The ABC of Growing Pains

The Challenges of Managing a Growing Business

Managing a growing business presents unique challenges. In this article, I am referring to three case studies. These three businesses suffer from problems that originate in a very similar root cause. I could help them identify this with “organizational therapy”. The structure of the article is:

  • General introduction to the context of the three businesses;
  • Defining the common problem;
  • The main problem and results for the three case studies;
  • The principles of organizational therapy with which I could assist all three;
  • A brief conclusion on the pains of managing a growing business.

Establishing the Context

I have recently been working with three growing business. In this article, I will name them by their initials, as these are handily A, B and C. They all three work in the interactive, web-based IT services, but function according to very different business models:

  • A is an IT service provider. They deliver cloud storage and managed services. They support their clients to let them focus on their own business rather than managing their cloud and data needs. A team of professionals assures clients that their systems are updated and maintained.
  • B is a software outsourcing business, developing and delivering web-based applications and websites on customer specifications. They have a number of teams designing, building and delivering websites and interactive online products.
  • C has its own product, a niche market, but a market leader in their area, particularly in North America. Their team works with specialised, cutting-edge skills and deliver solutions that remain one step ahead of what their clients expect.

All three companies started up fairly recently (in the past ten years). All three are located in the same region in Central Europe.

All three companies are still being managed by the enthusiastic and extremely competent technical entrepreneurs who originally created the business.

All three companies are building high-quality products that have earned them an international market presence.

All three companies are self-aware enough to identify that they needed help in managing their growing business.

All three companies grew from a handful of people to a size at which structured management and skills are needed. All three suffered in different ways from their success and growth. This led them to contact me and ask me to come to help them understand and sort things out with them.

Defining the Problem

Growing city
Business, like towns, need to manage the balance between preserve, improve, enlarge and rebuild as they grow

Entrepreneurs are typically technically savvy people with creative ideas. They understand how to build great products or deliver amazing services. They build their business and create something that works; with some marketing, they sell their product.

However, entrepreneurs are not natural managers. They create their business by doing everything, working all hours, designing, building, refining, updating, marketing, negotiating, selling, making the coffee… Once the business grows they find that they need to start hiring people. These new employees are expecting a job, a regular salary and “normal” working hours. A growing business means more management and more management skills.

  • With more than twenty employees, entrepreneurs are no longer able to know what everyone is doing at any given moment.
  • With more than fifty, they no longer know about the people in their business. They may know the faces and the names, but not much more than that.
  • At a hundred employees, they don’t even know some people working for them. They see people in the office, who greet them by name, but they don’t know who are these person or what they do.

Now for bright technically competent self-starters, there comes a time when they must decide they need a professional CEO and hand over the reins. This is a difficult choice. I am suggesting they need to put their baby up for adoption -not a newborn child that they do not want or cannot afford, but one to whom they have given birth, nurtured, loved and watch grow up…

Rarely are entrepreneurs ready to manage a growing business.

The Individual Business Issues

Company A’s Vision

Company A had some teething problems, but the founder was rapidly turning from an entrepreneur into a businessman. He understood that he needed to hand over responsibility and authority in order to manage the business rather than developing the product. Of course, this was not an easy step to do, and he was still caught out publicly contradicting one of his directors. When you place someone in charge of a division of your business, you may not contradict that person in front of his or her team. Ever.

However, the main issue for company A was to clarify and deploy a vision and strategy for the company. As it had grown, different areas were starting to have a life of their own, and there was a risk for the company unity.

Over a couple of days with the management team, we drew up a business strategy and vision statement. The vision statement was the usual one-line BS feel-good statement – after all, we want something catchy that people can remember. But, more importantly, we drew up a “butterfly diagram” of the vision statement. This included a list of effects and changes that should be noticeable if the vision was implemented, and a list of risks, issues and impediments that would stop the vision from becoming reality.

Bow-Tie planning format
The “Bow-Tie” or Butterfly principle

From that, we could assign specific goals to all the key people to either remove, mitigate, reduce or avoid a specific risk or issue, or accelerate, facilitate or deploy one of the noticeable consequences of the vision.

This approach gave structure to the management team and help define their goals more clearly.

