Leadership styles in business: 7 different types (and how to find your own)

Democratic leadership

Democratic leadership, also known as participative leadership or shared leadership, is an open method of management that prioritises the involvement of every team member in the decision-making process.

Democratic approaches tend to fit well for those overseeing large workforces – such as hospitality businesses. Other characteristics of democratic leadership include:

• Lots of collaborative and brainstorming sessions
• Company culture that encourages teamwork
• Flat company hierarchy

Strengths of the democratic leadership style

Democratic leadership is a great tool for capitalising on the skills and talents of your biggest resource (your workforce). Business owners get their input and ideas, which in turn will increase employee engagement and overall satisfaction.

As a people-first policy, it also creates a strong team-based culture that emphasises development and growth, supporting employees with upskilling and encouraging them to stay with company for longer, reducing staff turnover.

Risks of the democratic leadership style

• Knowledge barriers: if staff lack certain skills or expertise, the conversations could prove counterproductive.
• More time spent in meetings: engaging with all employees necessitates a lot of time lost to meetings and procedures which can create delays.
• Reduced accountability: if you don’t reach a team consensus, or if a mistake or bad decision gets made, it can be difficult to find the person responsible.

Autocratic leadership

Autocratic leadership, also known as authoritarian leadership, is essentially the opposite of democratic leadership. Under this type of leadership, one person dictates policies and procedures, sets objectives, and manages activities without the involvement of subordinates.

Because of this, it complements smaller team sizes where one person can have oversight of several departments at once. Other characteristics of autocratic leadership include:

• Clearly defined business strategy and objectives
• Highly structured environment
• Restricted stakeholder involvement

Strengths of the autocratic leadership style

An autocratic approach avoids the issues that plague democratic leadership. When applied, business owners can make decisions quickly and with authority – particularly beneficial for small teams that struggle with poor organisation.

Because only one person is required to make a decision, there is also a clear process for implementing it. New ideas tend to be introduced faster. For example, if an autocratic pub owner wants to introduce a new food menu at Christmas, they have ultimate say, rather than needing the assistant managers or chefs to give feedback.

Risks of the autocratic leadership style

• Poor staff engagement: People will undoubtedly feel that their opinions are not being heard – a surefire way to alienate workers and lead to “quiet firing.”
• Strategic mistakes: Speedy and decisive action is only as positive as the end result. Without collaborators to provide quality assurance, business leaders chance implementing a disastrous new policy.
• Financial blow: Quick decisions are also more likely to delay projects or limit profits – both of which have money repercussions for firms.

You might be an autocratic leader if:

✔️ You are confident and motivated to make decisions independently. You are prudent and don’t like to waste time.

❌ You don’t relenquish many managing duties, and prefer that staff are directly supervised by yourself.

‘Laissez-faire’ leadership

‘Laissez-faire’ leadership is all about stepping back and putting trust in your employees to handle the day-to-day running of a business, and sometimes larger dilemmas or crises.

Also known as ‘delegative leadership’, it is more common in larger organisations with multi-tiered management. Other characteristics of laissez-faire leadership include:

• Focus on training and development
• Multiple departments
• Specialist recruitment requirements

Strengths of the laissez-faire leadership style

Given leaders will delegate huge responsibilities to staff, there tends to be a bigger focus on upskilling and career development. This can improve retention rate.

Also in a laissez-faire style, it is more acceptable for workers to make mistakes – managers will simply chalk this up as a symptom of working in an innovative environment. This creates a much more empathetic and understanding work environment for employees.

Risks of the laissez-faire leadership style

• Trust issues: if you’re relying on your staff to carry out pivotal campaigns or projects then you need to be certain they are qualified to do so.
• Timely implementation: leaders need to feel confident about their workers’ skills and knowledge so this approach must be considered during hiring.
• Reduced accountability: incompetent managers might also try to get away with blaming their errors on staff.

You might be a laissez-faire leader if:

✔️ You put a lot of trust in your employees and are happy with a ‘trial and error’ approach to strategy.

❌ You don’t like to take a ‘hands-on’ approach, preferring to give direction at the beginning of a project.

Transactional leadership

Transactional leadership is designed to inspire employees by rewarding high-achievers with bespoke benefits and perks. It’s a strict system that, in some firms, also follows the inverse (if you mess up, you will be punished).

Each month, a telesales team might reward the team member with the highest number of sales with a gift card, and penalise the person with the lowest number of sales with a verbal warning. Other characteristics of transactional leadership include:

• Hierarchical business with multiple levels of middle management
• Fixed operations requiring little creativity
• Reactionary leadership

Strengths of the transactional leadership style

By their nature, transactional relationships are self-motivating. Employees will get back what they put in – encouraging people to create their own aspirations and expectations.

