As the enterprise grows, two
processes combine to denude the entrepreneur of some of his initial
functions. The firm has ever growing needs for capital: financial,
human, assets and so on. Additionally, the company begins (or should
begin) to interface and interact with older, better established firms.
Thus, the company is forced to create its first management team: a
general manager with the right doses of respectability, connections and
skills, a chief financial officer, a host of consultants and so on. In
theory - if all our properly motivated financially - all these players
(entrepreneurs and managers) will seek to maximize the value of the
firm. What happens, in reality, is that both work to minimize it, each
for its own reasons. The managers seek to maximize their short-term
utility by securing enormous pay packages and other forms of
company-dilapidating compensation.
The entrepreneurs feel that they are "strangled", "shackled", "held
back" by bureaucracy and they "rebel". They oust the management, or
undermine it, turning it into an ineffective representative relic. They
assume real, though informal, control of the firm. They do so by
defining a new set of strategic goals for the firm, which call for the
institution of an entrepreneurial rather than a bureaucratic type of
management.
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