Growing organically’ is this year’s business buzz phrase. But there comes a time in every company’s growth when, without cultivation, it becomes unmanageable.
To fully blossom, a business will need structuring – and in most instances, the expertise to build and manage that structure must come from outside. But bringing in new management can be expensive, disruptive and make you question your own abilities as an entrepreneur. So when and how should you do it?
WHY ROCK THE BOAT?
Bringing in new management at a time when trade is most buoyant may challenge the adage “if it ain’t broke, don’t fix it”, but it’s nonetheless when most companies begin to outgrow their startup structures. Your business may have prospered so far with you at the centre of activity, juggling sales with accounting, and PR with product development, but if there’s ever going to be an employee number 34, or even number 334, changes must be made.
Part of being a growing business is aspiring to not always be a small business. While there are many advantages to a small team mentality, a bigger company needs managers to take control of departments and a hierarchy that has the expertise and the time to drive it forward.
But not every entrepreneur that successfully starts and establishes a company has the skills or the inclination to make it a larger one – it’s certainly not a natural (or organic) metamorphosis. Nor will your existing employees necessarily have the skills to be managers.
Private investors and venture capital (VC) firms will evaluate management structures and expertise before committing funding and often insist on recruiting new or interim management. Commonly misinterpreted as a way of taking control away from the founder, it’s more often a case of protecting their investment by ensuring skills gaps are plugged and the necessary structures and experience is in place.
If you’re looking to grow, you should take the same precautions. As Michael Dell, of Dell Computers, once said: “If you limit a company by its structure or by the people in the company, you will, by definition, limit the full potential of that business.” That doesn’t mean that you or your valued employees don’t have a role to play in the company’s future, but that it’s professional to bring in the expertise you’re missing.
IDENTIFYING WHAT YOU NEED
Before you bring in a new management team you have to assess and clarify your objectives. First, you must decide if you’re an ideas person who’d be better off exploring new avenues than running the business on a daily basis, or an entrepreneurs’ entrepreneur who wants to stay at the core of the business, but needs relieving of burdensome responsibilities. Or, you might be a mixture of the two and need someone alongside you with expertise in the areas you lack.
While it’s not always easy to acknowledge your shortfalls, you’ll probably already know where you need help and be aware of opportunities you’ve been unable to pursue. Nonetheless, it’s important to take stock. You must also do this with the company as a whole. Consider where it is you want to get to, by when, and look at the staff you have – which are capable of helping you now? Where do you need to bring people in?
UPWARDS AND ONWARDS
Steve Pankhurst, founder of Friends Reunited, realised he had a business with plenty of potential, but not the expertise to exploit it, when they started to get sizeable takeover offers.
“We quickly became aware of the true value of the company, but we were ideas people and developers who, all of a sudden, had this massive company on our hands. We had a go at growing it ourselves and had taken on 10 people that were mostly friends and family, but we were struggling. We knew we were missing opportunities, such as global expansion, where we simply didn’t have the experience.”
Friends Reunited’s appointment of a new management team to drive the expansion came from an assessment of their long-term objectives for the business. “The offers we received were tempting and we listened to what they had to say. But it became clear that by selling or giving away some of the company, the site would have become over-commercialised and lost its core values. We didn’t want that, so decided to keep control and bring someone in who shared our beliefs.”
Pankhurst and his co-founders appointed former FT chief operating officer Michael Murphy as CEO, who’d been introduced to them during negotiations with a private equity firm.
“We liked him because he was down-to-earth and shared our entrepreneurial feelings not to over-commercialise the site and had the expertise to grow the site internationally. The deal didn’t happen, but we contacted Michael directly and agreed terms quickly. He then brought in Tim Ward to take care of the marketing side of the company and made several other management appointments.”
Friends Reunited now operates additional businesses under the umbrella of Happy Group Ltd, with the original founders instead focused on developing new ideas. “Bringing in management has allowed us to step away from the running of the business. It’s helped stabilise the business and take it to the next level.”
