As a business grows, it’s critical business owners and managers continually look ahead and plan for what the organization will look like in the future. Part of growth involves hiring more people to do the work—more technicians, more estimators, more project managers, or more business development reps. But a more critical issue is adding needed management and leadership abilities as the size and complexity of the organization increases.
A classic example is the bookkeeping and accounting function. When a business is first started, it’s not uncommon for a spouse or other family member to handle the bookkeeping duties. Bills are entered, invoices created, and payroll processed. As a business grows, additional accounting expertise is needed to analyze financial statements, track cash flow, and develop and manage relationships with bankers, including arrangements for lines of credit and financing for equipment and capital purchases.
When a company reaches $10-15 million in revenue, a chief financial officer (CFO) or finance director is needed. These executives are a critical part of the leadership team and play an important role in business and tax planning and strategy development. Risk assessment, as well as financing options for geographic expansion, capital purchases, and acquisitions are included in their responsibilities.
Business owners and managers have the duty not only to plan for these changes by identifying when additional competencies will be needed, but also to assess the potential of existing employees for continued growth to meet the needs of the business. For example, once a company reaches about 50 employees, a full-time human resources manager is needed. Until then, the HR responsibilities may be handled by the office manager, accountant, or owner—or a combination thereof. With responsibility for payroll, compensation management, the performance assessment process, benefit programs, safety programs, government regulations, and oversight of employee development and training, this becomes a full-time position. It is not safe to assume that any of the people currently involved with HR activities can rise to the level of leadership and knowledge required for a larger company.
Note that I said leadership. One of the situations we see repeatedly in our experience with restoration contractors across North America (and companies across all industries for that matter) is that, as they grow in revenue and number of employees, they do not typically add management and leadership skills at the required rate. This is partly due to the “promotion of the competent” syndrome and partly driven by the desire to reward loyalty and length of service. “Promotion of the competent” means we reward the most productive, most experienced, hardest working employee within a particular technical area with the position of manager. “You’re our best technician, Joe, so we want you to take on the role of production manager, and lead, motivate, and train all of our technicians. You’ll be responsible to hire new technicians, too, and share all you know with them.” On one hand, Joe might view this as a good thing. He gets an increase in compensation—maybe salary vs. hourly pay—and he gets more authority and responsibility. On the other hand, Joe probably doesn’t know anything about managing, motivating, or developing people. He might not want that responsibility, or he may not have the ability to develop the needed skills. The result could be that one of your most valuable employees has now been set up to fail.
The cumulative effect is that, over time, you end up with a management team focused on the day-to-day activities and technical details with which they are most comfortable, and who are ultimately limiting the growth of the business by not adequately planning for the future, developing people, or anticipating potential problems. The job of the owner or executive responsible for the business then becomes that much more difficult. They find themselves spread too thin, dealing with day-to-day fires that ignite due to the manager’s lack of competence in effectively managing and dealing with employees, along with a growing list of things that slip through the cracks because they don’t have the attention of those responsible.
Don’t misinterpret my message. I am NOT saying that good leaders have to be hired from outside the company. I am also NOT saying to never promote a technically competent employee into a management position.
What I AM saying is leadership skills are critical to successfully growing a business. To both understand the need for effective leaders and to recognize leadership abilities in your employees is vital. Those with the best leadership skills and greatest potential to become effective managers may not be the ones who are the most technically competent. Anticipating the future need for managers and leaders in specific disciplines within your organization, combined with the ability to assess your team’s potential and to develop their skills and knowledge over time, will increase the likelihood that promotion from within becomes a viable option for staffing your growing management ranks.
There will be situations where hiring the required experience, skills, and knowledge from the outside is the only viable solution. While the subject of recruiting, assessing, and hiring management-level employees must be saved for a future article, the key point for this topic is not to overlook the leadership abilities of the candidates. We are often so focused on technical knowledge and skills, we overlook the fact that this person will be leading and managing other employees.
Resist the temptation to promote the loyal, long-serving employee into a leadership position just because it’s a way to pay them more and reward them for good performance. Focus instead on anticipating what the business will need to allow it to continue to grow profitably. Then, define the new position clearly, including the experience and skills required, before you begin searching for the best person for the job—the one who can help lead the organization to the next level.