5 Leadership Mistakes That Can Break Your Company
When you start a business, you face increasing complexities and various challenges at different stages of your company's growth. Having founded, led and sold a start-up and now advising several founders and CEOs, I know a little bit about the mistakes that can completely derail your future. Regardless of how much money you have raised or how promising your product or service is, committing these blunders and not having the awareness to change can lead to the downfall of your company. Let's take a look at the five no-no's.
Overpromising and under delivering
A leader needs to shape the vision, plans, expectations and take responsibility for delivering. As an entrepreneur, it is important to set big goals for your employees, customers and investors, but it's important that these goals are realistic. Setting unrealistic expectations can create unnecessary stress for your team and destroy your reputation in the marketplace and in the eyes of your investors. Exceeding realistic expectations is much better than putting your foot in your mouth and destroying your reputation forever.
A clear example of this mistake was hydrogen truck maker Nikola (NASDAQ: NKLA) and their now infamous “rolling a truck” downhill video that, once found out, crashed their stock by over 80% and destroyed their biggest partnership. Another recent example was when Lordstown Motors (NASDAQ: RIDE) faked its order numbers to inflate their value. The reputational damage of letting people down is never worth any short-lived, perceived benefit overpromising may bring.
Not being patient
If you're too impatient, you can make rash decisions with terrible long-term consequences. If you're too patient, you probably should go work for a big corporation and may not be hustling hard enough. Finding the right balance and conducting real strategic planning can be extremely helpful not only for your team and your overall personal well-being, but also can fix overpromising issues especially when it comes to timelines.
Most entrepreneurs are optimists, which explains why we continuously take on so much risk with a very slim chance of success — half of startups fail within the first four years. Being impatient can create unnecessary, and sometimes risky, “promising-looking” shortcuts that in the long run can be just a band-aid solution.
“Planning fallacy” is a term used by psychologists to describe our tendency to underestimate the amount of time it will take to complete a task. In the book Thinking Fast and Slow, psychologist Daniel Kahneman argues that estimation mistakes happen due to two key factors:
- Failing to consider how long it's taken us to complete similar tasks in the past
- Assuming that we won't run into any complications that will cause delays
Leaders typically have a vague estimate of how long a certain goal may take but it's important to be mindful that it will almost always take longer. Given that most entrepreneurs have never completed many of the tasks they are undertaking, giving yourself breathing room and not getting discouraged can be very helpful for not only you, but also your team.
One sure-fire way to have high staff turnover, poor productivity, no creativity and absent communication is micromanagement. This mistake can stifle innovation and breed resentment causing people to feel untrusted and unfulfilled. As a leader, you don't need to touch everything. You should focus instead on finding experts and empowering them to do their work according to your vision. When you hover and have to give the final word every step of the way, you aren't helping. You are, in fact, getting in the way, creating chaos and making more work for everyone.
It's important for leaders to set boundaries when they notice their team exhibiting this behavior and stop it before there is damage. An example of this mistake is a growth stage company CTO that is involved in PR, SEO and creating and approving marketing budgets instead of being focused on a product providing value to customers.
Focused effort on individual responsibilities is very important and leaders need to walk the fine line between being hands-on and trusting their team. At the very start of a company's journey, the entrepreneur plays nearly every position. But as the company grows, the entrepreneur becomes the coach who ensures that everyone is playing their position and performing at the highest level. This Gallup Guide of signs, causes and solutions can be a good place to start if you think you may be making this mistake.
Not valuing your team's contributions
There is nothing worse than being taken for granted and having your efforts go unappreciated — other than not being properly compensated for your efforts. Leaders committing this mistake need to strongly think about how they can create an environment where people receive positive reinforcement and the right compensation.
Considering the well-being and personal and career goals of your team can lead to a situation where teams are extremely motivated to go above and beyond. We all want to take pride in the work we do and when big achievements go unnoticed, resentment tends to derail progress. Leaders should praise and appreciate their team's contributions by highlighting and rewarding a job well done, thus creating a positive work environment.
Sometimes paying your employees less can actually cost you more. Leaders need to be prepared to increase salaries for high-demand roles in order to remain competitive in the race for top talent. Companies are competing for the most talented people and with remote work on the rise, talent competition is global. Leaders not willing to pay their employees market rates will see high employee turnover and low morale. Some studies predict that every time a business replaces a salaried employee, it costs 6 to 9 months' salary on average. The hiring costs of advertising, interviewing and screening coupled with the on-boarding costs of training and the lost productivity can end up costing more in the long run.
Employees who are well compensated and appreciated are motivated and loyal. Entrepreneurs who make the mistake of shortchanging talent and pinching pennies will not build the organization that is needed to compete at the highest levels. There is a reason that the Lakers, Real Madrid and the Patriots dominate sports — their ability to compensate. Even if you do not have the cash to compensate, use shares, options, restricted stock units, bonuses and benefits to attract and retain your company's superstar performers. This guide to compensation from Harvard Business Review provides some great insights into this all-too-important topic that cannot be ignored.
Taking on too much
When a company tries to do too much too soon, they spread themselves too thin, overextending resources and ultimately confusing their purpose. Being overwhelmed due to the sheer number of complex projects doesn't create a healthy environment for employees and it's certainly not healthy for the leader's stress level and mental health. Over-committing and handling multiple projects at once can be a big mistake for an early-stage startup. Determining the optimal number of projects that the company should be pursuing and prioritizing them based on ROI should be a top strategic priority for leaders.
An example of this mistake is a biotech company working on new therapies, opening a clinic network and also launching a supplement line. This three-pronged approach may confuse investors and take focus away from the highest ROI opportunity — the development of the novel drug treatment.
As a leader, you need to ensure the job gets done without compromising the quality and the reputation of your company. Sometimes less is more, and entrepreneurs need to realize that it's a mistake to try to be all things to all people. That usually leads to disappointment for everyone, including yourself.
Positive changes that seem small and unremarkable will compound over time, just as the mistakes that remain ignored. The accumulation of many mistakes is what eventually leads to a major problem and the eventual failure of an organization. Leaders need to be concerned with their current trajectory rather than their current results. At the end of the day, outcomes are lagging measures of the gradual changes in the right or wrong direction. Being very aware, listening to feedback and watching out for these five mistakes can be a great way to ensure that these leadership errors don't compound against you.