Whether you promote them from within or hire them from outside, relinquishing operational control to a management team is a scary proposition for many entrepreneurs. After all, you built your business, so how could anyone else run it as well as you?
The fact is, however, the sooner you can free yourself from the daily management of your business, the sooner you can focus your attention on strategy; a critical step if you ever want your business to be worth more than just the sum of its tangible assets (i.e. its liquidation value).
Business value can be hard to pin down but all things being equal, a business that can run independently of its ownership and still be profitable, will always be stronger and more valuable than one that can’t. A self-sufficient business will sell more easily for more money. It will have a greater chance of surviving a management buyout. It will have a greater chance of surviving a family succession. And even if selling is not on your mind, it will have more growth potential.
Therefore, a necessary step in the maturing of almost any successful business must be the passing on of the “leadership torch”.
But while most owners agree with this in theory, putting it into practice is another thing entirely. After all, short of cloning yourself, how could you ever find someone to replace you? It’s tough. People have different strengths, different goals, and different values.
It’s especially hard for an entrepreneur who has built their company up from scratch to let go of the reigns. For all intents and purposes, their business is their baby. However, just like children, if you want them to grow into successful adults, they eventually need to learn to stand on their own two feet, otherwise they can never become fully self-sufficient.
So, how do you successfully graduate from an owner reliant operation to a self-sufficient one? The following seven steps should help get you thinking in the right direction. They are all based on best practices derived from the hundreds of clients my company has worked with over the years, but as you review them keep one thing in mind. Above all, it takes persistence. Most entrepreneurs fail to make the transition not because they don’t know how, but because they give up too soon.
1. If at all possible, promote from within before hiring from the outside.
You may or may not have people with leadership potential working for you right now, but look closely at your current team before heading out into the marketplace to hire someone new. Hiring is costly and time consuming, and you never really know what you’re getting until they’ve worked for you for a while.
A career path is also what keeps “A” players coming to work. “A” players can work almost anywhere, but if they see a compelling future at your company, they’ll want to stay right where they are.
2. Make sure you’ve got the very best management team you can afford.
One of the simplest and best ways to determine the strength of your management team (or any of your employees for that matter) is to conduct a skills audit. The objective of this activity is to measure the effectiveness of each of your key players across a fairly broad cross-section of management and leadership skills, such as efficiency, communication, or general productivity. The easiest way to do this is to score them out of 10 for each skill. This should let you know if the skills you need match the managers you have. Plus it will point out the areas in need of improvement.
By clearly understanding your man-agers’ strengths and weaknesses, you’ll be in a better position to offer the right kind of training to those who need it most, or if necessary, make more intelligent restructuring decisions.
3. Give your managers clear goals, in line with your overall objectives, and involve them in the goal setting process.
Have you clearly communicated a vision for the future of your business to your leadership team? Have you sat down with each of them individually to lay out a roadmap for how you expect them to achieve success? As the leader of your company, it’s your responsibility to clearly outline your expectations, and provide each manager with both the necessary guidance and an opportunity to contribute to your big picture objectives. This gives them a much better chance of meeting, or hopefully exceeding, your expectations.
4. Promote a culture of excellence.
All great companies have great cultures, but that doesn’t mean their working environments are all alike. The environment at Google is nothing like the environment at Toyota, and neither of them has an environment like Wal-Mart. However they do all have one thing in common. A philosophy of continuous improvement. In other words, people are encouraged to continuously try to make things better.
When it works, it’s an extremely powerful and unifying philosophy. And with a little persistence, it can work for you too.
5. Get out of their way and let them do what you’re paying them to do.
After you’ve outlined a roadmap for their success, step back and give your managers room to deliver. If you want them to be proactive, it’s important that you interfere as little as possible. That’s easier said than done of course, especially if everyone is used to giving you the final word on everything. But if you don’t take this step, all of your work up to now will have been in vain. You’ll have the illusion of a management team, but that’s all. What you’ll really have is just a big overhead expense.
At this stage, nearly every business owner has the same concern. If I give my managers that much freedom, how can I keep them from making costly or even critical mistakes? It’s a valid concern. Keep reading.
6. Develop a reporting mechanism to keep everyone focused and on track.
Put in place a monitoring tool (commonly referred to as Key Performance Indicators) that regularly measures and documents the progress of your team, in terms of their defined goals. Make managers responsible for their own ongoing contributions and ask for regular reports so you can monitor their progress without stepping on their toes. Then, ask detailed questions in reference to this document during your weekly team meetings to help keep everyone accountable, motivated, and focused.
7. Allow your managers to share both financially and emotionally in the success of your operation.
People will behave more like owners if they are compensated more like owners. So consider compensating your team through profit sharing, bonus plans, company share programs and so forth. Do this and you will build a strong management team that is able to successfully run your business without your direct support. An environment such as this adds, and continues to add, tremendous value to a business on an ongoing basis, whether or not selling is on your mind.
The implementation of an effective senior management team is a critical step in the maturing of a business. It might take a while to get there, but if you stick to your plan, it can take your business to a whole new level.