Entrepreneur’s Disease : Visionaries Fall Apart With Growth

Hard-charging Charles Peddle, who had the go-get-’em to launch five businesses and the vision to inspire hundreds of employees, loves the grand gesture.

He once whisked senior staff and dealers of his Victor Technologies Inc. by chartered jet from a trade show in West Germany to Paris. Addressing them at a cafe near the Arch of Triumph, he declared with Napoleonic flourish that he would marshal the “troops” of his struggling computer firm to defeat the massed armies of industry leader IBM.

But the flamboyant Peddle has less patience for the mundane details of management, say some former employees. He once told a young budget analyst that any financial planning that couldn’t be done on a calculator-watch was “worthless.” And on another occasion, to make a point, he ordered Victor’s main computer unplugged, losing vital company records in the process.

Symptomatic of ‘Disease’

Such gestures, some would say, are classic symptoms of “entrepreneur’s disease”--character traits that make Peddle well-suited to launching firms but less equipped to run them as they grow into large organizations. Those traits were a key reason that the once-fast-growing Victor last year tumbled into bankruptcy-court reorganization, some former Victor officials contend.

If Peddle has the ailment, he’s not alone. The problem is widespread and widely recognized. George Comstock, founder of Diablo Systems Inc., a Fremont, Calif., manufacturer of computer printers, defines an entrepreneur as “a guy who takes a company to 50 people, then screws it up.”

Treatment of the problem has become a matter of growing concern--and not only because it frustrates the money-making ambitions of businessmen. The routine failure of early-stage entrepreneurial companies means a squandering of U.S. capital and business talent as well as the regular loss of jobs.

Bitten by Urge

Now, as ever more Americans are bitten by the urge to start their own companies, academicians, management consultants and the company-builders themselves are all seeking treatments for entrepreneur’s disease. They want to know how entrepreneurs can develop management skills and guide their fledgling companies through the difficult transition to maturity.

“Next to sex and money, I’d say it’s what entrepreneurs talk about most,” said Joseph R. Mancuso, whose Institute for Entrepreneurial Management holds seminars on how executives can cultivate their companies from small size to large.

The conflict is fundamental, the experts agree.

To succeed, they say, entrepreneurs must be self-confident, decisive and sufficiently self-reliant to handle all facets of their companies’ work. In a single day, the head of a small manufacturing company might be required to modify a product’s design, order a shipment of parts, arrange a bank loan and rewrite the company’s advertising slogan.

As the company adds staff, however, the entrepreneur is forced to act more and more as an administrator--a “professional manager”--who manages a group of managers who must jointly reach decisions and act. This professional manager, according to the experts’ consensus, must have the patience to wait out such decisions, to attend to the organization’s nuts-and-bolts details, including the myriad personnel problems that arise.

Go Against Grain

Those activities go against the grain of entrepreneurs, say those who have studied the problem. The very self-reliance that makes them good entrepreneurs makes it difficult for them to delegate; their decisiveness makes it difficult for them to wait out committee decisions. And because they are visionaries, they often don’t have the patience to handle the personnel problems. They get bored.

“It’s almost like playing the violin and boxing,” said Mancuso. “If your hands can do one, they can’t do the other.”

The explanation offered by psychologists is that entrepreneurs are often poor managers because they are too involved with turning their very personal dream into reality.

“Their intimate relationship with their dream makes them unavailable to other people,” said Abraham Zaleznik, a professor of leadership at Harvard’s Graduate School of Business Administration. “To manage well, you’ve got to be available to others--sensitive enough to avoid too much ego-bruising, for instance.”

Some Skilled Managers

To be sure, there are notable examples of entrepreneurs who prove themselves skilled managers, or who are flexible enough to turn over key administrative tasks to such a person.

For example, the co-founders of Intel Corp.--Gordon E. Moore, Andrew S. Grove and Robert N. Noyce--remain at the helm of the Santa Clara computer-chip manufacturer that they built up to a company with $1.7 billion in revenues and made a model of good management. And, in a much-publicized success story, Steve Jobs, 29, one of the whiz-kid founders of Cupertino’s Apple Computer Inc., recruited Pepsico executive John Sculley, 45, with a $2.5-million bonus to impose system and discipline on the growing company.

But such cases are the exceptions. Some entrepreneurs ignore the need for managers entirely.

Between 1905 and 1920, Henry Ford built what was the world’s most profitable manufacturing firm. Ford believed that companies do not need managers at all--only the entrepreneur and his “helpers,” or “courtiers,” noted management professor Peter F. Drucker in his work, “Management.” Ford fired or sidelined any helper who dared to act as a manager, and kept a corporate “secret police chief” to detect and root out any stirrings of individual initiative.

