A few years ago, Jamie Walters might have been forgiven for thinking that she had pretty much figured out leadership and the small business world. For nearly a decade, Walters had been a successful member of the latter by advising businesses both large and small on how to improve their skills in the former. Since founding the San Francisco-based consulting firm, Ivy Sea, Inc., by herself in 1992, Walters had built up a base of more than 800 clients nationwide and added 10 employees to her thriving company. But, in fact, she didn’t have it all figured out, and she’d be the first one to admit it.

“It was one of those moments that make you think, ‘what am I doing wrong’,” Walters recalls. “It was one day during the midst of the recent economic downturn when my clients had started delaying, the phones weren’t ringing, and on the one great project I did have going on, the customer called up to complain. I just sat there looking at the stack of bills on my desk wondering how I would pay them.” It was then, though, that Walters says she had a revelation. “I came to understand that I don’t know everything” about small business leadership, she says, adding, “and it was the biggest moment of relief I’ve had since I started my business.”

Having shed herself of the self-inflicted pressure of knowing it all, Walters explains that she was suddenly able to ask herself more probing questions about the nature of her business. “What other options, other opportunities had I overlooked?” she wondered. As a result of this introspection, Walters made some bold moves. To make her small company more adaptable to cyclical changes in workflow, she let her entire staff go and instead began hiring them as freelance “collaborators” on a project-by-project basis. And to widen her customer base, she began leveraging the Internet to market her ideas directly to individuals. Both strategies have paid off.

“I’ve learned it the hard way,” she says with more than a hint of humility. “Good leadership is about turning experience into wisdom.”

In a modern business world increasingly obsessed with “metrics” and “ROI,” the concept of good leadership poses something of a paradox: while universally acknowledged as being critical to a company’s long-term success, it remains stubbornly incapable of being directly measured—you’ll find no line on a profit/loss statement labeled “net leadership.”

As a result, leadership’s hard-to-define nature can often make improving a difficult task. Small business owners, who rarely have the time to run their own business let alone ponder their leadership philosophy, can end up dismissing such thoughts as an academic exercise more suited to boardrooms and business schools than retail stores and home offices. However, study after study has shown that strong leadership is not only one of the best recipes for survival and success in the corporate world, it is a key part of effectively navigating the world of small business as well.

As an example, a recent survey of more than 300 small businesses conducted by the management consulting firm Six Disciplines Corporation found that the number one characteristic setting apart high and low-performing companies was the strength of the senior leadership. The study also discovered that the second-most common trait shared by successful small businesses was their ability to attract and retain quality people and keep employees satisfied. But here, too, there’s a link to leadership—a recent study by Hay Group, a global management consulting firm, discovered that among 75 key components “trust and confidence in top leadership was the single most reliable predictor of employee satisfaction in an organization.” In fact, as the authors of the Six Disciplines study point out, “If you were to focus on just one area to get the largest boost to your business performance, developing a strong leadership team would be it.”


What is leadership?

So, if strong leadership is so important to the success of your business, what, exactly, is it? What does it look like? Where can you find it? And how will you recognize it if you do?

Unfortunately, there are no simple answers to these questions, as there are an almost infinite number of differing views about what constitutes strong leadership (as any Google search or trip to the business section of your local bookstore will attest).

Cindy McCauley, a senior fellow at the Center for Creative Leadership in Greensboro, North Carolina, offers a systems-based view: “Leadership is the interaction between leaders and followers and how one achieves direction, alignment, and commitment in the other.” While this definition may not sound groundbreaking, the mere idea that there is an interaction between the two—the leader and the led—actually represents something of a sea change.

“In the past, there was this idea that one person should have the insights and abilities to make all of the judgments,” McCauley says. “However, as problems have grown more complex, people now use more innovative and empowering processes to lead, although that doesn’t mean directional leadership goes away completely,” she notes. “But we now know that how followers behave, understand, and respond to that direction, alignment, and commitment is as important as what the leader does.”

Leslie Kossoff, an international executive adviser and former protégé of management guru Dr. W. Edwards Deming, defines leadership through a more results-based lens. “You’re creating an environment where your people go beyond the norm and do more than even they would have expected,” she says. “Leaders make others feel like they are more and so they then want to do more.”