Plus, as rewards systems are easy-to-understand and offer equal access to the entire workforce, they are a very equitable method that ensures fair treatment.

Risks of the transactional leadership style

• Financial blow: rewards are usually paid-for incentives such as an extra day’s holiday or a monthly bonus. This will have a negative impact on cash flow – potentially damaging in a poor economy.
• Reduced spending on learning and development: putting more money into bonuses can reduce the budget for staff to expand their professional development through training.
• Potentially exclusive: transactional approaches are very impersonal. They are typically judged using raw data which may not take into account illness or special circumstances that can affect performance.

You might be a transactional leader if:

✔️ You prefer to focus on short-term goals. You thrive on following rules and doing things correctly.

❌ You don’t prioritise teamwork and collaboration and prefer to emphasise individual performance.

Transformational leadership

Transformational leaders are intent on motivating employees to try out their new ideas, with the aim of inspiring people to achieve exceptional results.

Another way to think of it is that you subscribe fully to the idea that innovation will breed success. Other characteristics of transformational leadership include:

• ‘Big-picture’ thinking
• Ambitious goal setting
• High employee accountability

Strengths of the transformational leadership style

While transactional leadership provides external incentives for staff, transformational leaders stimulate their workforce by personalising each worker’s goals, helping them to be more self-motivated. In turn, this increases staff loyalty and engagement.

Transformational leadership is also very accommodating to lots of working styles, as it encourages the testing and application of new ideas. Those in tech industries – where companies have lots of different platforms and processes – will benefit from this willingness to trial alternate strategies.

Risks of the transformational leadership style

• Added delays: striving for new, big ideas ignores a lot of the set processes and administration that come with introducing a new policy or revenue stream; inviting errors which cost time and money.
• Poor staff morale: employees have full responsibility for whatever task they take on. Less-experienced individuals might find this working style isolating, leaving them feeling overwhelmed or even exploited.

You might be a transformational leader if:

✔️ You are open to new ways of thinking. You are empathetic and listen well to other’s ideas.

❌ You don’t shy away from the spotlight, and enjoy being a role model to inspire staff participation.

Coaching leadership

This one needs no explaining: a coaching leader is someone who takes on a mentorship role for staff or associates. The leader invests their time and energy into developing networking skills to nurture individual team members, empowering them to make their own decisions further down the line.

For example, the head of a solicitors company might take new hires on a client call to show them the real-life application of the service. Other characteristics of coaching leadership include:

• Partnerships and collaboration
• Big focus on learning and development
• Culture of high performance

Strengths of the coaching leadership style

Coaching empowers leaders to do exceptional work, meaning it is a direct investment in the future of your company. Having a base of knowledgeable and dedicated staff is an important business asset that will generate plenty of ROI. It will also make succession planning much easier.

Placing more emphasis on employees and their development creates a long-term retention win for companies – important given the recruitment challenges currently facing SMEs.

Risks of the coaching leadership style

• Significant time investment: almost every leader will have something valuable to teach their workers – very few will have the time to undertake it. Coaching requires a lot of time and plenty of patience to start producing results, guzzling up a lot of resources.
• Potential personality clashes: coaching is a delicate and personal relationship. If your mentee doesn’t respond to their mentor, or a coach resigns, the equation becomes unbalanced, leading to mixed results.

You might be a coaching leader if:

✔️ You are driven by results. You are focused on helping team members achieve their goals and objectives.

❌ You don’t step back to let employees manage themselves, preferring close supervision (unlike a laissez-faire leader).

Strategic leadership

Strategic leaders are heavily influenced by fact and knowledge. They focus on the long-term, and make all of their decisions as part of a larger plan designed to reach a singular business objective.

This leadership style is often found in more specialist industries, like engineering. Other characteristics of strategic leadership include:

• Strong communication skills
• Lots of resource dedicated to planning
• Rigid structure and business plan

Strengths of the strategic leadership style

Promoting a strategic approach to working is the best way to get your employees to buy into one shared vision. This is particularly helpful to encourage collaboration if you have a lot of departments working together.

Strategic leaders also tend to be one step ahead of the game. They can anticipate a problem before it occurs, and plan for how to prevent it to ensure that the final objective is still reached on-time and to-budget.

Risks of the strategic leadership style

• Need for open communication: getting an entire team on-board with a specialist approach requires a lot of charisma and constant check-in to ensure shareholders and staff don’t feel nervous about the direction they’re heading in.
• Financial blow: strategic plans can also be expensive and costly. Risks that don’t pay off could mean layoffs, the cancellation of a project, or the eradication of a whole department. Ultimately, a strategic plan is a risk.

You might be a strategic leader if:

✔️ You are a strong communicator and a natural diplomat. When you get an idea, you focus all your effort on it.

❌ You don’t make snap decisions. Every strategic choice you make is based on research and evidence.