The Next Level: When a Fast-Growth Entrepreneur is Too Fast for His Own Company

The Next Level

Avoiding the pitfalls of fast growth.

“They will carry him out of the company in a body bag” is the first thing I ever heard about David Deeter. I had asked about him because the accounting firm that carries his name, Frazier Deeter, is one of the fastest-growing firms in America and yet he works in the tax department. It didn’t add up.

Mr. Deeter had previously served as managing partner, and during that time Accounting Today had named Frazier Deeter one of the best firms to work for in the United States. It had been growing about 25 percent a year for seven consecutive years, reaching more than 250 employees in 2010 (it is also a sponsor of my organization, the Oxford Center for Entrepreneurship). And now, with new offices in Nashville and Philadelphia, the firm is poised to go national but the guy who founded and ran the firm for eight years is no longer leading the charge. Was that his choice? It turns out it was not. David Deeter, the founder, got bounced down the organization chart.

But, wait a minute. Everybody you talk to says Mr. Deeter always put his heart and soul into the firm, that he did the almost-impossible by taking it from two accountants to more than 200, and that he loved every minute of it and was ready for more. But his company said no. In reality, this happens fairly often to entrepreneurs like David Deeter who push and pull their companies through high-stakes growth pains. Why? Because the employees, partners and leaders get tired of them. Sooner or later they all want to get off the roller-coaster and find stable ground.

To go from 50 to more than 200 employees, you probably have to bet the company a couple of times, and that scares the daylights out of people. You also have to wear some of them out with a series of jobs and titles. One month you have too many people and the next you don’t have enough. Employees get scared, but you, the entrepreneur, keep their heads in the clouds and you keep thinking, boy, isn’t this great? Why? Because you are having the time of your life.

Inevitably, you anger some people. By the time you get to 200, you have fired the brilliant jerk, been unrelenting in staying true to your vision and told some original team members that they do not have what it takes to continue in leadership. You have been at best a benevolent dictator, and this is where Mr. Deeter made his mistake. He consented to a partnership agreement that gave him two four-year terms as managing partner. With the company flying high, he asked the partners to amend the agreement and renew his contract.

I always tell people that a fast-growth company is no place for democracy. What was the decision? It wasn’t even put up for a vote, but if it had been, the final tally probably would have been 16 against and zero for. Was he surprised? Yes, totally. “We were doing so well,” he said.

Mr. Deeter is not like the accidental chief executive who would just as soon have a lesser role. He is a successful, positive opportunist who has all the entrepreneurial instincts to turn a market on its head and then be the market leader. Scarcity of resources does not scare him — it motivates him. He is smooth and polite, but a natural rebel. “When I go to these industry seminars,” he told me, “they teach it all exactly wrong — how you should build an accounting business. They think you do it from the inside. No, you have to be out there market-facing.” Market-facing means a lot to Mr. Deeter. It means client satisfaction and client innovation, but it also means sales — getting the business. At some accounting firms, sales is a dirty word. David Deeter is different.

When the larger firms wanted to buy Frazier Deeter, he would say, “By the end of the deal, you all will want to work here — it is so much better. We make more money and do more things.” Of course, that’s not what you say if you really want to be bought — you want to pump up the big egos not splatter them — but Mr. Deeter had no intention of being bought. He wanted to win.

He thinks big, and he gets you to think big. The problem with that is you can also lose big and even look like a fool. It scares employees and partners, even when things turn out well. Why? Because they now have something bigger to lose. I remember an employee telling me once, “Cliff, I just took out a larger home mortgage and I want to make sure we stay around. When will you stop hiring?” Another time, my chief operating officer asked me, “Why do this? Why go into Hong Kong? Let’s just sell and go home.”

Smart entrepreneurs come to understand this. We want to take over the world and prove everyone wrong, but employees want stability and a good job where they can live a good life. They like the upside of growth but they become more risk-averse as the company gets bigger.

And I think this is what happened to David Deeter. When I asked Mr. Deeter’s replacement as managing partner, Seth McDaniel, what happened, he said, “Look, David did a great job and I have a lot of respect for him, but the 16 partners thought it was the right decision for the company to make a change.”

When I asked Mr. Deeter how he reacted to the vote, he said, “It hurt my feelings that day, but even worse when I had to go to the first company pep talk and see somebody else on stage. I understand it more now as Seth was a rising star with a huge following. He is well liked. He makes people feel comfortable.”

I think fast-growth entrepreneurs can learn some valuable lessons from this episode. First, don’t get carried away with the rock-star mentality of thinking they all love you and will always listen to your songs. No, employees watch every move you make, and they question how it can affect them. They will give you their time and talents, but they do not want you to gamble away what they have earned for their families.

Second, even in the age of Twitter and Facebook, you still have to have frequent town hall meetings with the whole company in attendance. Employees do not like unexplained surprises or trying to guess what your plan is. Remember, there will always be people telling them that you are crazy.

Third, one of Stephen R. Covey’s seven habits of effective people applies especially to entrepreneurs, and it is a big one: “Begin with an end in mind.” And tell people about it. Don’t let them think that you are making it up as you go. Let your people give you feedback, and let them disagree. You can make the final decisions, but you have to listen. Show them you can be both an entrepreneur and a chief executive. How? Let the employees see that you put the company’s interests ahead of your ego and your own personal interests. Otherwise, the real talent will leave — or boot you out, which is what happened to Mr. Deeter.

The final part of this high-growth drama is how Mr. Deeter and Mr. McDaniel are doing. And the answer is, all things considered, not bad. Mr. Deeter estimates that he used to spend about 70 percent of his time with clients when he was managing partner. Today, he spends about 80 percent of his time with clients and uses the other time to have a “more integrated life,” as he calls it.

“No doubt I fell back on my Christian faith to humble me for all this,” he said. “I woke up one morning, and my wife asked what was wrong. I said, We have given our life to this company, haven’t we? She said, sure, you have. In some ways now, I am relieved about the change. Seth and I have learned to work together, and that means I don’t get involved as much. Don’t take that as a negative. We’re friends. Heck, Seth and I are even texting back and forth now.”

Mr. McDaniel is a consummate professional but without the big ego. “I like David,” he told me, “and I just listen when he comes to my office and tells me what he is good at and what I am not good at” — he was joking, with a big smile — “but he has even stopped doing that now. I consider David not only a partner but a friend.”

With 40 new people this year, Frazier Deeter is still growing, but it still has growing pains. It recently had an urgent information technology issue, and Mr. McDaniel did not go home until it was fixed at 1 a.m. in the morning. “Seth was on it,” Mr. Deeter told me. “Maybe, we did need Seth. I.T. and operations make my eyes glaze over. I have to be out there.”

Cliff Oxford is the founder of the Oxford Center for Entrepreneurs.

Article source: http://boss.blogs.nytimes.com/2013/01/22/when-a-fast-growth-entrepreneur-is-too-fast-for-his-own-company/?partner=rss&emc=rss