When Both Sides Are Right: Navigating the Trade-Offs That Define Leadership

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One of the most challenging aspects of leadership is navigating the seemingly endless collection of tensions and trade-offs that exist within any organization.

These situations are difficult precisely because they rarely involve a choice between something that is clearly right and something that is clearly wrong. More often, leaders find themselves choosing between two priorities that are both important, both defensible, and both worthy of attention. But because time, capital, and focus are finite resources, investing more heavily in one priority inevitably means investing less heavily in the other.

This reality creates a unique challenge for leaders. Not only must they determine where to allocate resources, but they must also manage the internal tensions that frequently emerge when different people, teams, or departments become closely aligned with one side of the trade-off or the other. In these situations, disagreement is often less a function of incompetence or poor judgment and more a reflection of the fact that reasonable people can arrive at different conclusions based on their own objectives, incentives, priorities and points of view.

Throughout my tenure as a CEO, I repeatedly encountered situations like these. The remainder of this blog post presents seven specific examples of these leadership trade-offs and why I believe they are among the most difficult decisions that leaders are asked to make.

For each competing priority listed below, you’ll notice use of the word “versus” in the naming convention: This is not intended to suggest that each of these priorities are adversaries, nor that leaders must permanently choose one side over the other. In most cases, success requires some combination of both. The challenge lies in determining the appropriate balance, understanding how that balance may change over time, and recognizing when an overcommitment to either extreme can create problems of its own.

(1) Needs of the “Current Business” vs. Needs of the “Future Business”

I was forced to navigate this incredibly delicate tension when attempting to migrate my software company from an on-premise deployment model to a cloud-based one (also known as “SaaS”). You might not be running a software company, but if you find yourself running a business on the verge of some sort of major shift (stemming from A.I. or otherwise), it’s likely that you will have to navigate a similar flavor of this transition yourself. This challenge is most elegantly and comprehensively covered in Clayton Christensen’s seminal book, The Innovator’s Dilemma.

Particularly if you find yourself needing to build a fundamentally new product or service to meet the evolving demands of your industry, your world may evolve into a seemingly binary universe where, on one hand, you have your current product (in my case, existing on-premise software that was paying 100% of my bills at the time) and your new product (in my case, a SaaS product that didn’t yet exist, that was paying 0% of my current bills, but was necessary for the long-term survival of my company). As a leader, in such a situation, where do you put your resources?

If all you do is focus on your current product suite, you may hit your near-term sales targets, but you’ll be mortgaging the future of your company as the market is likely moving to whatever the new paradigm is (in my case, it was software delivered via the cloud). Conversely, if all you do is focus on the new product, then you run the risk of “starving out” your existing customers who are constantly demanding new features, functions and improvements from you. In this way, you may risk losing the primary revenue stream (from your current product) that’s funding your ability to work on the new product in the first place. And of course, if you try to do both equally, you’ll likely end up doing a poor job at both.

Beyond the product-level trade-off, and the time & capital investment decisions that follow, in these types of situations leaders are often required to manage the inherent cultural tensions that are likely to follow: These are typically created when one group of employees gets charged with working on the “new” product, while another group of employees gets charged with working on the “old” one. This latter group (understandably) often has a very difficult time accepting that not only are they not working on the new and exciting product, but they’re spending substantially all of their time on something that – by definition – will not be the driver of growth and value creation for the company moving forward. If you’re lucky, this group of employees will greet this news with begrudging acceptance. More likely however, the CEO will have to manage the potential emergence of an “us vs. them” culture, feelings of demotion or of not being valued, and voluntary employee turnover, among other issues.

(2) Existing Employees vs. New Hires

Even if you’re not navigating a fundamental change in your product or business model, the reality of running a growing company (particularly if it’s one that you’ve acquired) is that you’re likely to welcome a steady stream of new employees over time. While team growth itself is not inherently good or bad, it has the potential to create tensions that might need to be delicately managed. This is particularly true if the people that brought you to $5M in revenue aren’t the same as those that are likely to take you to, say, $25M in revenue.

Sometimes, the reality of scaling a company means letting go of a team member who was a critical contributor to the firm’s early growth, but whose skillset no longer fits with the company’s new reality. Other times it means fundamentally changing or reorganizing something (a leader, a department, etc.) that isn’t obviously broken today, but has the potential to be months or years in the future.

On one hand, your existing team played a formative role in bringing the company to where it is today, and these people are often critical to providing stability, institutional knowledge and continuity in the years still to come. Simultaneously, however, changes and additions to that same team are often required if the company is to successfully navigate its next phase of growth.

The challenge for leaders is that both perspectives are often correct: Existing employees may understandably feel frustrated when newcomers are hired into positions of authority, when long-standing processes are replaced, or when the skills and experiences that were once highly valued appear to matter less than they did before.

New hires, meanwhile, are often brought in specifically because they possess capabilities that the organization currently lacks, and may quickly become frustrated by resistance to change or by practices that no longer serve the company’s future needs.