Empire Fell Apart

As a result, between 1920 and 1927, Ford’s business empire fell apart, fading to a poor third in the market and losing money almost every year for 20 years.

Entrepreneurs’ errors are usually not so extreme, however. The company-builders more commonly slip up because of overconfidence or their preoccupation with long-term goals, say the management experts. Immersed in their dream of dazzling the world, entrepreneurs often try to do too much, spreading their companies’ efforts across too many products.

Some believe such a misconceived strategy brought about the decline of Storage Technology Corp., of Louisville, Colo., a one-time high-flier that has been in bankruptcy court reorganization since last November.

The company was founded by Jesse I. Aweida, a Palestinian-born engineer who left IBM with 11 other engineers in 1972 in a group that was soon nicknamed the “Dirty Dozen.” Storage Technology grew to peak sales of over $1 billion in 1982 as a maker of data-storage devices.

But at Aweida’s urging, Storage Technology began trying to develop products in several kinds of technology, including large-scale computers, and the data-storage devices called optical disks and disk drives. That spread its capital and administrative resources too thin, say industry observers, hurting its core business.

‘He Got Carried Away’

“They were doing great, and then it was like something happened to Jesse,” said one executive who has been close to the company. “It was like he got carried away by the entrepreneurial impulse.”

Aweida did not return phone calls from The Times.

While successful entrepreneurs frequently lose their way guiding companies through an intermediate layer of managers, what they often do best is directing and motivating the small groups that join them in founding their company.

Former employees say such was the case with Brooklyn-born Seymour I. Rubinstein, who founded the software company MicroPro International Ltd., of San Rafael, publisher of the top-selling word-processing program WordStar.

Rubinstein, the founder of six companies, “is a street-smart guy in a world of 16-year-old wonders,” said industry consultant Esther Dyson. In 1978, Rubinstein recalled: “I had a wife, two kids, a couple of car payments, and decided I’d bet my miserable $8,500 in savings on a new business.”

His chief talent, say former employees, was an ability to lead a crusade. “Seymour was the bearer of light, and we’d follow him anywhere,” said Will Luden, former MicroPro marketing director.

WordStar Experience Cited

Rubinstein’s ability to guide staff members in a one-on-one relationship was proved in the way that he led a brilliant but temperamental programmer to write the complex WordStar in a brief nine months, say former MicroPro officials.

Programmer Rob Barnaby agreed. “He kept me working, and he kept me interested, and that was hard,” he says.

But growth brought Rubinstein’s management shortcomings to light.

“Everything that made him a great entrepreneur made him a failure as a manager,” said Luden, who describes himself as an admirer of his former boss.

The company continued to hire “inspired amateurs” as it grew, he said, rather than the business specialists that it needed. Budgeting was inadequate, so that when the company began losing money in 1982, officials were not sure whether it was from overstaffing or because other costs were too high, Luden said.

“We’d slap on a hiring freeze, or go on a cost-cutting campaign, without really knowing,” said Luden. “We didn’t know where the hemorrhage was, so we slapped a bandage across the whole body.”

Surrenders Position

Rubinstein relinquished his role in MicroPro’s day-to-day operations last year, becoming chairman emeritus. He acknowledges that he is “much more an entrepreneur than a professional manager,” though he insists that his management skills have not been fully tested.

Like Rubinstein, Bill Baker found that he had a flair for motivating employees when he founded Information Unlimited Software, a company that made a name publishing a word-processing software program called EasyWriter.

Baker “could sell refrigerators to Eskimos,” recalled one former lieutenant. To spur employees, he would quote the mystical poet Kahlil Gibran, and passed out inspirational cassette tapes from supersalesmen Earl Nightingale and Zig Ziglar.

But administrative duties weighed on Baker by the time the payroll had grown to 88 persons. “I thrive at trying to figure out the market,” he said, “but running a big company means people problems, and that’s not me.”

A former company official described his former boss as a “confrontation avoider” who ducked day-to-day problems. Fond of “high-flown strategizing,” Baker, according to this former official, did not set specific objectives for employees, a shortcoming that may have contributed to the company’s inability to follow EasyWriter with a second strong program. He sold the company in July, 1983.

Emphasis Misplaced

Students of business say entrepreneurs often err by spending too much time on the activities that they are strongest at. Three-time entrepreneur Royden C. Sanders, for instance, says he would have run his businesses differently if he had recognized that his chief skill and interest lay in the product development side of business.