Still, Kossoff, author of the book Executive Thinking: The Dream, The Vision, The Mission Achieved, recognizes that finding the time for deep contemplation of things like dreams and visions doesn’t always make it onto the small business owner’s to-do list. “But attitude follows behavior, so if they start applying a sense of leadership even when they don’t feel like they’re doing a good job, if they start asking more questions about their business and really listening to the answers, eventually they can create it.” And though it might sound clichéd, Kossoff acknowledges that being a successful leader, particularly in the dynamic, roller-coaster world of small business, is still more art than science. “It’s about knowing when to go with your gut and knowing when to go with your brain.”


Born to Lead? Maybe not.

But if leadership really is an art, does that mean that if you’re not born a leader you are destined to be limited in your capabilities—able to merely manage, but never lead? Or can you be made into a leader through hard work and practice? Here again, the past conventional wisdom, which says that leadership traits are innate and thus can’t be learned, has been called into question.

Prof. Bruce Avolio, who has spent two decades researching leadership and is now the director of the Gallup Leadership Institute at the University of Nebraska, Lincoln, is among a growing chorus of researchers that come down firmly on the nurture side of the debate. “We have good empirical data that 30 to 35 percent of leadership is genetic,” he says. “Much more of leadership ability is clearly attributable to things like education, life events, and trigger moments.”

According to Avolio, however, this does not mean that those of us not named Bill Gates or Jack Welch must settle for being, at best, D-grade leaders. “Even if you weren’t prepared early in life to be a leader, we’ve discovered techniques to help you take the helm,” he noted in a recent Psychology Today article. Citing a series of five, lengthy studies conducted by his team, which tracked leaders of different ages and levels of experience that were participating in leadership-building exercises, Avolio pointed out: “Regardless of whether their skills were born or made, all got the job done equally well.”
In addition, Avolio notes that attributing leadership potential primarily to one’s genes can have a corrosive effect on one’s self-confidence and provide a ready-made excuse for failure. “We have to stop thinking this way,” he says, “because even if you weren’t born with certain traits, you can still be a great leader.”

I’m Managing, but am I Leading?

As the borders of what constitutes great leadership have been continually expanded and redrawn over the years, a new debate has sprung up: What is the difference between managing and leading?

The U.S. military, an organization that spends a lot of time thinking about leadership, distinguishes between the two by simply saying, “People are led, things are managed.” Although succinct, this definition rings a bit false to people like Kossoff, who emphasizes that “when all is said and done, people are managed in the business world.” According to her, distinguishing between managing and leading comes down to focus. “Managing is looking retrospectively, backward, being reactive,” she says, “while leading is forward-looking, seeing what’s next.”

Marcus Buckingham and Curt Coffman, writing in their bestselling book First, Break All the Rules, also say the most important difference between managers and leaders is one of focus, but they put a different spin on it. “Great managers look inward,” Buckingham and Coffman say. “They look inside the company, into each individual, into the differences in style, goals, needs and motivations of each person.” By contrast, great leaders look outward. “They look out at the competition, out at the future,” they write. “[Leadership] is, without a doubt, a critical role, but it doesn’t have much to do with the challenge of turning one individual’s talents into performance.”

McCauley, from the Center for Creative Leadership, agrees and labels “disappointing” a trend that over the past two decades has slowly defined leadership down. “Twenty years ago, we looked at managers and executives and realized that leading—creating vision, setting goals, and motivating employees—was but one of their roles,” she says. “Now, there’s a tendency to use the terms manager and leader interchangeably, as if everything a manager does constitutes leading, and that muddies the construct of leadership.”

What kind of leader are you?

For many small business owners creating a vision, setting goals, and motivating employees are often things born out of necessity and convenience rather than some larger pattern of behavior. So, when trying to improve their leadership skills, there’s a temptation to skip right over analyzing the how and the why of the way they do things now. This, say many leadership experts, is a common mistake. (For a small business-focused take on leadership styles, see our Leadership Quiz sidebar on page 27.)

“A critical step toward being a better leader is becoming self-aware of what kind of person you are now,” says Emma Watson, director of the Small Business minor program at Arizona State University’s Morrison School of Management. Watson, who received a first-hand education in small business leadership as a child while watching her parents run the
family’s dry cleaning business, says this process requires honestly assessing both your personality’s strengths and weaknesses and how they can affect your leadership style. “I teach my entrepreneurial students to first understand their own world view and the filters that they use to make judgments,” she says. “They have to start inside, then move outside”

Though no two people, or leadership styles, will ever be exactly the same, leadership styles, like personalities, can be broken down into a handful of general categories to better understand both how they work and don’t work. Among the first to do this was psychologist Kurt Lewin. In 1939, he authored a landmark paper identifying three styles of leadership—authoritarian (autocratic), participative (democratic), and delegative (laissez-faire)—based on a study of the decision-making habits among groups of schoolchildren.