As a result, what begins as a talent management decision can quickly evolve into a cultural challenge. Leaders must find a way to honour the contributions of those who built the business, while simultaneously creating space for the people and capabilities that will help build what comes next.

(3) Customization vs. Scalability

When they’re just starting out, young companies often win customers on the basis of customer intimacy. This can take many forms: highly customized products and services, direct access to the company’s leadership team, flexible pricing arrangements, or a willingness to accommodate customer requests that larger competitors might decline.

While these practices are often instrumental in acquiring a company’s first cohort of customers, they become increasingly difficult to sustain as the organization grows. What works well at $5M in revenue can quickly become a constraint at $25M.

At an intellectual level, most leaders understand that “what got you here won’t get you there.” In practice, however, managing the tension between customization and scalability is considerably harder.

Long-tenured customers who have grown accustomed to exceptional flexibility may be frustrated when the company begins introducing more standardized processes, products, pricing structures, or service models. At the same time, leaders often worry that an increased focus on scalability and repeatability may erode one of the very advantages that helped the business succeed in the first place.

This tension often becomes particularly acute for owners who hope to sell their company one day. Prospective acquirors typically value businesses that are predictable, repeatable, and operationally consistent. Yet many successful companies arrive at that point carrying years of accumulated customization: Unique contracts, bespoke pricing arrangements, special service commitments, and customer-specific exceptions that made perfect sense when they were created.

The challenge for leaders is determining which forms of customization truly create value and competitive differentiation, and which merely create complexity. Too much standardization can weaken customer relationships and reduce flexibility. Too much customization can make growth increasingly difficult to achieve.

(4) Growth vs. Profitability

Growth and profitability are often discussed as though they are complementary objectives. In reality, they are frequently competing priorities. While some exceptional businesses occasionally achieve both simultaneously, most companies are forced to make deliberate trade-offs between maximizing near-term profitability and investing in future growth.

This reality is captured, at least in part, by the software industry’s “Rule of 40,” which combines a company’s revenue growth rate and profitability margin as a rough and highly simplified measure of business quality. Under this framework, a company growing at 40% per year with a 0% profit margin is considered a “Rule of 40” company, as is a company growing at 20% per year with a 20% profit margin, and even a company that isn’t growing at all but is generating a 40% profit margin. While these businesses would not necessarily be valued equally by investors, the concept at least highlights the idea that growth and profitability often exist in tension with one another.

Almost every growth initiative requires some form of financial investment with an uncertain return. For example:

• Hiring new salespeople whose future revenue contributions may take months or years to justify their cost (if they ever do at all)
• Investing in new products or entering new markets with uncertain payback periods
• “Professionalizing” the business through the implementation of new internal systems (for example, a new CRM system, a new accounting system, etc.) that improve the company’s long-term capabilities but reduce short-term earnings and produce benefits that are harder to quantify despite passing the “common sense” test
• Expanding the management team, often before the economic benefits of those hires become fully apparent

The challenge for leaders is that both objectives are legitimate: A company that focuses exclusively on profitability may generate impressive margins, but risks underinvesting in the people, products, and capabilities required for future growth. Conversely, a company that relentlessly pursues growth can find itself generating impressive revenue gains while producing little economic value for its owners.

Investors, lenders, employees, and management teams often have differing views on where this balance should lie, making the decision even more complicated.

As a result, one of the most important responsibilities of leadership is determining how much of today’s profit should be sacrificed in pursuit of tomorrow’s growth. Too much emphasis on profitability can limit a company’s future potential. Too much emphasis on growth can jeopardize its financial stability.

(5) Delegation vs. Control

One of the most widespread challenges that I’ve observed over 15 years of operating and investing in small businesses is when the Founder or CEO herself becomes the primary bottleneck limiting the company’s growth. She started the business by making every sale, approving every invoice, and supporting every customer – often out of simple necessity. However, many years later, once the company has grown to only vaguely resemble the start-up that she once oversaw, she often continues to insist upon doing each of these things, even though it is no longer advisable to do so.

This dynamic is so common as to have spawned libraries full of business books that all effectively give small business owners the same advice: “Let go of the vine”, focus only on what you are uniquely qualified to do, and delegate the rest to others. Any other approach, we are told, simply isn’t scalable.

While this is generally prudent advice, it’s worth asking whether scalability ought to always be the criterion against which we judge the quality of our actions and decisions as leaders. As a regular reader of biographies, I’ve come to appreciate how many of history’s greatest entrepreneurs were notorious for the extent to which they involved themselves in the day-to-day minutia their businesses, a reality that seems to directly conflict with the widely accepted wisdom described above.

Consider just a few examples:

• Despite being one of the richest people in recorded history and running the largest company in the world, John D. Rockefeller once noticed that his kerosene cans were being sealed with 40 drops of solder. To help manage costs, he suggested reducing the number to 38 (later revised to 39), a decision that he claimed ultimately saved the company hundreds of thousands of dollars.

