How Your Intuition Can Become Your Biggest Bottleneck

The founder of one of our portfolio companies created a company with approximately $200 million in revenue purely on instinct. The founder had spent a large amount of time around the products and relationships with customers, so that he could literally go out onto the production floor and identify the machine that would be broken down in a week, and he would reject a price recommendation from his financial staff because “it didn’t feel right!”

However, after buying another company and nearly doubling the size of the business, all of the things that made the founder successful initially started to work against him.

Eventually, over a period of six months, I watched the speed of the company’s decision-making slow to a crawl. What was once a strength was now a barrier that none of his senior managers knew how to overcome.

Instinctual decision making

A founder’s instinct is a real tool that works well. I have seen it often enough to know that it is not just luck. He has experienced each and every area of the business, and all of this collective experience produces a type of judgment that is faster and more accurate than any committee or group.

It is not that the founder’s instinct stops providing valuable insight. It is that it does not grow. Research by McKinsey states that 78% of companies that have successfully found product-market fit ultimately fail to grow their companies.

At some point in their development, the companies will reach what McKinsey refers to as a “natural limit to early stage growth,” at which point “the approach that enabled the company to achieve success to that point is no longer capable of enabling further upward momentum.”

At $20 million in revenues and with 50 employees, it is easier to stay connected with everything. But it becomes difficult at $200 million in revenues and 400 employees at multiple locations. The founder is basing his gut decisions on summaries, dashboards and reports provided by others. The founder’s instinct is still operating — but with incomplete data.

What breaks down first

Firstly, the breakdown is not the company’s performance; it is the leadership team. When a founder’s intuition becomes the final word in every decision, the organization develops a lack of willingness to make decisions.

Secondly, the breakdown occurs when the company needs more than ever to rely on its leadership team to make effective decisions.

I’ve seen many talented Chief Operating Officers (COOs) and Chief Financial Officers (CFOs) lose their ability to lead and instead become simply order takers. The company is growing. The founder is still making most of the decisions. Everyone is convinced that this is the way large, successful companies are run.

But at some point, when something unexpected happens, the competitor takes an action that the founder didn’t anticipate. The product launch is a failure. And at that point, the team is called upon to respond quickly. But they can’t because no one really knows how.

Transforming intuition to institution

The transition from the founder’s intuition to the institutionalization of decision-making is not about removing the founder’s ability to make decisions — it is about creating the systems so that decisions are made as well as they possibly can without the founder.

There must be a transformation of three critical areas of the company:

1. The engine room (the core operating functions)

2. The accelerators (growth drivers)

3. The cockpit (the control center, where leadership and decision-making authority reside)

Here’s the reality

Decision rights are defined formally. I helped a CEO create a matrix of all major types of decisions (pricing, hiring, capital allocation, M&A, etc.) and established thresholds.

The General Manager (GM) has decision-making authority for all issues under $500,000 and within the scope of the strategy. Issues above the threshold or outside of the scope of the strategy require CEO approval. While this may seem simple, it was the first time that the company wrote down a set of rules to govern decision-making.

With the documented decision-making process becoming part of institutional knowledge, the team will begin to learn how to address issues in the same manner as the founder.

Frameworks replace intuition for repetitive decisions. Intuition is best suited for novel, high-risk decisions but is less effective for decisions that are repeated on a regular basis, such as pricing reviews, hiring approvals and purchasing vendors, and should be governed by established frameworks rather than intuition.

The test you don’t want to take

I ask the same question with every founder I meet: “If you went away for a four-week vacation and were unable to check your email or cell phone, what would fail?” Generally, the founder provides an honest assessment of the many items that would fail, but the issue is the honesty.

If a company cannot continue to operate for four weeks without the founder being involved in every single decision, then the company is not yet an institution — it’s just a very well-funded version of the founder’s brain.

The implications of this are severe. The likelihood of failure or decline in performance associated with the transition of a founder-CEO is approximately two to three times that of the transition of a non-founder CEO.

How I’ve seen success happen

Founders who successfully navigate this transition do not try to fight their natural tendencies — they redirect them. Rather than using their intuition to make every decision, founders start to use their intuition to build people who can help them make decisions.

For example, a CEO I am currently consulting with spends about 50% of his time having one-on-one meetings with members of his executive team, where he walks them through the thought process he used to solve a specific problem, not just the solution itself.

The founder’s job is to stop being the bottleneck and become the teacher.
It is difficult, but it is the only path forward.

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The founder of one of our portfolio companies created a company with approximately $200 million in revenue purely on instinct. The founder had spent a large amount of time around the products and relationships with customers, so that he could literally go out onto the production floor and identify the machine that would be broken down in a week, and he would reject a price recommendation from his financial staff because “it didn’t feel right!”

However, after buying another company and nearly doubling the size of the business, all of the things that made the founder successful initially started to work against him.