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Mine, All Mine!

Think you should have complete control over your company? Think again.

Los Angeles hairstylist Billy Lowe has a well-known clientele, including Ellen DeGeneres and the cast of Desperate Housewives. When he's not working at his private Beverly Hills hair studio, he might be on his way to style hair on a talk show set or for a Hollywood charity event. His first hair-care product will hit the market later this year.

As in control as he appears, Lowe, 35, knows he can't control everything that happens to his 2-year-old company. Hollywood can be a notoriously fickle and demanding place, and market timing is largely a matter of luck. A few cancellations can throw off a day's sales projections and leave Lowe pulling out his hair. "Sometimes it catches you off guard," he says. "It's amazing some of the things that are out of [a leader's] control."

Which begs the question: As an entrepreneur, how much control do you really have over your company's performance? Unfortunately, less than you might think. Jeffrey Pfeffer, a professor of organizational behavior at Stanford University and co-author of Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management, says that two long-held assumptions of the business world- that CEOs are in control, and that they ought to be-are actually half-truths. In reality, CEOs face a host of unknowns where their impact is negligible to nonexistent, and these unknowns ultimately dictate organizational performance. "There's weather, currency fluctuations, competitors' moves and all kinds of stuff that [leaders] have no real [control] over," he says.

Pfeffer believes part of the problem is that we've mythologized CEOs into heroic figures who have total control over their companies. It's not that leaders don't make a difference-their leadership sets a cultural tone, for starters-it's just that their effect on performance isn't as great as it's perceived to be. Perpetuating this leader-ship myth ultimately hurts the bottom line. "The big challenge in companies of any size is to get everybody in the organization to take both individual and collective responsibility for the well-being of the organization," Pfeffer says. "If you have a strong, dominant leader, everybody looks to that individual and they basically say, 'It's not my job; it's not my problem.'"

The more overconfident leaders are, the more likely they are to see themselves as instrumental to their company's success, says Mathew Hayward, author of the new book Ego Check: Why Executive Hubris Is Wrecking Companies and Careers and How to Avoid the Trapand a professor at the University of Colorado, Boulder, who researches confidence in business decision-making. His research shows that the bigger the ego of the CEO, the more the CEO will overpay for acquisitions, thinking his or her Midas touch will boost profits after the acquisition. "That's why we see acquisition premiums in the range of 30 percent to 50 percent," he says. "Hubris was the number-one factor."

You have to have some confidence to start a company, and your influence as the founder remains strong as the company grows. The key is to know where your influence lies and where it does not. Entrepreneurs can't control external factors, but they should be in control of the general direction of the company, what it focuses on and who it hires early on, says Jeff Benrey, 44, co-founder of Trovix, a Mountain View, California, software firm with 40 employees and annual sales exceeding $1 million. "What you can control the most is the people you choose to work in your company," he says.

Pfeffer believes today's leaders need enough confidence to act but enough humility to realize they don't know everything. They should let employees influence decisions and listen when they say the company is getting off course. "If you're going to make all the decisions, you might as well hire idiots," says Pfeffer. "They're cheaper."

Shawn Ramsey, founder of Crossroads PR in Raleigh, North Carolina, admits she was a bit of a control freak when she started her company four years ago, but she's learned to empower the company's nine employees. Ramsey, 37, thinks she has great influence over the company's reputation, vision, pricing, target customer lists and projections, but she feels her influence is more limited in areas like motivation. "If someone isn't dedicated or loyal to your company, there's only so much you can do to change that," she says.

Lowe thinks leaders have to believe they can lead. For better or worse, perception is still nine-tenths of reality. "[My clients] are thinking, 'This man is holding a pair of scissors, so I'd better be really nice,'" Lowe says with a chuckle. "It's a very, very fine balance."

Chris Pentilla is a freelance journalist in the Chapel Hill, North Carolina, area.

Chris Penttila is a Washington, DC-based freelance journalist who covers workplace issues on her blog, Workplacediva.blogspot.com.

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This article was originally published in the January 2007 print edition of Entrepreneur with the headline: Mine, All Mine!.

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