Managing the transition from start-up to 'professionally managed' business doesn't necessarily mean you have to hire outsiders who have all the right answers

A decade ago Judy Corson and Jeff Pope hit on a most unusual approach to reigniting the stalled growth of their marketing-research firm, Custom Research Inc. (CRI): they decided to start dealing with underperforming customers just as they would with marginal employees--by firing them. Since then, sales have doubled and operating margins have followed suit, while CRI's customer base has shrunk from 157 to 78. Along the way CRI has developed one of the most rigorous systems I've ever seen for qualifying sales prospects and developing new business into long-term, highly profitable relationships. They're all vividly documented in Susan Greco's excellent " Choose or Lose."

Greco's story also reveals Corson and Pope's uncharacteristically brilliant handling of a challenge confronted sooner or later by every successful young company: managing the transition from start-up to "professionally managed" business. Shockingly few young companies ever make it past this stage. For some, mismanaging the transition can be fatal. For most, getting stuck at this stage of development means a life of increasingly frustrated ambitions and futile, self-absorbed struggle--a kind of perpetual state of corporate adolescence.

The first mistake many founders make in coping with this challenge is to confuse becoming professionally managed with hiring professional managers. The latter almost never works. Take the case of a seven-year-old company I know of that, until recently, had been very successful. Now, though, its sales growth has slowed to a standstill as a result of turnover in its sales force. The CEO believes there's nothing wrong with his company that some "big-time professional managers can't cure."

I think the CEO is looking for a solution in the wrong place--outside the company. Meanwhile, one regional sales manager has achieved consistently lower turnover. He reports that several years ago he began to develop practices--interviewing techniques and psychological tests--designed to screen for salespeople who were keen on stability.

What needs to be done is to take those practices, which have been proved effective in one place in the organization, and institute them companywide. Ironically, the only thing standing in the way is the CEO himself, who prides himself on having created what he refers to as "a selling culture of freedom for highly individualistic personalities." But the reality is that the company's regional managers now spend much of their time recruiting, not selling. There's only one way I know to re-create the freedom the CEO himself cherishes: systematize the company's approach to sales recruiting.

I have to admit that nothing could sound more downright boring--the prospect of creating systems seems the very antithesis of the jazz of the start-up.

Of course, the creation of systems that institutionalize the values of an organization requires absolute clarity about what those values are in the first place. The founders of CRI believed, above all else, that what distinguished them from other market-research outfits was superior customer service, and that the one thing that undermined that goal was that they had too many customers. Everything that has driven the company for more than a decade now grows out of that one clear goal.

The payoff for Corson and Pope? Today sales are growing by as much as 25% a year, and margins have never been been better. What they may have feared they'd give up in systematizing their values has yielded instead another kind of freedom for creativity and innovation. For example, Corson and Pope are beginning to explore how they can take their system for screening customers and use it as their internal human-resources strategy to develop the sales staff's potential. These days there's a lot of excitement about CRI. Sounds a lot like a start-up, no?