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Use the Hand You’re Dealt: Leadership Styles Need to Match Business Size

What does it take to run a business effectively? The short answer is quite a lot. The long answer involves a rather extensive list of factors that leaders and entrepreneurs must consider when planning and carrying out their business plans. But for all the specific traits that could be rattled off, the one factor that I’ve seen have the greatest impact on how entrepreneurs lead their organizations is, without a doubt, size

It goes without saying that every entrepreneur has their own leadership style that they gravitate towards. On the spectrum of common leadership types, one could naturally fall under a transformational or an autocratic style, a transactional or a laissez-faire style, and so on. They might also want to take inspiration from some of the most prominent business leaders. Perhaps someone might appreciate Bill Gates’ more autocratic approach or admire Richard Branson’s charismatic leadership. It’s only natural that an entrepreneur would, in addition to their ideas for starting a business, have ideas for how they might want to lead their business.

The unfortunate truth is that effective leadership is heavily dependent on the business itself. Leaders can’t simply pick and choose which style they want, even if it’s the one they’re most comfortable with. They have to ensure that their business is operating efficiently, and when you’re leading your employees in a way that doesn’t suit the organization you’re building, it can lead to lower productivity, work quality, and profitability, fundamentally harming what you’ve worked so hard to build.

Size is an essential factor when considering leadership styles because ultimately, it affects the way in which leaders interact with employees, according to a study by Thomas George Marx for Sciedu Press. For example, leading a large organization gives a CEO far less opportunity for interpersonal interactions with low-level employees, whereas the boss of a smaller company will probably converse with employees more regularly. 

In particular, the study claims that the importance of engaging and interacting with followers decreases alongside the company’s size. This is likely a result of larger organizations having a more rigid hierarchical structure, formal policies and procedures, standardized operating and decision-making systems, and legal constraints, to name a few factors. 

So does this mean that the common leadership types I referred to earlier are better suited for the different sized organizations? The study also found that larger companies are more risk-averse, which tends to promote directive and task-oriented leadership styles that allow leaders to keep their organizations in order. But interestingly enough, the study implies that these are simply tendencies, not requirements, for leadership styles in different-sized companies. Based on the data, Marx concludes that one leadership style is not more effective than another, rather that it more depends on whether or not the style is aligned with strategy, policies, practices, and culture. This means that it’s not necessarily that a particular style of leadership is better suited for larger or smaller businesses: certain leadership types might suit certain types of organizations, but regardless of a company’s nature, but each style must be fine-tuned to suit the size of the business.

Let me paint a scenario. Say that a large business leader and a small business leader both utilize a democratic style, meaning that they often ask for input from their teams in order to inform their decisions. The small business leader might be able to discuss this directly with all their employees, and directly hear how feedback on how their ideas might affect the entire company. A large business leader would instead take their ideas to other members of the C-suite, department heads, and managers rather than low-level employees. The larger company is a bit more limited in how democratic they can be, but everyone is still represented in some capacity.

Of course, in certain scenarios, limiting the participation from followers can be beneficial for the large business, and the direct connection between leader and employee can be a detriment to the smaller business. If these leaders disagree with the opinions they hear, it might be harder for the small business leader to ignore or push back against their employees for fear of lowering morale and productivity.

As with most things in business (and in life) though, it’s a case-by-case basis. No matter what leadership style an entrepreneur ends up using, and no matter what size their business is, it’s important to tweak and adjust that style to suit the organization. If entrepreneurs can manage that, success will become that much more attainable.

Norbert Wicki is an internationally-experienced financial services consultant and serial entrepreneur. He holds a master’s degree in jurisprudence from the University of Zurich and Bern, a certification as a chartered financial analyst, and a wealth of firsthand experience in the Swiss, Azeri, and Russian economic sectors. Currently, he lives and works in Dubai, where he serves as founder and president of WETEC, a financial services consulting firm that centers on assisting with project management and financing and specializes in helping European clients optimize their business endeavors in the Middle East.

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