Most business observers agree that as a company grows it hits speed-bumps at revenue levels of $5 million, $10 million, $20 million, and $50 million. They also generally agree that most Founders, CEOs, or General Managers fail in their well-meaning efforts to take their companies over these hurdles.
The two conventional approaches to solving this speed bump problem are based on a paradigm that inadvertently solves only 50% of the problem. No wonder getting past it is so difficult. Pure business types will argue that this common phenomenon is rooted in weak departments such as R&D, sales, production, purchasing, or financial control. Organization development thought leaders, on the other hand, ascribe it to sub-standard people management originating in B-level executive talent, compensation plans, or culture. These two traditional approaches usually fall short because CEOs leading real world companies need a unified real world business solution focused on both achieving profit and sales plus organizing people to work better together.
Does Your Company Have Some of These Symptoms?
Recently an Owner, Founder, CEO, and President communicated the following about their respective organization:
- At a $20 million distributor of automobile parts, the eight top managers reported directly to the Owner and he alone knew costs, gross margin, and profitability of the company. Management meetings with all the executives were not held.
- In a $10 million regional residential plumbing repair and maintenance business, the six senior managers reported to the Founder, he alone knew the financials, and he was head of the Purchasing Department. This Founder held occasional town hall meetings but when observed he controlled the sessions with a tight fist.
- In a $4.5 million job shop for the military, the CEO did all the customer bids, all the selling, all the purchasing, and regularly drove unfinished parts to outside contractors for deburring and plating in his own car. This CEO called a managers meeting only during a crisis and then was not present, but had his Office Manager run the meeting.
- In a $50 million company the seven top executives reported to the President. He was also the Sales Manager and Chief Financial Officer. Management meetings were held only when sales were down and during them the President was observed tapping into his Blackberry the entire meeting, even though he sat at the head of the table and led each meeting.
The common thread was that all of these top executives reported they were stuck at one of these revenue speed bumps. These leaders said they had tried everything they could think of, they all felt they had hit the wall. However, all of them still acted like start-up CEOs who got involved in virtually every detail of running the company. I know the fear that results in holding onto this start-up mode of single-handedly pushing the business, because I have done it myself. We are all human.
Going Through the Toll-Gate
Most top leaders need to go through a metaphorical “toll-gate” to successfully navigate the $5 million to $50 million speed bumps which every company faces. The Founder, CEO, or General Manager needs the courage to let go of the familiar cherished leadership style he used to get his start-up company off the ground: pushing it forward mostly by himself.
Starting at the first speed bump of $5 million in revenue and more so with each consecutive speed bump, the daily leadership power dynamic must migrate from inside the CEO’s head to inside the heads of each internal leader. The craft of making a small company into a large company is that the leadership style of the Owner or General Manager evolves from solo pushing to the management team collectively pulling the company forward. In addition, this key ingredient boosts the valuation price strategic and financial buyers will pay for a business, because they know the operations can survive without the top leader.
The CEO needs to shift his thinking so he trusts himself to let go of controlling every part of the business and pivots to the role of larger company CEOs, who understand that their daily responsibility is managing the managers and not being a department head. Unless this power dynamic emerges, executives on the senior team will remain undermanaged and the CEO will continue to hold back company growth.
How to Operationalize Making Your Company Larger
The craft of how the CEO transitions from pushing the business forward to the management team pulling the firm forward includes many components. One important tool, described below, is to look at a company’s infrastructure from four different levels.
At the 20,000 foot level invite superior operating women and men who have spines of steel (that is who built sales and profits at a minimum two to three times the size of your company) and big hearts to look over your shoulder and guide you. This is not something to be learned from a book or lecture. Be prepared to take a highly respectful beating as they observe how you run the business. With great love (in a professional business sense) they will correctly tell you where to go with the company and, equally important, where not to go. They will also keep your management team out of denial.
At the 10,000 foot level, conduct a regular quarterly town hall meeting where everybody in the company gets together. This is a very successful practice even in several billion dollar NYSE companies. Place it on the company calendar so employees expect it. At this meeting, show the attendees the company’s financials and key operating metrics, good, bad, and ugly. They already have an instinctual feel for the numbers so harness this knowledge to your advantage. If concerned with confidentiality, have employees sign a confidentiality statement if they didn’t already do so when they received their employee handbook. For the next quarter, determine five items the team will focus on doing, communicate those items in a written memorandum to all employees, and at the end of each quarter grade yourselves on performance.
At the 5,000 foot level the whole leadership team gets together for a weekly managers meeting to review the prior week’s successes and failures and to set priorities for the coming week. If you are looking for what speeds up the sales and profit engine the most in a business, this is it. If leaders need to travel that week, make it mandatory that they participate by phone or Skype. The ones that resist the most need the meeting the most. Try to keep the meeting to one hour. Most firms hold it on Monday morning.
At ground level, the executive team conducts a daily huddle to review the day’s priorities and deal with any fires that need immediate attention. Hold this meeting first thing in the morning and keep it to half an hour. Just holding this meeting will help you do your job as a larger company CEO, because larger company CEOs do not want secrets and surprises. If you are making a lot of changes or have difficult challenges, your people can feel beaten down. In this case, start the meeting with one piece of good news. If someone is a negative Nancy and says, “I can’t think of any good news,” tell them, “No, you’ve got to come up with some good news.”
This has one other advantage. Most companies have a lot to worry about. It is easy to focus on the fact that you or one of your executives is not where you want them to be. At this meeting, take a moment to celebrate small wins in the business so the atmosphere remains more upbeat than it would otherwise be. Many CEOs are so focused on where they need to go that they do not have the fun they need along the way.
By the time your business has reached $4 to 5 million in revenue it is already too large for you to steer it by yourself and for you to be the sole source of innovation. The power dynamic in your leadership style as the Founder, President, or General Manager needs to change for the organization to grow from a small- or medium-size business into a larger company. This secret sauce enables you to scale up to a larger, more complex enterprise with more moving parts, which need to operate in unison in order to achieve greater wealth creation. The more information you share, the more power the team will have to steer the business with you.
If this is not done, you will drive your management team crazy because the leadership style that worked well for you as a smaller company CEO now hurts your ability to function as a larger company CEO.
Ask yourself this question, “Are you pushing, when your management team needs to be pulling?”
About the Author
Drawing on 28 years of management experience increasing shareholder value as a Co-Founder and CEO, Chas Klivans launched The CEO’s Navigator in 2001 and has helped dozens of management teams turn their businesses around from near failure to substantial success. Chas’s journey from an Afghanistan prison and the jungles of Peru to the board rooms of billion dollar corporations has enabled him to pioneer the business solution of Innovation2 (www.InnovationTwo.Us), which uniquely increases financial results and at the same time builds management into an A-level team. Chas is a frequent advisor and trainer for corporations and trade associations and is an approved Vistage Speaker.