By Fernanda Arreola and Tom Hashimoto
Why entrepreneurial success increasingly depends less on building a business than on governing its future.
Every entrepreneur dreams of reaching the same milestones: developing innovative technology, convincing customers to buy it, attracting talented employees, securing investment and scaling rapidly. These milestones have become the modern entrepreneurial checklist. Yet some of the most promising ventures fail precisely after achieving them. They have technology, customers, revenues, investors and experienced managers, but strategic disagreements emerge, disputes amongst founders develop, decision-making slows, investor interests interfere and governance becomes contested. The problem is no longer whether the company can create value, but whether it can remain coherent as an organization.
What initially appears to be strategic flexibility can gradually become organizational fragmentation and inappropriate resource allocation.
This is what can be understood as the governance gap: the transition from solving entrepreneurial uncertainty to governing organizational complexity. Entrepreneurship research has traditionally emphasized opportunity recognition, resource acquisition, business-model development and market uncertainty. Eisenhardt, for example, demonstrates how effective strategy under uncertainty depends on rapid action, experimentation and flexible decision-making. Yet the organizational conditions that enable this entrepreneurial approach change dramatically as ventures scale.
In their early stages, startups benefit from simplicity. Founders work closely together, information flows informally and decisions are made quickly. However, growth and scalability render these conditions more complex to manage. Investment introduces new expectations; boards become more influential, specialists replace generalists, new layers of bureaucracy and hierarchy are added, executives bring different professional priorities and founders may eventually develop different perspectives for the future.
This is where a startup is at a key and determinant point for its exitance. This is when it must make the hard choices, those that become trade-offs. Porter famously argued that strategy requires choosing what not to do. As startups grow, however, opportunities multiply. New markets, partnerships, products and geographical expansions become possible. The temptation is to pursue several simultaneously. What initially appears to be strategic flexibility can gradually become organizational fragmentation and inappropriate resource allocation. And furthermore, it can lead to conflictual views amongst all the stakeholders involved: from the staff to the founders and shareholders.
The resulting conflict is not always visible. Organizations may leave the impression that they continue to grow in harmony. But when we take a closer look, we perceive that important decisions are either postponed or are divergent, even contradictory. The danger is not necessarily disagreement itself, but the gradual disappearance of strategic coherence.
The founder (s) therefore faces two different entrepreneurial challenges. The first is to build an organization capable of surviving market uncertainty. The second is to build an organization capable of surviving its own success.
This second challenge deserves far greater attention.
Technology can be copied. Products evolve. Customers change and investors leave. What is considerably harder to replicate is the organizational capacity to maintain coherence while complexity increases. The question facing a scaling entrepreneur is therefore no longer simply Can we create value? It becomes: Are the people around the table still building the same company?
A useful practitioner perspective comes from Zaffron and Logan’s Three Laws of Performance, which emphasizes how organizational performance is shaped by the way in which every single stakeholder interprets the actions and decisions of the firm. The challenge is therefore to recreate a common language that is transparent, coherent and complete, reshaping the language and generating common interpretations that lead to organizational commitments. Applied to entrepreneurial growth, this perspective suggests that governance problems cannot be solved only by adding structures, processes or capital. Leaders must also reshape the conversations through which the organization understands its future.
The entrepreneur who succeeds at this transition does more than build a successful company. They build an organization capable of remaining strategically coherent as success itself makes the organization increasingly complex.
Three leadership actions to restore performance
The Three Laws of Performance can be translated into three simple leadership interventions.
1. Surface how the situation occurs
Bring competing stakeholders together and ask: What do you see happening, and what are you trying to protect? Making different interpretations explicit can transform personal conflict into a shared strategic problem. To do so, use a representative group and have them expose their interpretation of where the firm is leading. To envision the future of the organization. Afterwards, if there are competing ideas you must demand explicit facts and risks for each potential future objective, making an iterative questioning until there is alignment.
2. Change the conversation
Once you have defined the strategic direction, identify the recurring statements (or judgements) that constrain action. People in the front line make think “investors will never agree,” “engineering won’t accept it,” “we cannot do that.” Turn them into questions: What would make this possible? What are we assuming? What evidence would change our view? Changing the conversation can expand the organization’s perceived options. Furthermore, it can help to unravel the fact that these questions can be broken down into smaller problems that can be targeted and overcome.
3. Declare the future and its boundaries
Leadership should make one explicit strategic commitment and identify what the company will not pursue. For example: “For the next 18 months, we will focus exclusively on becoming the leader in our core market which is business to business in Europe.” This converts competing possibilities into a shared direction and creates the boundaries needed for execution.
The entrepreneur who succeeds at this transition does more than build a successful company.
Together, these actions move the organization from competing interpretations to coordinated performance. They also complement Edmondson’s emphasis on creating an environment where people can speak up while maintaining high standards, and Simons’ argument that effective control requires both strategic boundaries and mechanisms for dialogue and adaptation.
This article was written using as a cognitive and analysis source the experience of a European serial entrepreneur that worked in rapidly growing startups in the European Banking and Insurance Sectors.
Tom Hashimoto
