How to Build Your Management Team

When does a start-up become a real business? Different people answer that question in different ways. One definition—and a good one—is that a company has reached some level of maturity when its founder no longer relies exclusively on his or her own skills to manage the business. Reaching the point when members of a team of senior executives share day-to-day operational tasks is a sure sign that a company has become viable and will survive the long haul. After all, a business must produce significant cash flow or have significant funding in place in order to cover the high salaries that a team of managers will no doubt command.

Of course, building a management team is not easy. First, there's the personal sense of loss that an entrepreneur inevitably will feel at the moment when he or she allows pivotal company decisions to be made by others, without (much) meddling.

Recruiting top managers is not always easy. Persuading talented leaders to join a start-up is not as hard as it once was, but it still involves having a good eye for talent and the ability to sell an idea and its potential upside to a savvy operator who might well have other options.

Moreover, making the wrong hire at the highest levels of an organization can have serious consequences. The severance costs of terminating a top manager can be high—and they can be higher still when you factor in any turnover in a key department that precedes or accompanies the departure of a bad hire.

For all of these difficulties, however, entrepreneurs who have built strong management teams enjoy obvious rewards. They can rely on the skills of others to compensate for their weaknesses. They can focus on strategic issues while confidently delegating day-to-day tasks, such as managing people. And they can use their management team to secure outside funding and establish creditability with potential customers.

Best of all, entrepreneurs who bring in senior executives to advise them can enjoy the delicious experience of seeing their companies grow stronger and larger and expand in new and surprising ways. For many founders, the ultimate goal is to build an organization that changes markets, changes people's lives, and proves durable over time. Only with a strong management team in place will that dream become a reality.

Dig Deeper: The Right Time to Recruit Your Management Team

Building a Management Team: The Senior Sales Executive

Adding a sales manager is a pivotal moment in a company's life. Studies show that most businesses never grow, and one of the reasons that they never grow is that their owners bear the sole responsibility for sales. The reason that many entrepreneurs avoid bringing in sales help is quite simple: Hiring a sales executive can be expensive. For each $1 million you intend to add to the top line, you should budget at least $100,000 in additional sales compensation costs. Then there's the question of figuring out what kind of sales manager you want. A common mistake people make is to promote a successful salesperson into a management role for which he or she is constitutionally unqualified. Before you begin recruiting a sales manager, it is important that you ask yourself: Am I hiring someone to bring in large accounts, someone to manage the accounts that I already have, or someone to manage a team of people who will manage my accounts? If that third option is your answer, consider looking for a candidate who has a track-record of building and managing teams, rather than candidate who has beat every quota he or she has ever seen.

Dig Deeper: More Tips on Hiring a Sales Manager

Building a Management Team: The Chief Financial Officer

The role of a chief financial officer has changed dramatically in recent years. What used to be a senior scorekeeping position has become much more strategic in nature. In many growing businesses, the CFO now serves as a partner to the CEO, helping to manage the business toward its goals, achieve buy-in from key investors, and assess the wisdom of pursuing new business opportunities. You know that you'll need to hire a CFO when your company is growing at a rapid clip, requiring outside financing or careful cash management; when your company requires a formal audit; when your payroll crosses the 30-employee mark; or when you are contemplating a complex financial transaction such as an acquisition, merger, or public offering of stock. So how do you go about finding a seasoned CFO? Many companies work at first with part-time financial executives whom they later recruit to join the management team on a permanent basis.

Dig Deeper: More Tips on Hiring a CFO

Building a Management Team: The Director of Marketing

You may think that marketing director is one of the easier positions to fill on your management team. But that is not always the case. Many companies bootstrap their marketing department for as long as possible, relying on witty promotions and diligent customer service to build a strong niche brand. These efforts are often developed and nurtured by early employees who come to staff a growing company's marketing department even though they have no background or training in the field. When a senior person is brought on to professionalize a growing marketing department, tensions can rise if longstanding employees come to feel that their new boss is not a good cultural fit or is trying to change the positioning of the brand in a way that lacks authenticity. To assuage these concerns, it is important for a founder to prepare the members of his or her marketing team well in advance of a leadership change; to involve them in the search and screening of candidates to whatever degree possible; and to place the hiring of a new marketing director in the context of a refreshing of a company's marketing program.

Dig Deeper: More Tips on Hiring a Marketing Director

Building a Management Team: The Director of Human Resources