However, more recent studies have broadened the understanding of leadership styles and today they are commonly classified into four sub-groups: task-oriented, intellectual, social, and participative. To understand the differences between them, a February 2006 Harvard Business Review article explained that two different criteria—amount of group input and courses of action considered—are used to identify four leadership style sub-groups: task-oriented/decisive (little input, one course of action), social/flexible (little input, many options), intellectual/hierarchic (lots of data, one course of action), and participative/integrative (lots of data, many options).

Of course, no one will ever completely embody just one leadership style, nor should one want to. In fact, when it comes to finding an effective leadership style, most experts take an “everything in moderation” approach and advise against relying too heavily upon one particular style, which can often lead to abuse.

For example, decisive leaders that, over time, start micromanaging can cause employees to start hoarding their best ideas rather than sharing them, creating turf wars and infighting. Likewise, integrative leaders that over-delegate can leave their organizations paralyzed from too much groupthink, leading to indecision and a lack of productivity among employees. And intellectual/hierarchic leaders that stubbornly refuse to let go of the reins and delegate (a common problem among intensely driven and highly confident entrepreneurs) can infantilize their staff, stifling growth and innovation.

So, avoiding these dysfunctional situations requires small business owners to recognize that they must be able to put aside their own personality quirks in order to find the best leadership style in any given situation. “Circumstances also influence the appropriate decision style,” the authors of the Harvard study point out. “So a manager needs to have the ability to call on all four styles.”

How do I become a better leader?

So, what are some practical ways that a small business owner can improve his or her leadership skills? The first and perhaps simplest method is to start watching and listening to how your own company operates.

“I teach all of my students to listen,” says A.S.U. professor Watson. “If you listen, I think—and my students have proven this—that you will be able to find and then manage a lot of your weaknesses because you’ll be more open to hearing the truth about how your people and your customers want to be treated, and that goes to the foundation of becoming a better leader.”

Harvard Business School professor Rosabeth Moss Kanter takes this approach even further, in what she calls the three ME’s of leadership. “The first of these, “Message Espoused,” is really about what the leader says,” she explains. “It’s about recognizing that words do matter, that it’s important to be enthusiastic in every communication, to set clear goals but to back up everything you say with data. I like to call it giving pep talks with evidence.”

From talking the talk, Kanter’s next step deals with, not surprisingly, walking the walk, or what she calls being the “Model Exemplified.” “This is all about whether the leader practices what they preach,” she says. “Does the leader admit that they’re not perfect but make a point of punishing mistakes? Do they talk about being open to new ideas but don’t follow through and encourage the forums where those new ideas might occur?” As old-fashioned as it may seem, Kanter notes that setting a good example really is an important part of being a strong leader.

“The final ME involves putting in place formal programs that empower employees to do their jobs, or what I call the ‘Mechanisms Established,’ ” Kanter says. While establishing clear-cut sales strategies and organizational structures are some obvious ways to convey your vision, Kanter cautions not to overlook little things that if not done properly can undermine your message. “Are employees entitled to use the conference room or does company policy require them to always ask permission? Are there scheduled brainstorm sessions to drive collaboration or does the owner have trouble letting go of the decision making process?”

Implementing all these new leadership skills in the midst of the hustle and bustle of a normal small business workday won’t always be easy, but the key, according to Kanter, is to have enough confidence to begin and stick with it. “Recognizing what you’re not good at can make you a better leader,” agrees the Center for Creative Leadership’s McCauley. “But you aren’t going to learn those new skills unless you’re put in real-life situations where you have to use them. It’s not sufficient to just take classes and read books about leadership, you have to go out and practice it every day.”

That’s a lesson that Ivy Sea’s Walters says she presses upon her clients and herself every day. “In the end, I realized that trying to emulate someone like Jack Welch is just not going to be the most effective way to lead a small business,” says Walters. “Instead, I found that the best thing you can do is understand your own innate gifts and identify your strengths so you can develop a leadership style that will connect you with your purpose and allow you to articulate it to others. And if you get that going, well, it’s like rocket fuel.”