In his recent bookHow The Mighty Fallbusiness authority Jim Collins writes “when an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall”.
Although Collins’ book was referring to large companies, in over two decades of advising business owners I’ve also seen it play out in smaller ones. I refer to this as “getting ahead of ourselves”. It’s where the speed at which a company is growing out-paces the owner’s ability to fill key positions with competent people.
The reasons business owners fail to hire capable people are many and varied. In my experience one of the most common is because the owner doesn’t know what he doesn’t know. In other words, since the owner has never operated at this level of execution he doesn’t recognize the skill set necessary for someone to be effective. Other times he flinches at hiring highly competent people because of the threat they pose to his ego. Still other times the owner falls victim to what James Krantz, a professor at the Yale School of Organization and Management calls Projective Identification. “Here people project onto other people their own worst fears and doubts in an emotional self-fulfilling prophesy. This emotional sabotage is especially prevalent in boss and subordinate relationships. If a boss can blame some defect of his own-and the resulting problems in the organization-on a subordinate, then he never needs to face the real source of trouble himself”. This behavior extends to people within the organization and to potential new hires.
Regardless of the reason, the result of not filling key seats with the right people is always the same: The company’s growth stalls and the frustration levels increase as profit margins decrease. When left unattended the company eventually slides into decline, and sometimes into non-existence.
The first time I typically see this is when the company enjoys a measure of success that grows beyond the owner’s ability to personally handle all of the daily responsibilities. In the early stages of the business these responsibilities deal with the technical elements of the business; things like cleaning, drying, repairing, selling, bookkeeping, etc. This is when he has to hire managers to produce the results in his company. Results that he previously had control over. It’s at this early stage of development that the owner is tempted to make the classic mistake: rewarding an employee who is loyal and hard working, or one who is related to him, by promoting him into a management position that he is ill equipped to handle.
The next time “getting ahead of ourselves” becomes apparent is when the company has grown to a point where the decisions being made require an even higher skill level in its senior management team than it has in its front line managers. Once again the owner is faced with the choice of either developing someone from within the organization or recruiting someone from outside.
A recent conversation I had with one of my clients underscored the importance of not getting ahead of ourselves in a growing business. In this particular discussion my client was saying how fortunate he was to have three highly effective managers in the appropriate positions within his company. His particular business had successfully navigated the first stage of growth. As his company continues to grow and it approaches the point where he will need a senior management team in place he is faced with two significant challenges: maintaining the sweet spot of extended growth and profitability (i.e.: cash flow; employee engagement; controlled, sustainable growth), and developing the managers within his company to ensure they have the skills necessary to succeed in the next level of growth.
Consider the consequences of an operations manager who may have been successful managing front line people when the company was smaller, but who struggles to connect the dots of customer satisfaction, service quality, and operating efficiencies when the company becomes larger. Or the bookkeeper who has maintained the books and advised the owner when the company was smaller, but who has never dealt with the critical issues of cash flow and finance in a larger company. And let’s not forget the real bottom line consequences of a project manager who may have done fine managing smaller projects, but who struggles to maintain his profit margins on larger ones, oftentimes because the only training he received came from either the company owner or from on-the-job experience.
At senior management levels in a small business the skills needed to succeed have less to do with “hard skills”-the technical elements of the job, than they do with “soft skills”-a person’s ability to grasp complex concepts, communicate effectively, and to lead others. Developing advanced skills in his management team, or finding people who already possess them, remains one of the most important responsibilities of the owner. When an owner fails in this responsibility he frequently finds his business struggling. Usually he’ll attribute the struggle to market conditions, poor paying customers, or to the economy. He overlooks the fact that his business may have gotten ahead of itself because he doesn’t have the right decision makers making the right decisions.
In rapidly growing companies the owner is often under increased pressure to develop his own advanced management skills in order to stay ahead of the curve. He may need to rely on outside sources for training, as perhaps he did for the technical training he received earlier in his business. He must also be willing to abandon behaviors he may have gotten away with when his company was smaller, such as micro-managing and poor communication.
The whole process of avoiding the painful consequences of letting our companies get ahead of themselves starts with the owner’s ability to evaluate the management needs of his growing company and to determine if he has the right people in the key, critical positions. He’ll know he does when he has a team of people who are focused on forcing continued growth rather than continually trying to catch up to it.
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