The required personality for the No. 1 Entrepreneur

In the October 22nd Wall Street Journal, Phred Dvorak wrote an article about the different personality required from the CEO – even when the CEO had previously been an officer elsewhere in the company. (A Different Animal Seeks the No. 1 Post; Often, It's Not No. 2

by Phred Dvorak.) The same phenomenon occurs in start-up enterprises as in their fortune 500 counterparts – the Chief Enterprise Officer has different demands than everyone else in the start-up business.

For established businesses, the greatest surprise comes to the insider who is elevated to the chief office. “The buck stops here” includes a host of customer complaints (both founded and unfounded), personnel concerns and the attendant personal lives of the people who comprise the institution, complex strategic decisions, and trivial but emotionally charged operational decisions. The CEO is backstop to every process and department in the enterprise. Leaders in other aspects of the business are exposed to only a small portion of the mix. For new businesses, the challenges are somewhat different, but the experience is the same.

In Own It, I emphasize that being comfortable with risk is not a prerequisite to starting a business. The common wisdom about entrepreneurs being risk-takers is misplaced. So what are the attributes that are required of a start-up CEO?

First, the CEO must bring the vision to the enterprise. This includes both the concept and the ongoing commitment to that vision despite all the challenges, pitfalls and rejections from people who do not share the vision. The CEO must have a tenacity for the vision that need not exist in any other member of the start-up team.

Second, the CEO must find the ability to balance a clear-eyed understanding of the challenges in front of the organization with an unflagging enthusiasm for the business and its ability to succeed. While not cheerleader-in-chief, the CEO must guard against exposing the start-up team to frustration and doubt. Once the CEO has given in to frustration, everyone else on the team will join on the bandwagon, often sending the start-up into a quick downward spiral. As a result, the CEO must be more judicious in criticism and more expansive in praise.

The emotional toll taken by shielding one’s emotions can be high. To succeed, the CEO needs someone outside of the enterprise with whom the daily frustrations can be shared. A healthy friendship, marriage, or social network is an important part of the enterprise planning that does not appear on the balance sheet.

In one unique situation, the information can be shared on the inside of the business. Successful leadership sometimes comes from co-founders who can share their feelings and concerns behind closed doors. While it is obvious that a team approach makes sense in terms of getting the work done, the more important aspect of having co-founders is the ability to share the emotional burden and buoy each other.

However the burden is managed, the start-up CEO must find a way to keep the focus on the vision, manage the balance of day-to-day demands, and support the others in the business so they are always looking forward. This is not a job description for everyone, but it is essential for the enterprise to have success.

Listen to a talk about the book – Hearsayculture.com interviews Jon Garon

I just completed an interview on KZSU-FM at Stanford University for the interview show and podcast “Hearsay Culture,” hosted by Dave Levine, Resident Fellow, Center for Internet and Society at Stanford Law School (CIS). As described by Hearsayculture.com, “each 45-50 minute show is designed to cover modern technology/Internet issues, but not from a purely law or geek perspective. … An interview talk show that focuses on the intersection of technology and society. How is our world impacted by the great technological changes taking place? Each week, a different sphere is explored.”

The show is #54, October 17: Dean Jon Garon of Hamline University School of Law, discussing his book “Own It - The Law & Business Guide to Launching a New Business through Innovation, Exclusivity and Relevance.” It will be podcast in late October. Hamline will also be adding it to the Conversations in Law series. (For older programs on Hamline’s intellectual property, listen here.)

While most the guests focus on the intersection of intellectual property on popular culture and society rather than on commerce, the conversation was fun a lively. Let me know what you think of the show.

Directors' Impasse - thoughts from the Midwest IP Institute

Last week sported both the publication of Own It and the 2007 Midwest IP Institute. The program is always interesting, with comprehensive panels and an audience capable of very sophisticated conversation.

At the Own It session (Garon on Counseling the Start-Up on the Use of IP), one of the more interesting topics was the use of an independent director to help settle disputes between the corporate directors.

While the conversation was quite far-ranging, the tension on how best to manage corporate disputes remains one of significant concern to the participants. So what can an entrepreneur do?

The first step is to reduce the potential for disputes by specifying key terms and decisions in writing between the owners of the enterprise. Specify that the intellectual property will be owned by the business rather than in a holding company and how those rights will be redistributed upon dissolution. Also specify the primary business objectives; agree to a rough (but realistic) time-line for milestones to take place, and include steps for further approval, so that if milestones are not reached, the enterprise does not drift, but rather the participants are compelled to make decisions on how to proceed.

The second step is to specify a process for breaking significant deadlocks. No one can anticipate all the problems that will arise in a start-up business, and few entrepreneurs have either the stomach or budget for solving all those problems. However, if the enterprise is a two-person (or four-person) group, tie votes can create significant issues.

One suggestion presented by a participant at the session called for an outside director to serve as a tie-breaker. Most of the participants, however, were quite uncomfortable with this popular approach because the risks inherent in relying on someone who has a small stake to remain impartial, to remain engaged, and to provide useful, objective guidance over time. While there are examples of such approaches working, both sides in the enterprise are staking a tremendous amount on the qualities of this impartial individual.

Instead, the participants promoted other suggestions. At the outset, the entrepreneurs are well advised to seek the advice of non-owners (key staff, legal and business counsel, etc.) to help the evenly divided participants find common ground. This is usually informal, but whether informal or formal, it will help both sides better understand the situation and the alternative solutions.

If these outsides voices still do not help the parties reconcile, then the parties should utilize binding arbitration. A properly drafted LLC should provide for binding arbitration in the event of an impasse, since the selective use of a qualified neutral is far better than the destruction of the enterprise due to an impasse.

I suggest that the arbitration provision require the arbitrator to utilize “baseball” arbitration rules.

Under baseball arbitration, the two parties each separately identify the problem and craft their proposed solution to the impasse. The arbitrator must then decide which solution is the more appropriate solution. The arbitrator cannot impose a third solution. This system requires that each side present a solution that is reasonable or risk the other side winning the arbitration, even if the other side was more culpable in causing a problem. The goal of the arbitration is for the enterprise to overcome the impasse and move forward. Quite commonly, the need to draft proposed solutions results in the parties narrowing their demands to the point that they can find compromise without the arbitrator ever rendering a determination. But if a determination is needed, the arbitrator’s decision is binding and the parties must adhere to it.

Baseball-style arbitration has the benefit that the arbitrator cannot craft a compromise solution to merely split the difference between the parties. Whenever a decision maker becomes known for selecting the middle point between the two alternatives, the parties are encouraged to make their demands more extreme. Baseball arbitration solves that primary flaw of external decision making. The parties can also invite the arbitrator to suggest a non-binding intermediary position, if they think the additional guidance would be helpful in crafting a compromise, but the entrepreneurs must understand that unless they agree among themselves, they are bound to the position presented to the arbitrator which was found most appropriate.

Comment on this suggestion or raise an Own It question of your own.