A growing company needs more expertise than even the most skilled founder can provide. Here's how to assemble an executive team to run your business.
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
Growing companies add employees at a rapid clip. They also tend to handle human resources in an ad hoc function for too long. This is a mistake. A full-time, seasoned HR director can implement a formal recruiting strategy to ensure that your company staffs up smartly. He or she can reduce turnover by helping to identify promising individuals at all levels of the organization, and ensure their regular promotion. An HR director can research other screening best practices such as personality tests to see if they are a good fit for your company. And they can manage and bid out employee benefits programs, including health insurance, employee visas and green cards, and a 401(k) retirement plan.
Dig Deeper: More Tips on Hiring an HR Director
Building a Management Team: The Chief Technology Officer
Identifying a talented CTO can seem like a daunting task for an entrepreneur who is not particularly conversant when it comes to new technology. Of course, that's why it pays to have a smart CTO play a leadership role on your management team. To hire a CTO, you must first assess your company's short- and long-term technology needs. Try to identify the areas where you technology is strong, as well as your vulnerabilities. And ponder the job description: Will your CTO's No.1 goal be to build and maintain a website (or a series of them), or to manage and protect a trove of customer data? Will he or she juggle software development projects and new product launches? If you answered yes to all of these possibilities, then maybe you should spend a little time rethinking and resetting your priorities. One of the most important things to remember when it comes to hiring a CTO is that you shouldn't expect the person to be a super hero. Their ability to produce results will depend in large part on your ability to chart a strategic vision for the business, and to set clear milestones for achieving that vision.
Building a Management Team: The Chief Executive Officer
If you are like a lot of entrepreneurs, your self-esteem and sense of identity depend to some extent on the fact that you are the boss. But being in charge is not necessarily every entrepreneur's strong suit. Many creative people who are adept at seeing opportunities and responding to them with agility and cleverness start great companies, but quickly tire of the mundane taks of building an organization beyond a certain point, and creating standards and processes. If you are one of these business owners, than it may be time for you to stop thinking like a boss and start thinking like an owner: It may be time to bring in an outsider to serve as your company's CEO. This is not a decision to take lightly, and anyone you bring in had better have the emotional intelligence to know when to challenge you and when to defer to your judgment as the founder. You will also need to acknowledge that this is a two-way street. Some employees who are loyal to you may not be loyal to the new CEO, and he or she will have every right to fire them, no matter how hard that is on you. But the upside may well be great: You may be more likely to find happiness and satisfaction in your work if you pass the responsibility for daily operations to a seasoned executive who can ace them, freeing up you to focus on developing the company's strategic vision.
Building a Management Team: Additional Resources
Finding top-level talent can be tough, and sometimes requires hiring an executive search firm. Here are some tips for working with a professional headhunter. Read more.
Negotiating pay packages with senior executives can cause entrepreneurial sticker shock, especially if your company was originally bootstrapped and you have traditionally developed talent from within. Here is what to know about setting salaries for your management team. Read more.
As you build your management team, you should also think about their career paths—because your top managers ambitions probably do not culminate with their current positions. Smart succession planning is a good way to provide key executives with an incentive to remain with your company for the long term. It can also provide you, your investors, and your top customers with peace of mind. Read more.
Finally, a little motivation: Holding out for the perfect job candidate may be frustrating, time consuming, and costly, but making a mistake in hiring can be disastrous. If you want to add to your management team but you haven't yet found the right person, don't be afraid to hold out, says Dr. Pierre Mornell, a psychiatrist and expert on hiring. He offers these tips on why you should avoid compromise candidates at all costs—and how to jump-start a lagging job search. Read more.