At his first company, Sanders Associates Inc., he led the firm to branch out from its established business as a defense contractor into commercial sales. When the company got into financial trouble, the board forced Sanders to give up his 24-year presidency.

Sanders said his co-founders “just aged mentally faster than I did. They wanted to stay in the government business, while I saw new markets to conquer.”

At his second company, Santec Corp., of Amherst, N.H., Sanders spent three years developing a computer printer that was one of the first of its type. But the company, he acknowledges, did not have enough capital or marketing strength. In 1980, he led the company through a bankruptcy-court reorganization.

Has Smaller Operation

Now Sanders has a computer-peripherals design firm called SDI, which has 20 technicians and engineers. He vows to keep it at that size, even if it means turning away business.

He is not alone in his determination to avoid big-company problems.

Nolan Bushnell, founder of the video games company Atari, Pizza Time Theater and half a dozen more, says he knows it is time to relinquish control of a company when he finds himself spending more than 25% of his time with lawyers and accountants.

But those with entrepreneur’s disease say their difficulties will not discourage them from launching more companies. Baker says he’s about to launch a new firm, and industry sources say Rubinstein also is at work on another.

Former managers at Victor Technologies say founder Peddle’s missionary zeal was invaluable in launching the company, which is based in Scotts Valley, in the Santa Cruz Mountains south of San Francisco. But he was so preoccupied with making Victor a leading computer-maker that he overlooked financial details and spent extravagantly, they say.

Blunt-Spoken Boss Recalled

John Cole, who was a budget analyst and purchasing official at Victor, remembers Peddle as a blunt-spoken boss who often worked in jeans and a blue Ultrasuede jacket, and who “was always involved in three conversations, two of them arguments.”

When he founded Victor in 1980, Peddle had distinguished himself as an engineer by designing the computer chips used today in the Apple II and Apple Macintosh lines of computers, and the first mass-marketed home computer, the PET. Officially, the initials stand for Personal Electronic Transaction, although industry wags, referring to Peddle’s storied self-esteem, tagged it “Peddle’s Ego Trip.”

He was a generous employer at Victor, occasionally rewarding sales executives with Mercedes Benzes, and once writing Cole, unsolicited, a personal check for $17,500 to help him out of a cash bind.

But his almost religious belief in Victor clouded his vision, former employees say. “Chuck used to say, ‘You know you’re in trouble when you believe your own bull.’ But that’s just what he did,” said Cole.

27 Vice Presidents

Peddle built up Victor’s senior staff until the company had 27 vice presidents. To impress dealers, he occasionally leased Learjets, which subordinates tagged the “Victor Air Force,” and built a network of plush regional offices that some in the company referred to as “Taj Mahals.”

“The rule at the regional offices was first-class on everything--furniture, paintings, the works,” recalled Zoltan Egeresi, who was international service manager. “Of course, when we ran out of money, the florists repossessed the plants, and people weren’t so impressed.”

The unplugging of the company’s giant IBM computer was ordered primarily to demonstrate that companies can do all their record-keeping on small computers like Victor’s own model 9000, former employees recall. “If we use it for anything,” Peddle growled, “it’ll be a paperweight.”

But records were lost in the unplugging, and as a result, “we billed some customers two and three times, and others we never billed,” Egeresi said.

William Frank, vice president of the research company, InfoCorp, said Peddle seemed to suffer from a mistaken belief that Victor was as big as IBM, and that he must spend as much on marketing as the industry giant. “You can’t beat a company 100 times your size with a frontal assault,” he said. “You’ve got to fight a guerrilla war.”

Hard to Delegate Authority

Peddle had difficulty delegating financial authority, Egeresi said. Managers needed the approval of Peddle or his secretary to buy anything that cost more than $35, he said.

“I once had to wait a week to buy $50 worth of computer memory chips,” Egeresi said.

For his part, Peddle contends that the seeming extravagances were necessary to make the company noticed in a highly competitive business. The costly network of regional offices “was, in hindsight, a bad decision,” he said. “But how could I have known sales were going to collapse?”

Peddle asserts that the company’s problems arose when IBM suddenly “ate up” the market for personal computers. “When that happened they could have brought in Jesus Christ himself and it wouldn’t have made a difference,” he said.

Charles Peddle, now the head of a computer design and consulting firm, says he faces legal bills of about $500,000 from shareholder lawsuits that contend that he and other Victor officials failed to disclose the firm’s financial problems soon enough.

Those bills might force him into personal bankruptcy, says Peddle, but they cannot stifle his entrepreneurial drive.

“If I could find backers, sure, I’d love to start again,” he said.