Entrepreneurs who found a company are not always the best people to run it once it becomes established and is planning to expand. They may have the energy and vision to carry it through the precarious early phase, but once it starts to get bigger the business may well need managers with deeper specialist experience. And if you intend to raise money for your expansion plans, external investors will certainly expect to see a strong management team with the right experience and skills.
Rupert Merson, who teaches courses on entrepreneurship and growth at London Business School, says that professionalising your management team is key. “The biggest barrier to growth is always people, by which I mean the capability and capacity of the existing management team. If you have ambitions to grow, you should be thinking about recruiting, building the team, professionalising it.”
He continues: “Of course, team members in a small and growing business can expect to see their roles changing as the business evolves. You can’t discount individuals filling new roles and doing well in them.”
But generally Merson suggests this is the exception not the rule: “I can think of organisations where the bookkeeper has become senior accountant, then finance director and has ultimately been found wanting because he or she hasn’t got any experience outside the organisation, and might not even have the relevant professional qualifications.”
If you are going to recruit externally, who you recruit and what you recruit them for “matters enormously”, says Merson. “For example, whether your first key recruit is a sales/marketing or an accounting professional fundamentally affects the direction of the business. Neither is necessarily right or wrong.”
Merson says he has “one golden rule” when advising companies about recruiting externally: “Look for individuals who complement the management team – who think differently, who add value. People who will challenge, rather than agree with you.”
He adds: “Some roles are easier to recruit to than others, for example, an accountant’s tasks tend to be more generic. But other areas are more difficult in the sense that you’re looking for something unique to your organisation, like a marketing person who understands the niche market that you operate in.”
The traditional recruitment approaches – advertising, followed by selection, or engaging a recruitment agency – can help you find the right professionals, says Rupert. But he stresses that smaller businesses should also consider leveraging their own network of contacts as a source of recruits.
“Entrepreneurs are always good networkers and can deploy not only their own network but their network’s network. Potential investors will have networks too and might have recommendations of people they can slot in for various positions.”
However, there are other ways to professionalise the management team. Rupert believes “a lot of early challenges for a company can be addressed by outsourcing – in IT, for example”.
And if you need someone with specialised finance knowledge you can hire someone part-time or outsource some of your finance function to one of the many providers available.
But he warns that integration into the team is just as important as recruitment: “Other members of the team may have performed that role until now and will now have to give that up, which can be difficult for them.”
Rupert explains that professionalising your management team will score points with potential investors, but just as important is ensuring the team’s structure includes “effective mechanisms for taking decisions”.
“There are a variety of ways to do this. But certainly there should be a measure of role and responsibility allocation. There should also be agreed leadership within the team so that someone is in a position to make a final decision if the team as a whole can’t decide.”
On the different forms of management structure he says: “At the beginning it’s flat of course – that’s just the way it is in a small organisation. As the organisation grows delegation will be necessary. What shape the structure takes depends on so many variables, I’d encourage companies not to focus on structure but rather on efficient decision-taking mechanisms and allocation of roles. Structure is the bit that falls out the end. You don’t start with structure.
“Quite often what you see with smaller companies is a structure I liken to a spider’s web with the founders sitting in the middle and everyone else reporting to them. The challenge is to unplug one end of those reporting lines and reassign what’s at the end to other people, which is about getting the founders to let go and trust other people.”
The various recognised business structures for companies that continue to expand – functional, product, geographical or even franchise – “all have advantages and disadvantages,” says Rupert “but depend on the nature of your business”.
He adds: “From an investor’s point of view, they might be not so much interested in management structure as getting a seat on the board, where all the really key policy decisions are made. That could even be a condition of their investing in the first place.”
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.