GROWING PAINS – TRANSITION FROM ENTREPRENEURIAL MANAGEMENT TO PROFESSIONAL MANAGEMENT

BUILDING YOUR COMPANY FOR THE NEXT STAGE OF GROWTH

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Presentation by Bryan I. Schwartz. © Levenfeld Pearlstein, LLC 2014 - 2015. All rights reserved.

What does a company look like when it is growing successfully?

• Leadership Team is a Cohesive Group

- Knows strengths and weaknesses on the team

- Engage in constructive ideological conflict

- Accountable to each other for behavior and actions

- Commit to group decisions even if disagreement

• Create Clarity

- We know why the company exists - purpose

- We know how to behave – corporate citizenship

- We know what to do – clear responsibilities

- We know how the company will succeed -

- We know what is most important now - priorities

- We know who must do what for the company to succeed

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What does a company look like when it is growing successfully? (continued)

• Communication

- Strategic communication to multiple channels with appropriate consideration to multiple generations in the workforce relative to clarity of purpose

• Reinforce Clarity

- Sustain health by doing the following well:

- Hiring

- Managing and creating systems that support improved performance

- Rewards and recognition

- Employee dismissal

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Key is to “fit” organization structure with size

• Common and almost unavoidable issue with growth

• Each growth stage provides different challenges and leadership skill

• Most people who start businesses are salespeople – not oriented towards organizational plumbing

• Growing pains are often a unsuccessful “scale-up” and warning signal for financial difficulty

• Typically after rapid growth or sales spike - infrastructure has not been changed to adjust to new size and complexity

• Conventional wisdom - products or services are the key source of competitive advantage

• A persuasive body of research indicates that long-term competitive advantage is found in the organization’s infrastructure, especially in operational systems, management systems, and culture.

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Symptoms of Growing Pains

• Leaders of the company behave as if they have all the answers

• People feel there are not enough hours in the day.

• People spend too much time putting out fires.

• People are not aware of what other people are doing.

• People lack understanding about where the company is headed.

• There are too few good managers.

• People feel “I have to do it myself if I want it to get done.”

• Most people feel meetings are a waste of time.

• Plans are made, there is little follow up, things don’t get done.

• People feel insecure about their place & future in the company.

• The company has growth in sales but not in profits or efficiency.

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Adapted from Flamholtz, Growing Pains (2007)

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Evolution of a Company

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The Pyramid of Organizational Development

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Adapted from Publication dated March 2007 in Management Online Review, www.mgtsystems.com

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Moving from Entrepreneurship (Stage II) to Professional Management (Stage III)

Choices or Compulsion:

• Salesman/CEO/Entrepreneur grows and becomes an operator

• Bring in talent and change the organizational structure

• Sell the company/be acquired

• Death by a thousand cuts

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Challenge: Going from an entrepreneurship to an entrepreneurially oriented, professionally managed company.

Comparison of Entrepreneurial Management to Professional Management

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Top Ten Reasons Leadership Ignores Growing Pains

1. View that management people add cost to the bottom line without recognition of revenue potential.

2. Personal Status – choosing status as “leader” over getting results for the company. Would rather surround himself or herself with “yes” people.

3. Afraid of change and would rather assume people just need to work harder.

4. Using the “family environment” excuse rather than building a performance driven environment.

5. Desire harmony - uncomfortable holding others accountable – would rather be popular.

6. Confusion between creation of “bureaucracy” and becoming an entrepreneurially oriented, professionally managed company. Cannot distinguish between the two.

7. Chaos is the leadership system of choice rather than planning and management systems – a control issue – a desire to be needed.

8. No interest - entrepreneurial owner has no interest coping with managerial problems and organizational plumbing.

9. Would rather “do” than “plan”. Concerned about being in an area where they are learning new skills. The “answer man” syndrome.

10. Unable to admit that he or she needs help to get to the next level.

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Effects of Unresolved Growing Pains

• Pains that affect the bottom line- Increased employee dissatisfaction

- Increasing customer dissatisfaction

- Lowered productivity and inefficiency

- Increasing isolation of employees or departments

- Lack of ability to make early course corrections

- Loss of opportunity for improvement – “slugging through mud”

- Lack of cohesion and teamwork

- Failed communication across the company

- Frustration and enjoyment of work is sucked out of the company like a vacuum – low energy

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Silos and Political Turf Wars

• Cause of Silos: - Lack of leadership to focus on groups accomplishing goals for the

company rather than their department

• Diagnosing Silo Issues- Resource allocation wars

- “My people issues”

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QUESTIONS

1. A common refrain among business leaders is that you get the company you deserve. If your company or companies are killing you, whose fault is that – the employees or the leader?

2. Priorities of leaders change the longer they run the company. If you don’t continue to reinforce the fort, will the fort continue to protect you from exposed financial setbacks?

3. It will cost money to build structure in the short term and this will come out of profits. How much money can you afford to lose by not making the correct investment in operational structure?

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