If you are a private company owner CEO, you face enormous challenges to scale your business. I don’t mean just grow. I mean scale. Building control, predictability, alignment and safety into your growth. Successful scaling sees market share growth, margins improving (as some costs truly remain fixed), morale getting stronger, more talent joining, successful product launches, real partnership relationships developing with customers and more.
As the CEO you have considerable authority over how you scale, how you develop yourself and your talent. You have the pressure and power to make it happen. Successful owner CEOs thrive in this environment.
On the other hand, divisional general managers/managing directors who are part of a large public group are under similar pressure to scale. However, I believe the Board of larger groups are day dreaming if they think these two types of CEOs are identical. There are huge differences, that if ignored, will lead to failure.
Here are a few examples with solutions:
- Motivation: Owners are totally committed to making payroll. To building something safer. To creating real wealth for their family and their employees. The divisional managing director rarely worries about making payroll and is often focused on a myopic personal bonus. He/she is not particularly motivated to build a great team. And rarely has a long-term bonus plan aligned to market share growth or any form of equity related to creating value of their own division.
- Financial Skill Set: Owners understand how to make money. The really good ones have an entrepreneurial nose for it. They understand the economics of the business in detail. They understand the impact of inventory turns, of accounts receivable days slipping, the impact of gross margin % slipping. They look at every problem through the lens of an investor, a financial lens. They understand that their job is the efficient deployment of capital (not what’s in the budget or not). Does a divisional general manager think like this?
- Linking Strategy to world-class execution: Owners will look for outside help to really understand their market. Owners will invest in expertise to understand the implications of trends on their business. The implications for their product map. Owners will demonstrate great agility to get it right. They can’t afford to waste resources on unproductive staff and so they are constantly calibrating if employees could be better deployed to meet today’s needs. Managers’ actions are constantly linked to the big audacious goals, to move the dial (we have a specific version of this which we have successfully deployed in many private companies to make them acquisition ready within a few years).
- Talent management: Owners are often natural team builders (not always) because it’s the only way to scale. Companies that are totally owner dependent rarely fetch premium valuations and mostly are unsaleable.
- Personal Development: Owners will join peer groups, attend CEO clubs, learn from seminars, network furiously for information. They will often create Advisory Boards to garner smart thinking. They are on a mission to learn. They are competitively ambitious and realize that controlled failure is required to progress. They are rarely reckless but are not fearful.
Many divisional general managers/managing directors have never built a business from scratch. They don’t have Playbooks to call upon. They haven’t failed enough to hone their skills. The solution for larger groups is clear. They need to develop real business owners from within. They need to find natural, ambitious leaders with high energy, desperate to develop. So how do you create a team of entrepreneurial leaders that can compete in the market place? As with everything, there is a touch of “make” or “buy”. It is possible through acquisitions to bring in great entrepreneurs who can be developed further. But you need to offer them something they can’t offer themselves. This includes enough cash to take care of their family but also resources to achieve a legacy, to fulfill their potential. Google retains about 67% of their acquired CEOs (way above average) so it is possible.
The “make” scenario is the obvious road map for larger groups. The Board needs to consider the five areas above where owners excel: Motivation, Financial Skills, Alignment of Strategy and Execution, Talent Development and Personal Development.
You need to motivate the internal manager with incentives that surround divisional performance. Give them the autonomy to run their own show. Give them a group story to believe in. Link what they do at divisional level to the fulfillment of the group mission.
Teach them basic and advanced financial skills. Ensure they really understand P&Ls, cash flows and balance sheets. Ensure they understand the stories behind their division’s financial success or failure. Give them smart divisional CFOs that can map the metrics and teach them the financial impact of decisions.
Build a great strategic plan alongside them. Involve their team in the strategic planning process to ensure they own it. Challenge their operational actions to achieve these plans. Teach them how to create multi-departmental projects that are aligned to the big goals of their division. Demand constant communication if goals are falling short.
Demand a talent development strategy. Force them to build great project managers and relentlessly perform post-mortems of what went wrong and what went right! Teach them that high staff turnover is their problem and show them how to reduce the odds of bad hires.
Let them become masters of their role. Encourage continual learning. Budget consultancy help if required to develop missing skill sets including finance, acquisitions, selling, leadership or presentation skills. Always allow problems to be elevated upwards for discussion but these problems must have at least one solution wrapped around them.
Some of the largest groups are merely 15 to 20 subsidiaries with $50m to $100m each in sales. A successful Group CEO of a larger group has three big things to focus on: Strategy, Financial Health and Talent Development.
The world can help you figure out a strategy, but financial health can only be achieved with the rarest of commodities – world class operators.
Good luck!
Ian@TPPBoston.com
