28 Oct Build a Management Team So the Business Isn’t All About You
In my previous blog I wrote about the need to reduce customer concentration in order to increase your value to prospective buyers. Now let’s talk about the importance of building your internal management team.
In the early days of running your own business, it’s natural for the founder to do as much as possible. It’s the most cost-effective way to do things in the beginning—and no one knows your stuff better than you do. But as the company grows, you’ll find yourself stretched too thin. At some point you can’t be the top technical and sales person, oversee operations, run accounting and HR, and expect your business to operate and grow smoothly. And if you decide to sell your business, buyers will see you as a one-man band and discount the value of your business, or keep looking for another business that is less dependent on the owner. We’ve worked with entrepreneurs who had as many as 15 or 20 employees, from office staff to engineers, and still managed everything themselves. As a result, when the owner was unavailable or couldn’t communicate to the employees, the employees were idle, just waiting around for the owner to make a decision. When you reach this point in your business, it’s time to think about bringing on one or more high-level managers to help you out. The idea is to build a professional team that’s able to manage the critical areas of your business and help take it to the next level. That will also allow you to concentrate on the areas that you enjoy and are truly an expert in— and get better and more diverse input for your strategic planning.
When does a start-up become a real business? There’s no single best answer, but some people would say that a company has matured when its founder no longer relies exclusively on his or her own skills to manage the business. A sign that a company has become viable and will survive is when a team of managers participates in planning, executing, and managing day-to-day operations. Of course a business has to grow to a certain size and produce enough cash flow (or have investors) in order to pay a management team. A history of team success and stability will also make the business more attractive to an outside buyer.
As the business grows you can groom a backup manager to be able to handle some of your responsibilities. You might achieve this by promoting from within or hiring from outside. Start by offloading the tasks that are least important to the organization, even if they are things you enjoy. Progressively train your backup and provide guidance. The reward will come when a prospective buyer quickly realizes that the owner is not irreplaceable in the business, thereby reducing the risk that the organization will fail once he (or she) has left.
In my next post, I’ll write about reaching critical mass and what that means.