6 Symptoms of a Dysfunctional Business Leader in a New Venture

New venture owners almost always cite a shortage of cash as the reason for failure, but if you look deeper, I believe the reason is more often about dysfunctional people and leadership. Sometimes it comes right back to the owner, in terms of a malaise often called “founder’s syndrome.” A few years ago I was intimately involved with a promising new business that taught me about this issue.

I’ll be short on specifics here, to protect the guilty, but I hope you get the idea. It’s not a disease, but it can kill your business. You can find a more complete discussion of founder’s syndrome on Wikipedia, but here are the key “symptoms” I observed in the founder and CEO in this case:

1.     Advisors and staff hand-picked from friends and connections. Personality and loyalty are apparently the key criteria, rather than skills, organizational fit, or experience. The executive is looking more for cheerleaders, rather than people with real insights and ideas.

2.     Reacts defensively and talks constantly. Sometimes it's time for quiet listening rather than talking. A strong and confident leader will always realize that a defensive response before the input message is complete does not impress investors, nor anyone else on the team.

3.     Staff meetings are for one-way communication. This founder holds staff meetings only to report crises, rally the troops, and get status reports on assignments. There is no concept here of team strategy development, and shared executive agreement on objectives.

4.     With no input and no “buy in” from the team, sets extremely ambitious objectives. These objectives are set based on the desires and dreams of the owner, with no recognition of technical realities, costs, or time required.

5.     Over time, becomes more and more isolated and paranoid. The first clue is some veiled comments about the motives of staff members, advisors, and investors. These become more specific as the situation gets more dire, to the point where key members begin to desert the ship in disgust.

6.     Highly skeptical about planning, policies, and advisors. Claims "they're overhead and just bog me down." The founder perception is that his experience is more applicable than the input of others, and formal planning and policies are just a way of introducing unnecessary bureaucracy.

In the beginning, we all found our business founder to be dynamic, driven, and decisive. He had a clear vision of what his organization could be. He seemed to know his customer's needs, and was passionate about meeting those needs. Just the traits one would expect for getting a new organization off the ground. However, he had other traits, including the ones listed above, which became major liabilities.

The undoing of the company began when a potential investor, after months of search, was ready to put up $1 million, but made it clear that his firm would likely need to replace the founder with someone with more credentials and experience in this industry. With that revelation, the founder killed the investment deal, and every other potential deal which raised the same issue.

Of course, no situation is this simple. There were product development problems, pricing problems, and early customers who demanded more features and delayed contractual payments. The ultimate result was a new business founder who exhausted his personal funds, drained the investments capability of friends, and drove away the team one by one.

For me, this is a most frustrating and difficult problem for any advisor or team member to deal with, since communication and learning can only occur when someone is open and listening. If any of you out there have seen this, or have some experience or ideas on how to deal with this situation effectively, let me know. You can be a hero if you have the cure.

For all you new venture founders out there, if you find this article anonymously taped to your computer, it might be time to take a hard look at yourself in the mirror. We can’t change you, but you can change yourself. It could save your business!

*** First published on Inc.com on 03-06-2024 ***