset has to expand at an even faster pace to stay ahead of the business requirements. He has to learn new skills and unlearn old ways of conducting business which were better suited to a business in its infancy. In most cases, it is much more effective to hire a manager to help manage the core of the business while the entrepreneur pushes the envelope at the fringes. As the company matures, entrepreneurs often retire or move back into the startup world. In certain cases, the entrepreneurs and their startups become acquisition targets by managers looking to induce growth in large companies.

A well-balanced team of entrepreneurs and experienced managers, bound together through mutual respect, can significantly propel an enterprise. At Google, Manu witnessed this first hand with Eric Schmidt coming in and acting as the company’s lead manager through his role as CEO. The founders, Larry and Sergey, continued to focus on driving new technologies and strategic relationships. Over the years, Larry learned how to become a better manager of the core businesses without having to be at the reins and disrupting the assets that he had created. This type of symbiotic relationship between experienced managers and entrepreneurial visionaries isn’t just unique to Google. Steve Jobs would rely on Tim Cook to streamline the supply chain and operations at Apple. Sheryl Sandberg brought sales and organizational expertise to Facebook while Mark Zuckerberg focused on executing his core product vision. Going further back, Bill Gates surrendered day-to-day management responsibilities at Microsoft to Steve Ballmer, so that he, himself, could focus on driving strategy and new technical efforts. The model has proven to be an effective one in the technology industry over the past two decades.

Unfortunately, when there isn’t mutual respect and intellectual honesty between the manager and entrepreneur the transition is usually disastrous. At Exodus, Kanwal (board of director) saw billions of dollars in equity value dissipate after Ellen Hancock was brought in as CEO. She had little regard for the founder and Chandrashekhar was sidelined. Similarly at Apple, John Scully had little regard for Steve Jobs. Apple stagnated for more than a decade. Yahoo also faced a similar fate. If the incoming manager is led to believe that he is being brought in to fix a problem they very quickly dismiss the entrepreneur.

Ultimately, entrepreneurs are creators of new wealth in an economy while managers are conservers of established wealth. Society needs both of them as one brings stability to the environment while others adds dynamism and fuel for expansion. An economy full of managers without entrepreneurs is likely to stagnate while an economy full of entrepreneurs without managers is likely to be unstable. Japan, an economy entering a third decade of economic stagnation, is a prime example of the first while Nigeria is a good example of the second. In the United States, on the other hand, we have a healthy balance between the two and so our economy is both relatively productive and dynamic compared to other nations.