The Entrepreneurial Environment ◾ 67
members of the BOA do not have legal liability to the rm because their
opinions are considered advisory and non-binding. Legally and operation-
ally, BOAs are established to provide expert opinions to management on
specic issues, and serving on a BOA is less time-consuming than serving
on a BOD.
Table4.6 presents some important considerations when choosing your
BOA members.
Governance Circle
Legal
Regulatory
BOD
Risk
Management
Auditing
Financial
Strategy
Business
Model
Fundraising
Financial
Strategy
Figure 4.8 Governance circle—The BOD is primarily responsible for the governance
of the enterprise.
Table4.6 Considerations When Choosing BOA Members
Do the candidates possess the technical skills relative to the rm?
Are they well known and respected in their eld?
What is their success track record in similar small organizations?
Do the candidates have experience dealing with startups?
Have the candidates published papers in relevant technical journals?
Can the candidates get along with experts in other elds?
68 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
4.4 Authority, Power, and Inuence
“When we disagree I am right, and when we agree we are both right.”
Authority is derived from the Latin word auctoritas, meaning invention,
advice, opinion, inuence, or command. In an entrepreneurial context,
authority is generally used to signify the persuasive capacity derived from
possessing formal academic knowledge.
8
Power is the ability of a team member to compel others to act or to
accept a particular course of action.
9
Power can alter the course of events,
change behavior, and overcome organizational resistance. Inuence is the
ability to effect desired change by virtue of authority or power. Power and
inuence are derived from the Latin words potere (“to be able, capable”)
and inuere (“to ow in, from within”), respectively. In other words, power
is the ability to effectuate change, while inuence is the practical exercise
of power.
10
In many startups, the founder exerts both authority and power.
11
Initially, the founder is the recognized and uncontested leader by virtue of
the expert knowledge that allowed the establishment of the rm in the rst
place.
Power is derived from ve recognized sources: legitimate, reward, coer-
cive, expert, and referent,
12
as depicted in Figure4.9.
Legitimate power is evidenced by formal titles, for example, CEO,
President, or Vice President. The founder starts with a great deal of legiti-
mate power because the dual titles of Chairman of the Board and President
are at the top rung of the organization.
Types of Power
Legitimate (title within hierarchy)
Reward (control over desired
outcomes)
Coercive (imposition of sanctions)
Position Power
Individual Power
Referent (access to desirable resources)
Expert (academic degree; industry
acclaim)
Personal Power
Figure 4.9 Types of power—The entrepreneur’s power grid.
The Entrepreneurial Environment ◾ 69
Reward and coercive powers are highly inuential based on control
over distribution of valuable compensation (salaries, awards, recognition) or
ability to punish unwanted behavior.
Referent power derives from the possession of or access to scarce
resources (e.g., budgets, meeting schedules, attendance at technical conferences).
Expert power is based on advanced technical degrees, specialized skills,
information, knowledge, and expertise (“Knowledge is power”).
At this point, we need to emphasize a crucial distinction between author-
ity and power. Because authority and status are derived from personal
knowledge, such knowledge is perpetually relevant unless made obsolete by
new technology. Conversely, power is frequently dependent upon reciproc-
ity (“If you agree to do this for me, I will owe you one”), power is constantly
diminishing. Power can be likened to a car battery that can provide a charge
when needed, but it needs periodic re-charging, as illustrated in Figure4.10.
As the saying goes: “Power is the ability of letting others have it your way.”
4.5 The Founder and Organizational Politics
“It is not about who is in charge, but who takes charge.”
Whether or not the founder wants it, organizational politics occurs in every
business environment. In the business environment, politics is the informal
struggle for personal dominance where each player struggles to make his or
her abilities and achievements known to the group.
13
Any time people associate, politics will be part of the interaction, and
a startup is no exception. In fact, startups are ripe for politics because the
Power
Sources of power
Uses of power
Power needs re-charging
Authority is permanent
Figure 4.10 Power needs re-charging—Power is dependent on reciprocity
(“re-charging”).
70 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
ofcial organizational chart may not accurately reect the real leaders and
followers. Figure4.11 is an “ofcial” (albeit) generic organizational chart.
However, in reality, there exists a phantom, parallel, unofcial “chart”
that more accurately reects those who get “things done,” as shown in
Figure4.12.
A parallel organization differs from a traditional, hierarchical organiza-
tion in that it reects organizational politics. It is possible—and sometimes
advantageous—to blend an ofcial structure with a parallel structure. For
example, a subset of employees can act as a parallel structure to develop
solutions to specic problems (i.e., situational leadership).
Organizational politics are most acute in a startup setting when there is:
◾ high emotional insecurity
◾ a chaotic atmosphere
◾ a scarcity of resources
◾ a highly competitive and uid work environment
◾ an impending nancial or technological crisis
◾ a continually evolving set of individual performance standards
14
We will discuss organizational politics more fully in Section 4.5.1.
Generic Organization Chart
“Who do we blame when the fiasco occurs?”
President
VP Finance
VP
Sales Marketing
VP
Product Development
Legal
Production Manager
Laboratory Manager
Regulatory Affairs
R&D Manager
Engineering Support
Product Development
Accounting
Auditors
Investor relations
Figure 4.11 Generic organization chart—A typical ofcial organization chart.
The Entrepreneurial Environment ◾ 71
4.5.1 Power, Politics and Inuence
“Successful companies did not start from third base.”
Startups must be built from the ground up, and politically skilled and savvy
employees are among the most effective builders of the company. Ahern
dened political skill as “the ability to effectively understand others at work,
and to use such knowledge to inuence others to act in ways that enhance
one’s personal and/or organizational objectives.”
15
We will call these employ-
ees “actors.”
Like it or not, politics is a fact. Actually, politics is one of the most impor-
tant mechanisms that enable actors to get things done quickly and ef-
ciently. The politics of the organization even helps to shape culture, and vice
versa. Political moves occur so rapidly that managers can get things done
with minimum resistance.
There is often a negative connotation when the word politics is whis-
pered. However, politics is far from being a negative; only bad actors give
it a bad name. When properly applied, politics is an important managerial
tool of the actor. The unpleasant name comes from the few unethical actors
who play “dirty politics” mainly for their own benet, not for the organiza-
tion as a whole. The best actors are seldom recognized as such by those
around them.
e Parallel Organization
President
Board of Directors
Board of Advisors
VP Finance
“We must raise capital. Now!”
VP Sales Marketing
VP Manufacturing
R&D Manager
Public relations
Investment
Bankers
Legal
Figure 4.12 The parallel organization—This chart more accurately reects reality
(politics).
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