BUILDING STRUCTURE
James Murray, co-founder of telecommunications services provider Alternative Networks, was desperate to get his teeth into expanding the business – but had little time to do so.
“As a board we were getting to the size where we needed a senior management team to deal with day-to-day issues,” says Murray. “The board had five members which, with eight departments to look after, was spread too thinly and getting bogged down by nitty-gritty activities. We weren’t getting the opportunity to look away from the business and work on strategy. We needed to bring people in to look after these areas and then report to the board.”
As part of a strategic approach to double existing sales of £40m over the next two years, Alternative Networks appointed an Operations Management Group in August, including a HR director, head of IT, finance controller, head of marketing and client management director.
While still being fully integrated into the company, Murray claims the board has already felt the benefits of its new management structure. “It has allowed the board to focus on new ideas, new products, strategy, acquisitions and the overall direction of the business.”
MIND THE GAP
Appointing an interim manager is another option. Employed for a specific task or set period, an interim manager can serve a number of purposes. They can oversee a period of development or setting up of new structures or can come in to run departments until existing members of staff have developed the skills to takeover.
Patrique Habbo, managing director of Praxis Executive Assignments, says: “Interim managers can buy you time. They offer stability and experience to help introduce a new structure or take care of things, while you decide what your role or new direction will be.”
WHERE TO FIND THEM
Half of senior management appointments are still selfsourced as in the case of Friends Reunited, but executive recruitment – or headhunting as it’s more commonly known – is becoming increasingly favoured.
“It’s usually best to headhunt,” says Murray. “You need people who are capable of the job and have the ambition to come into somewhere smaller and make a difference. The agencies know these people.”
Habbo adds: “Even if you have people in mind, it’s worth talking to an agency. A good one should commit the time to visit your business, understand your objectives and deliverables and shortlist no more than two or three candidates.”
HOW MUCH DO THEY COST?
Appointing a management team isn’t cheap, so it’s important to consider the long-term rewards. “You get what you pay for,” says Habbo. “For instance, if you were appointing an interim manager you’d struggle to get one for less than £400 a day, but then there’s no need for a growing business with a turnover of £2m to £5m to be paying £1,000 to £2,000 a day. Something in the region of £500 to £600 is more realistic.”
Recruitment agencies will also want paying for their services and they don’t come cheap. Expect to pay a commission of between 20% to 30% of a manager’s starting salary, however, it could be worth negotiating a further ‘guarantee payment’ to ensure the agency will find you a replacement candidate if the appointment doesn’t work out.
Executives should be tempted to your business by more than financial reward, says Murray. “They should be interested in joining a small growing businesses. We present the opportunity for them to come in and make their mark where they’ll be accountable for growth and make things happen.” As a result, many executives will be tempted by salary packages that offer share incentives and possibly even performance- related bonuses. Speaking to executive recruitment agencies will also give you an idea of the kind of salaries management level executives are demanding.
INTEGRATION
It isn’t simply a case of finding people that are capable of doing the job, you also require managers with the flexibility and people skills to fit into the business.
“Integration is crucial,” insists Murray. “It can be a culture clash as these people often come from corporate backgrounds to a smaller, less formal, environment and they must be able to fit in. And then you have the people below that have been used to dealing directly with the board and will now have an additional layer of management to go through.”
It’s important that the people you bring in are clear about what you want them to achieve and that existing staff are briefed on why the changes have been made. But it’s not just employees and new management that can find integration challenging. “You can’t expect to step away once the new people are in,” reveals Murray. “Even though you’ve hired them for their expertise they won’t have the specialist knowledge of the business that you do and you’ll need to be around to explain certain things.”
It can be difficult to accept criticism about a business you’ve sweated blood over building. While Pankhurst says the introduction of Friends Reunited’s management team went smoothly, it wasn’t without its teething problems. “When Micheal came in we were still a bit hands-on, particularly on the technology side, and we were the only people who knew how certain things ran. Initially, Michael wanted to change things, such as the design and when you’ve got so close to something you can become blinkered and defensive about it. You have to learn to take a step back and accept that’s why you’ve brought these people in.”