Company B’s Measurements

Company B had probably grown too fast, been too successful. As an outsourcing company, they had done what their clients required, giving them a wide range of expertise in a variety of technologies and tools, depending on what clients wanted. This meant that they had different teams working on different tools, using different methodologies… Rapid success allowed the founders to build the company largely on a reactive mode: they responded to client requests instead of leading and guiding them. The entrepreneurs who set up the business are still at the helm and coming to terms with the fact that they probably reached the point when they needed help to effectively manage the business. They also understood they were no longer up to date on the technologies being used.

Cost of Removing Defects
Understanding the cost of defects and the value of V&V

Because of the reactive nature of the organization, they were lacking in a clear understanding of their own performance or productivity, even less of their actual quality. Most people, when I spoke to them said that they knew they were producing quality if clients did not complain. When speaking of “defect density” or “mean time between failures”, they had no clear understanding of what these meant. By introducing systematic measurements of the cost of quality, a better understanding of the key activities for continuous improvement would become possible. It will also help the marketing and sales side of this outsourcing business as they can prove the quality they deliver and justify the time and cost required to deliver high-quality and high-performance products.

Company C’s Organization

The management team of the third company understood that they needed to bring in professional management and they hired a new senior manager. However, differences of opinion at a personal level soon came to light between the entrepreneur and the new vice-president who came from a large corporate environment. One continued to intervene and change things at a micro-management level, the other tried to establish rigorous processes and controls. Many staff members reacted to this difference of opinion and frequently sided with one or the other. They considered the entrepreneur as a bully, or they considered the VP as too weak. Management must speak with a common voice (at least publicly) in a growing business.

In addition to badly defined roles and responsibilities, the lack of defined limits of authority of the senior people was the apparent key issue. A significant number of people expressed frustration at the confusion between who was responsible for what and the absence of limits to what a senior manager was allowed to do. Formalizing and standardizing this could solve this.

SFIA Responsibilities
The 7 levels of responsibility in SFIA

This involved clear definitions of roles, responsibilities and authority to ensure that people their role and position in the company. It also led to the creation of separate teams that worked, according to Agile-Scrum principles to be able to rapidly deliver upgrades to their standard product. In addition to this, the recommendation was that the roles, responsibilities and authority should be defined using a table of skills and competencies similar to that proposed by SFIA.

Organizational Therapy

The approach taken in these three businesses was based on what I have been calling “organizational therapy“.

This is a process through which I proceed through a series of interviews, starting with senior management and moving through the various layers of the business up to the people doing the “real work”, those who are actually building the product and delivering the services, the “factory floor”.

In most businesses (and I have been an international consultant for over twenty years, and an employee in a number of companies for over forty years) The disconnect between management and team members is found to be the main issue regarding quality and performance. You expect this in large multinationals, with a distant executive team on the top floor and 15 layers of middle management. However, you need to recognize it in small and young companies where the director is known and accessible to all members of staff.

The Problem with hierarchy
Traditional hierarchy, with many people trying to control the few who are developing

And yet…

Small companies, start-up companies are frequently run by an entrepreneur who has too much power. It is difficult for them to understand that things have moved on and that some form of formal, structured management is now required in a growing business.

By communicating the failures caused by the absence of structure to the management team, I help them understand the urgency, but, as long as they do not see the frustrations of those people that the form the base of the business, the ones who are actually producing what your clients want, they probably do not really understand the problem, let alone acknowledge their own limitations.

Conclusion

Entrepreneurs are usually great at the creation of businesses, products and services; they are rarely suited to manage a growing business. An entrepreneur wants to be involved and know everything that is going on in the business; a manager needs to be able to step back.  The three breaking points at which an entrepreneur can expect to lose control are when you get more than 20, 50 and 100 employees. At those points, the whole culture changes. When there is a probability of reaching one of these breaking points, it is important to be prepared. Communication, processes and metrics, reporting structures need to be designed and defined. If you let them evolve organically, they are likely to be wrong.

These problems can be resolved with an independent, confidential discussion with employees. The conclusions of which are redacted and reported.

Change is important, pragmatic improvement is critical.