• Despite running what would become the world’s largest retailer, Sam Walton spent an extraordinary amount of time personally walking not only his own stores, but also those of his competitors. In his autobiography, he describes routinely carrying a tape measure in his pocket so he could compare aisle widths, shelf heights, and merchandising layouts between stores.

• When Tesla was facing severe production challenges surrounding the launch of the Model 3, Elon Musk famously spent extended periods sleeping on the factory floor and working directly alongside engineers and production staff. Rather than managing the crisis through reports and meetings, he became deeply involved in manufacturing bottlenecks, production-line design, factory layout decisions, and even seemingly minor issues affecting throughput.

So when should “micromanaging” be viewed as a pejorative, and when should it be viewed as a necessity?

The challenge, it seems to me, is that both perspectives contain an element of truth. A leader who refuses to delegate eventually becomes a bottleneck, limiting the organization’s ability to grow beyond her own time, energy, and attention. Yet a leader who becomes too detached from the details risks losing touch with the realities of the business itself.

Many of history’s greatest entrepreneurs appear to have understood that while responsibility can be delegated, understanding cannot. The difficulty lies in determining which decisions truly require a leader’s direct involvement, and which are better entrusted to others.

(6) Speed vs. Scope vs. Quality

When I was running a software company, and inevitably asking my developers to work faster, produce higher-quality code, and accommodate a seemingly endless stream of new feature requests, my CTO once drew a triangle on a whiteboard with the three corners labelled “Speed”, “Scope” and “Quality”.

He explained that for any given project, I could have two, but never all three simultaneously. For example, we could release on time and accommodate additional functionality, but quality would inevitably have to suffer. Conversely, we could release on time and with high quality, but only if we were willing to limit the amount of new feature requests that made it into the release. While there was certainly room to improve along all three dimensions over time, there were practical limits to what could be achieved on any single project.

While I was first introduced to this concept in a software context, I’ve since come to appreciate that countless companies across countless industries face similar trade-offs every day: A contractor can complete a project quickly, cheaply, or with exceptional craftsmanship, but rarely all three simultaneously. A manufacturer can rush a product to market, but may be forced to accept higher costs or lower quality as a result. A professional services firm can accommodate every client request, but doing so may require extending timelines or adding resources.

As with everything else that we’ve discussed thus far, the challenge for leaders is that all three objectives are desirable. Yet time, resources, and attention are finite. As a result, leadership often involves deciding which constraint is least painful to relax and then managing the consequences that follow.

While everyone understandably wants speed, scope, and quality simultaneously, the reality is that prioritizing any two usually requires compromising on the third.

(7) Persistence at-all-costs vs. Willingness to Pivot

One needn’t look terribly deep within entrepreneurial folklore to be regaled with stories about the importance of persistence to the entrepreneurial journey, including the generally accepted wisdom that persistence is among the most important virtues that any entrepreneur must possess. The reason why this wisdom is generally accepted is because it’s largely true: When one understands the entrepreneurial journey as a seemingly endless set of problems to be solved, stressors to be managed, and challenges to be overcome, then it’s not particularly hard to understand why persistence is so important. As a result, entrepreneurs who overcome substantial hardships on their eventual road to success are (rightly) applauded for the otherworldly persistence that they demonstrated in doing so. They are celebrated for refusing to stop, pivot, or quit (often eschewing the advice of others who advised them to do so), and we collectively believe it is because only the entrepreneur was able to see the inevitability of success that others simply couldn’t.

Yet, if one were to dig slightly deeper into those same entrepreneurial history books, they would likely also encounter stories of how countless entrepreneurs were able to finally achieve success only after moving on from several prior ventures whose prospects eventually grew to become much less promising. These entrepreneurs often speak of quitting, selling, pivoting, or leaving a previous venture as one of the best decisions that they’ve ever made. These entrepreneurs are also (rightly) applauded, though this time it’s for the foresight, objectivity and courage that they demonstrated in making what must have been an incredibly difficult decision to “quit”. We point to stories like these as examples of how, despite its negative connotation, “quitting” can sometimes be the wisest thing for one to do.

So, which is it? Should entrepreneurs persist at substantially any cost, or should they be wise enough to know when they’d be better off doing something else entirely? At any given time, a combination of both internal and external circumstances will almost always provide an entrepreneur with plenty of understandable reasons to stop, and plenty of understandable reasons to persist. So how does one know when to perceive persistence as an asset, and when to perceive it as a liability?

Though I can’t tell you specifically what you should do, I can at least share with you the questions that I asked of myself in coming to my own decision, when I found myself at just such a juncture. You can read more about my decision here: How to Know When it’s Time to Stop

In Sum

In many ways, these examples illustrate why leadership is so difficult. If the choices were obvious, they wouldn’t require leadership in the first place. The most consequential decisions that leaders make are often not between right and wrong, but between two competing priorities that are both legitimate, both important, and both worthy of attention.

The balance between these competing priorities will inevitably change over time, as will the people inside and outside of the organization who advocate for one side or the other. The good news is that these tensions are not a sign that something is wrong. More often, they are a sign that you are grappling with the very decisions that leadership requires.

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