When it comes to creating structure, one of the most important--and challenging--issues for second-stagers is building a management team. Granted, you may have been able to manage everyone when you only had a few employees. Yet as your company grows, specialized teams evolve into formal departments, and it’s impossible to have everyone look to you for all the answers.
Second-stagers, however, often procrastinate about bringing executives on board. There are two key reasons for their resistance:
- Sticker shock. Bringing on a COO or vice president of marketing is a significant investment, and some second-stagers have become accustomed to the high-performance, low-pay model of startup.
- Control issues. This business is their baby. They’re the ones who have taken the financial risk and it’s natural to want to keep a hand on the tiller to minimize future risk.
It’s crunch time.
There’s usually a crisis moment that prompts second-stagers to hire executives. They may have realized they need expertise they don’t possess or that there will never be enough hours in the day to make a dent in their to-do lists.
The latter was true for Cheryl Osborn, founder of Casco Contractors Inc., a general contracting and architecture firm in Irvine, Calif. Osborn began to build a management team about three years ago when she found herself working 16-hour days, 7 days a week. "I almost had a nervous breakdown," she said.
At that time, Casco was generating more than $20 million in annual revenue and had about 15 employees. "I was doing all my work at home because I knew once I hit the office, I wouldn’t get anything done," Osborn explains. "All my time was spent answering questions and dealing with employees. Most of them were in over their heads and needed constant direction, and I realized that direction needed to come from someone other than me."
Figure out which executive(s) you need to hire first.
There are three primary areas in any organization where you need executives: finance, operations and marketing.
Yet there’s no protocol for which slot to fill first. The timing depends on your situation and how you compete for the market. If you’re in a highly competitive industry and need to squeeze costs and increase efficiency, a COO may be your first executive hire. On the flip side, if you’re a product differentiator, then a director of marketing or R&D will probably be more important.
One of the most common mistakes second-stagers make with their management team is promoting people based on their past success rather than their expertise--something Doug Tatum stresses in his book, No Man’s Land. Just because an employee is doing great accounting work doesn’t mean that he or she is cut out to be the CFO. Similarly, being a top salesperson doesn’t guarantee that someone has managerial panache. You may think you’re being a loyal employer for promoting the folks who danced with you first, but in reality, you’re setting up those employees for failure.
Hire someone who will excel today and five years from now.
Besides thinking about what expertise you need today, look into the future and try to hire for what you’ll need five years from now. View your management team as an investment portfolio, and think about the ROI you expect from each executive.
It’s also important to take an inventory on what you bring to the table. Second-stagers often hire executives that mirror their strengths instead of looking for folks who can fill gaps in their skill set.
Here are some other suggestions for recruiting.
- Have a solid understanding of candidates’ morals and ethics.
- Find out about their academic background. What schools did they attend and what kind of classes did they take? Does their educational experience support the area you’re hiring them for? In addition, you may want to explore any over-arching philosophy of the school they attended -- each one is different. Does the school’s philosophy match yours?
- Gain an understanding of their personality traits--not just a DiSC or Myers-Briggs Type Indicator personality profile assessment, but also explore for tendencies such as impulse control, curiosity, and judgment. For top key hires, you might consider a wider range of assessments--perhaps even a pyschologist’s assessment.
As a reminder, the hiring process is an elaborate courtship, and people are always on their best behavior during the interview. But the reality is, the person you interview may not be who he or she really is in real life. Find out everything you can about an executive candidate, and invest considerable time and money into the interview process. If you let the wrong person into your company, he or she can be toxic, and it’s not always easy to get rid of someone once they’re in.
It’s also a smart idea to be constantly on the lookout for talent--rather than only looking at your moment of greatest need. Talent can turn up in surprising places. I know one second-stage CEO who recruited a manager from a fast-food restaurant who he met while having lunch.
You want smooth scaling.
Done correctly, a management team brings greater strategy and structure to your business. Experienced executives transform chaos into calm. They know how to motivate employees, influence customers, and improve efficiencies in operations. They not only help you scale, but also change your organization for the better.
Since Osborn began to build her management team in 2010, she has increased staff to more than 45 employees and grown annual revenue to nearly $40 million. Perhaps more important, growth is occurring in a stable environment. "I have six directors and they’re all strong performers," she says. "We have structure, and every department understands its hierarchy." And instead of a 100-hour workweek, Osborn has cut back to 50 or 60 hours per week. "Life is much more manageable," she says.
Indeed, building a management team gives you freedom. It enables entrepreneurs to do what they’re passionate about, whether it’s looking for new business opportunities, building the organizational culture, or developing a long-term vision. What you don’t want to do is just fight fires. A management team gets you out of the weeds, and enables the organization to function without you.
This is part one of a two-part series. Please come back on Thursday for part two.