Applying the Kotter matrix to understand a start-up failure

A small entrepreneurial start-up company consisting of about 10 employees was founded to commercialize an innovative product to increase the effectiveness of medical treatment. The company sales representatives would go to doctors’ offices, demonstrate the service, and sign the doctor up as a customer. Since this company was a startup without a lot of funding, employees were incentivized by equity in the company that will pay off in the future.

The CEO recruited people by promising that in a few months the company would be worth millions of dollars and that the team had to do little to no work. The CEO had no sales experience and refused to go out with the sales team because he had a lot of “managing” to do. He also selected a target market that imposed a daily commute of 4.5 to 6.5 hours on each sales representative. The sales team used their own cars and their own money for gas and tolls. The team was enthusiastic at first due to the CEO telling them they’d be benefiting from this work in a few short months.

After a few weeks of long hours and tiring commutes, the sales team found that it was more difficult to sign up doctors for the service then had been anticipated. However, the CEO refused to believe that the business model was flawed and accused the sales team of failing. He would single people out and tell them how they were doing everything wrong, yet he refused to travel with the sales team due to the lengthy commute. The team began to lose their enthusiasm for the extensive travel and grew tired of spending their money without reimbursement.

Finally, after about a month, one sales representative convinced a doctor to sign on to the service. Although the CEO was thrilled, instead of celebrating the sale as “a team win,” he used the occasion to criticize every other team member who had yet to make a sale. He told them they were slacking and they were easily replaceable. He praised the sales representative that had closed the first sale and publicly stated that this sales rep was the only one putting in hard work. This made the other sales team members mad and they started to show a negative attitude towards the successful sales rep. The team began to separate themselves from this sales rep and not work as a team anymore. The CEO did not care; he just wanted to drive sales. Most of the sales representatives ended up leaving the company because it was too much work with no reward and constant pressure from the CEO. The start-up subsequently failed.

I do not wish to be overly critical of the company founder who was young and has much to learn. I sincerely hope this aspiring entrepreneur learns from this experience and finds success. But how can we analyze this experience to learn from it. There are many things that were done poorly in this situation and could have been done better. But, let’s stick with what we can learn by the application of the Kotter matrix. The Kotter matrix is a graphical depiction of John Kotter’s thoughts on the complementary roles of leadership and management as illustrated in his famous Harvard Business Review article “What Leaders Really Do”.

The Kotter Matrix

MANAGEMENT LEADERSHIP

(Complexity, Things) (Change, People)

Budget & Plan Vision

Organize and Staff Align People (buy-in to vision)

Control & Problem Solve Motivation and Inspiration

The CEO clearly had a vision of growing a company based on his technology. The CEO clearly inspired his team with equity and the promise of future wealth. It is certainly possible that the CEO’s vision was flawed and that either the technology did not work well enough or the value proposition was flawed. However, we cannot be sure of this because the management side of the Kotter matrix was handled so poorly. If we assume that the technology worked and that the value proposition was reasonable, then this CEO followed the leadership side of the Kotter matrix well. He developed a vision, aligned his team to that vision, and inspired them initially. However, the management side of the Kotter matrix was not handled well. The vision needed to be turned into plans and budgets. The plans were obviously flawed, in that the sales cycle was longer and more difficult than had been anticipated. The CEO would have been well served to travel into the field with his sales representatives and see exactly where his plan was insufficient. Then a new plan with the appropriate budget could have been put in place. Let’s assume that the staffing was appropriate and that this company had the correct sales representatives. Is a company really organized correctly when all its sales reps have a lengthy commute from its initial target market? These should have been questions from the outset. The final part of the management side of the Kotter matrix is controlling and problem solving. Detecting the problem was straightforward in that sales were not being made! A more effective problem-solving approach could have been used rather than criticizing the sales representatives and hoping that this would spur them to overcome whatever obstacles were in place.

So, this case story is a good example of how we can use the Kotter matrix to pinpoint where we think the problem as. The first issue I would look at is the plan for achieving the vision. Do we really know how long it takes to sell a doctor on this service or what information the doctor requires to make the purchase decision? Secondly, is a sales force located 6 hours away from your target market a good plan? I would argue that it is not. The sales force needs to be local to that market so that maximum amount of time can be spent seeing potential customers rather than commuting. Once the plan and the attendant budget is reviewed and improved, the CEO should go about executing this improved plan. Obviously, this could lead to discovering the next barrier that must be overcome, but that’s not necessarily a bad outcome. So, this is a good illustration of how using the Kotter matrix to think about an organizational situation can lead you to where you think the problem is. It doesn’t necessarily tell us how to solve the problem, but it tells us where to look. I think it would be a mistake to look at this situation and assume that the vision of the CEO was flawed, and that the business doesn’t have a chance. I make this conclusion since the management of the effort was so poorly executed that even a great vision would not have had a chance. And if we were to encourage the CEO to revisit the vision and perhaps revise the vision, we still would probably not be successful because the same flawed plan would be used. In this instance, the management side of the Kotter matrix must be fixed first.