Battle at the Cottage Gate

Earl R. Smith II, PhD

(Read More From My Blog)

This article describes a situation that occurs over and over during the growth of any company. It might seem that, once out of the cottage stage, companies are free of this syndrome but nothing could be further from the truth. The battle between traditionalists and futurists never ends.


I sometimes work with companies that are on the verge of leaving the ‘cottage stage’ and pushing into the great uncertainty of corporate adolescence. This push, and the stress which often accompanies it, is one of the seminal periods in the development of any company. By the time I arrive on the scene, battle lines often have been well formed and the organization has divided into two camps. The coming battle will present severe challenges for the founders, team and the company. The prevailing camp will get to decide what the future will hold for all involved

Let me start by defining what I mean by ‘cottage stage’. First off, defining a company in terms of its gross revenue is not useful. I’ve seen organizations generating close to twenty million dollars in gross revenue while still operating within this paradigm. Secondly, the size of the organization in terms of its client base or human resources is also not a good indicator. I have encountered companies with twenty to thirty major clients and over a hundred employees that are still operating as a cottage business. Finally, the age of a company is an unreliable indicator as well. Once a company slips into what I call ‘life-style mode’ it enters a period of repressed adolescence that can last through its entire life span.

There are a number of indicators which are very useful in identifying a company which is still operating within the cottage industry paradigm and facing the complex issues of reinventing itself. The most notable of them are: the evolving nature of leadership, the changing nature of employees, the definition of span of control, the performance and behavior of the founders, the level of professionalism within the corporate culture and the ability of the company to allow its culture to evolve in order to cope with the increasing burdens that always accompany rapid growth and increased size.

The Evolving Nature of leadership: In the cottage stage, leadership tends to be defined by the founders. For many, because of their own rather limited management experience, their vision of leadership tends to be based on position and prerogative rather than inspiration and example. This can work during the early stages.

But, as the company grows, it comes under increasing pressure to bring in more experienced managers. These newcomers tend to pose an immediate threat to the prevailing theory of leadership. In a sense a new coin of the realm begins to compete with the old currency. Employees now face a choice that wasn’t available earlier on. On the one hand there are the founders who may continue to insist that they are the leaders and should be followed – often without question. On the other there are managers bringing new, and often very creative, approaches. Their leadership is based on the proposition of ‘do as I do’ rather than ‘do as I say’ – and they lead by example.

Founders are often the most challenged by this evolution in the operative concept of leadership. It takes an exceptional person to give up the security of the ‘I own the business so you will do as I say’ attitude in favor of the more risky and challenging approach of ‘follow me when I need to lead and I will follow you when it is better that you lead’ approach. How the founders react to this option has a major impact on the future of the company.

The Changing Nature of Employees: As an organization grows, and the pressures to generate higher performance increases, employees will seek out leadership and form allegiances which will empower them to solve new, and far more difficult, problems. New managers may have experience and skill sets that were not present in the original team. Some of them will take leadership roles in areas that have traditionally been seen as the prerogative of the founders – resulting in tensions that are felt company-wide.

Over time, two camps evolve within the company. The first, which I call ‘the traditionalists’, tends to find the changes unsettling. They often wistfully reminisce about the good old days when the company was more like a family than a business. They are bound together by a network of relationships, some of which are deeply personal. Their approach to the business tends to be conservative and focused on ‘growing without major changes in the corporate culture’. As the battle approaches they will often adopt a Fort Apache the Bronx approach – circling the wagons and defending what they consider to be the pure heart and soul of the company.

On the other side of this developing divide is the new breed of employee whose vision of the company generally extends farther into the future. Their vision involves not only substantial continued growth but an increasingly professionalized environment which includes a professionalization of the management team – a significant and sustained evolution of the corporate culture. These employees tend to lack the emotional connection to the early stages of a company’s growth. They’ve signed on not because they are true believers in the founders but were attracted to the opportunities that the company has now become able to offer.

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