What do you do when your company 'outgrows' the managers who have been with you from the start?

If you've heard this scenario once, you've heard it a hundred times. You may be living it right now.

Chapter 1. A young company can't afford heavyweight managers, so it hires younger, inexperienced people who want to get in on the ground floor. For a while, it works beautifully -- everyone digs in and takes on more responsibility. They are learning the old-fashioned way, by doing.

Chapter 2. The company grows and the euphoria fades. Hard work and energy are no longer enough; the original managers are running into obstacles. Is there still a role for them? The founder isn't sure. New managers are hired to help out.

Chapter 3. The lingering questions about the original managers are resolved. The sad truth, the chief executive officer concludes, is that the company has outgrown their abilities. They pack their bags, disappointed and bitter about how they've been treated.

But once in a blue moon, you hear an alternate version of Chapter 3. In it, the CEO recognizes the need for more experienced management, but the original managers are invited to stay and develop their skills. Maybe not in the key positions they had, but in important jobs nevertheless. And they agree to do it. In a nutshell, this is what's happened at CompuAdd Corp., a computer mail-order and retailing business based in Austin.

When Bill Hayden, now 42, started CompuAdd in 1982, he had no idea how experienced his management personnel would have to be. After all, it was impossible to know how fast, or even if, the business (now a 1,000-person company with 71 stores) would expand. At Texas Instruments, where Hayden had worked as an engineer, he had never managed more than 5 people. Initially the only other employee at CompuAdd was his wife, Connie. Hayden, whose plan was to build a mail-order business, wanted to keep things simple. He sold other people's products and limited the number of items he carried. But within a year the company was growing beyond his and anyone else's expectations, and it needed some management help.

When sales reached $2 million, Hayden still didn't believe the business was ready to bring in seasoned management. "I was more interested in people who had high energy levels and good common sense," he says. So in the first half of 1983, he hired three young men, all in their twenties. Two of them had recently graduated from college at Southwest Texas University, and the third was a part-time student at the University of Texas.

For a time, things were quite manageable, says Hayden. "Collectively, we were able to handle anything." The new managers, whom he eventually promoted to vice-presidents, were assigned their own areas of responsibility. John Hutchinson was involved in purchasing and advertising; Frank Taylor looked after shipping and quality assurance and provided technical support; and Tom Irby managed CompuAdd's first retail stores. Hayden, working six and a half days a week, backed everyone up and handled the finances.

Growth continued apace. By the middle of 1985, CompuAdd had nearly 80 employees and annual sales were about $25 million. But long about that time, Hayden recalls, management pressures also began to multiply.

For example, Hutchinson's attention was split among several functions, and there were only so many things he could take care of at once. The company was stocking more products in response to customer demand. Somebody had to stay on top of purchasing on a full-time basis. Managing the retail side of the business was becoming a bigger job as well, especially as the company prepared to open more stores. Could Irby manage both the stores and mail order? Unlikely, thought Hayden. Besides these problems, Hayden wanted to begin assembling and selling his own computers. But none of them had ever managed assembly or manufacturing operations before. "Everywhere we looked, we were bumping into barriers," Hayden says. Some were from lack of skills or experience, others from lack of time. Clearly, CompuAdd had to bring in some additional people -- people with expertise. But how would Hayden do it without sending the wrong message to the people he already had on board?

Hiring seasoned new managers who would report to his youthful vice-presidents, he felt, would be counterproductive. How would he explain to an experienced manufacturing or finance person that his 28-year-old boss had no background in the field? A better solution, he thought, was to eliminate the level -- and title -- of vice-president and have all key managers report to him. A flat organization would make it easier to attract capable people and easier to stay in touch with what was happening.

Presenting this plan to the vice-presidents was obviously touchy, but Hayden outlined his intentions as clearly as he could: it wasn't that they lacked ability, he told them, it was that the company needed skills that would take years for anyone to develop. "Accepting this was terribly hard from an ego standpoint," recalls Irby. But he and the others eventually saw Hayden's reasoning. Sure, their jobs would become more focused than before, but they were guaranteed a role in the future of the business. Hayden told them that if he ever sold the company or took it public, they would be given special consideration.

Over the next 18 months, as CompuAdd grew from $40 million to $100 million, Hayden hired managers wherever he needed them. Among the first slots he filled were in purchasing, finance, and manufacturing. "You couldn't help being impressed with the caliber of these people," notes Taylor, who began working closely with the new manufacturing manager. Most of the recruits had a dozen or more years of experience.

Every week, managers from throughout the company got together to discuss problems. But as the group grew to 13, the horizontal structure became unwieldy. With everyone reporting to Hayden, too many problems were falling in his lap. He lived with it for awhile. "But I was running myself ragged," he recalls. So the time finally came to do something about it, to find a more reasonable way to manage the company. The structure Hayden began implementing in the middle of 1988 is more hierarchical than before. Besides shrinking the number of individuals reporting to the top to four, he brought in a vice-president (a 27-year veteran from IBM) to share his workload. Unlike the previous setup, where the organization was flat, there are now two tiers of managers. In fact, the original managers are two levels removed from where they started out. They no longer attend the weekly meetings; they report to directors, who report to the vice-president (since made president), who reports to Hayden.

So what does this mean for the younger managers? Does it mean they're on the outside looking in? Not by a long shot. For one thing, Hayden made a point of meeting with each of them privately before he introduced the changes. "It was really a series of conversations," he says. He reassured them of their value to the company. He's put them on a career track and told them that the chief difference between them and the directors who supervise them is experience. And it's not just talk. He's making sure they get challenging assignments -- Irby, for example, has just been put in charge of a new product-marketing division. Hayden's also asked their supervisors to make it a priority to help them develop their management skills. He doesn't have a lot of time to spend with them, but he does try to stay in touch.

There's no telling where all this will end up. Short of assuring his original managers they will not be forgotten, Hayden, who owns 100% of the stock, isn't making promises to anyone. "If the company continues to grow," he says, "we'll still have to fill some of our management positions with outsiders." But Irby and his contemporaries are feeling optimistic about where things are heading. "I was a vice-president at 24," says Irby, now 30, "and someday I'd like to be in the top level of management again. But in terms of my career, I'm learning how to sink my teeth into something. And this may be the best thing that could have happened to me."


How to motivate managers who have lost their titles to more experienced new hires

Most chief executives of growing companies accept as fait accompli that many of their early employees move on. At some point, they'll see greener grass elsewhere. There's no way to guarantee that you'll keep the people you want, especially as you bring in other managers over them. But Bill Hayden's experience at CompuAdd Corp. illustrates that you can improve your odds by:

Being candid. Whenever the positions or duties of his original managers were going to be reshaped, Hayden made a point of discussing his intentions with the individuals in private, at least a week before announcing the changes. "In periods of change, people are vulnerable," he says. "You can't avoid hurting people, but the last thing you want to do is surprise them."

Showing them a career path. Rather than dwelling on the responsibilities his young managers gave up, Hayden emphasizes the value of what they're doing and how they'll be able to grow. Once they acquire skills and prove their ability to manage pieces of the business, they can -- and do -- move on to new assignments. "If you're serious about keeping them, and we are, you really need to make a commitment," he says.

Providing support. One way that Hayden communicates this commitment is by having the younger managers work closely with CompuAdd's most experienced managers. A key responsibility of these supervisors is to help young managers learn new skills.

Staying in touch. While Hayden is no longer the direct supervisor of any of his original managers, he remains interested in their development. "I still go and check in with these guys every coupleof months or so," he says. "I have a great deal of faith in them, and I seek out their ideas."