3 Differences Between Managers and Leaders

Do you work for a manager or a leader? 
If you have a team under your care, then are you are a manager or a leader?

These two questions apply to either the world of entrepreneurship or the arena of Corporate America. Here are the three dimensions that I’ve come to observe. Each has deeper and broader sub-implications. Naturally, there are more qualities, so feel free to share or expand on them below.

Does Things Right vs. Does the Right Thing

Thank you Scott Adams

Is there a difference? Absolutely. A manager is preoccupied with making sure that rules are followed correctly and work is done accurately. That weekly business report? Better get it in on time and with the precise title, formatting, and metrics, or there will be blood. Be prepared to have answers in your back pocket for when higher-ups pop a question or two. Managers don’t want to make waves, so they want to ensure existing processes are respected. This isn’t to say that they are wrong, it is merely to state that managers are typically risk averse in that they prefer no to go outside the guide rails of established protocol or convention (even if the rules don’t make sense). Managers manage you the way that they want to please their superiors — that is, by following directions so that no surprises (good or bad) pop up. Doing things right is another way of saying — minimize risk. And while that’s not necessarily a bad quality, it certainly isn’t very inspiring. (It’s my personal opinion, though, that managers are actually just followers who have been promoted to a particular title and pay grade).

Leaders do the right thing, even if it means breaking convention. If you launch a new product and a weekly business report makes no sense, a leader will not mechanically require you to do it. They will actively make a case and set the proper expectations for either altering the reporting cadence more appropriately, or dispense with the practice entirely. Leaders, who focus on doing the right thing, manage people by encouraging them to think critically about why a task should be done, rather than mechanical follow through. In their minds, it’s more important to do tasks that return a good value on the time spent, rather than just ticking another “required” item off a checklist. Therefore, a leader will appropriately challenge the status quo by taking actions that make sense, rather than make the system happy by default. Leaders aren’t sycophants who want to please the higher powers. And leaders don’t derive their power from hierarchy or positional power (more on that in a separate discussion). They let the merit of their ideas and persuasive powers induce change.

Counting Value vs. Creating Value

Hmm…

Managers prioritize quantifying and measuring value. They often are obsessed with tracking results in order to report on specific targets. There’s nothing inherently wrong, and in fact, being able to ascertain things like revenue, profit, volume, costs, etc. are critical to being a good manager in many cases. But managers who are hyper-focused on counting value tend to miss the big picture, by shooting for short-term targets that can be actively detrimental to a business in the long run. For instance, I once worked with a product manager who deliberately set prices unnecessarily low in order to boost the initial software install base metrics, which was great for showcasing “traction” for a brand new product. He began to abuse the default argument, “It’s ok, let’s get volume first, and then worry about profit!” Sometimes, even volume can’t save your business; other times, even with abysmal pricing, you can’t get any volume (ouch).

This manager’s actions were severely shortsighted, as the low price backfired in four ways: 1) attracted lemon customer segments who weren’t serious about using the software, 2) decreased the perceived value of the product below it’s actual utility value, 3) incited a price war with competitors, and 4) wasn’t a sustainable unit price point even at scale. Ultimately, the product failed. It takes a whole team to build a great piece of software, and only one bad manager to destroy all the sweat and hard work. A manager who is hyper-focused on counting results is tempted to sacrifice long-term value and success by ensuring they’ve met “target” on some short-term goals. It sounds silly, but it happens (more often than you might think).

Leaders focus on creating value. They don’t dismiss the importance of measuring performance, but to them, quantifying results is just a basic best practice. Real leaders are always thinking about how to grow the top line or minimize the cost structure (hence, value creation). And to do so, they may employ very creative routes and risks, often taking calculated bets that drive up short-term costs, but can potentially reap windfalls in the long-run. The challenge for leaders is how to influence an organization to accept the short-run risks and manage expectations for the long-term strategy to eventually payoff.

A long time ago, when I was but a wee-boy interning on Wall Street, a VP on our exotics trading desk told me on my first day, “Don’t worry about getting in at 6am and staying until 1am just to get in face time [meaningless “devotion” metric]. You don’t have to hob-knob at happy hour if you don’t want to either [“team player” metric]. I care about the value you can bring to the table. Can you pick some trades that make sense to you? And can you run some simulations that track those trades? Can you show the team the logic and assumptions you used to make the decisions? I’ll have a senior associate execute your decisions on small experimental volumes. Don’t worry if the trades don’t make money initially, we’ll need to repeat the experiment a few times before we get the hang of it, so it’s all right. Do your best.”

This guy was a leader who was cultivating independent and analytical thinking. He wasn’t concerned about a few bucks (tens of thousands, actually… remember big and small is relative depending on the industry and domain) for training purposes. To him, letting an intern make a few decisions to learn from mistakes is an investment, not a loss. The long-term bet for this leader was that his people who are empowered will create more value than by following trading scriptures. Remember, this was during a time (and probably still is at most firms) when interns were expected to get coffee and get hazed while doing some menial research assignment (or deck, if you’re in IBD) that ended up in the shredder anyway.

Note: the reason I had to have a senior associate execute my small-volume trades was because as an undergrad intern, I had not yet taken the required financial certifications (e.g. series 52, 57, etc.). More noteworthy is the fact that I had an awesome VP mentor, while most of my colleagues were being treated like indentured servants.

Manage by Fear vs. Lead by Example

LOL

Managers give you tasks and tell you (sometimes imply) the consequences of not completing them a certain way. They organize a team around penalties, either explicitly, or worse, by docking points under the table without bringing it to your attention (until it’s already too late). As mentioned above, managers like to measure things… and people. Sometimes, these measurements make sense, and we call them KPIs (Key Performance Metrics). Other times, managers are just lazy and mechanically hide behind a wall of byzantine requirements and consequences to drive you like a whip does a donkey. Managers who do this often share stories like, “Oh yeah, you’re going to want to do X this way, because the last time someone didn’t, Z happened, and we don’t want that.” They pass it off like they’re giving you some sage advice, but really it’s just a disguised way of saying, “My way or the highway, bub.” Managers are exceptionally well-practiced at packaging sh*t in a gift box.

Leaders by contrast, will say something like, “I’ve done this X thing using this method. It worked then, but I’m open to you using another method, so long as achieves the same goal or better. Feel free to use or dispense with what I’ve done in the past, and make improvements along the way.” Leaders will typically set an example of what is good operations or decision-making, and then give you the freedom to interpret, borrow, improvise, and enhance the process. They lead with an open-mindedness and humbleness, acknowledging that their example is only one way out of a many possible solutions. Leaders will demonstrate and mentor you with their experience and past cases, but they don’t ever prescribe to you the exact way to achieve success on a task or goal. There is no ego involved in terms of her or his way being the “preferred” methodology. Moreover, leaders don’t expect you to emulate success. They expect you to invent it. And that says a lot about whether a leader trusts you, or whether a manager “trusts you to do it right.”

Whether you’ve had managers (and to be fair, there are both good and bad ones) or leaders, you should feel blessed because you can learn from both. You can’t change the people you work with, but you can definitely change how you work with them, if you take the time to understand their motivations and inclinations.