Most entrepreneurs are familiar with the term “pivot,” the ability to be agile and modify products, services, and target customer segments based on market experiences to grow their company. There are other pivots an entrepreneur needs to make, and one of the most important is the leadership pivot.
At the Small Business Development Center we work with a lot of early-stage, growing companies. These companies are fun to work with, though they have lots of challenges. A big challenge for many is the transition from entrepreneur to leader.
How do we define early-stage growth companies? Their services and/or products have market traction, the company is past the survival stage, sales are growing faster than their current operations can keep up, they are profitable, they typically need additional financing, and they may need to hire additional employees. This can take place from year one to around year five because there is no magic formula that will predict just when.
To keep an entrepreneurial firm growing, at some point the founder needs to make the leadership pivot, and here is a story about how one of my favorite clients successfully did just that. One day, I received a call from the entrepreneur of a successful custom equipment manufacturer that went something like this, “In the past couple of years, we have grown to 18 employees, and everyone reports to me. I need help organizing the company differently for my own sanity and the firm’s future.” This particular company had a good market niche, the right experience, and grew steadily.
This entrepreneur was working heavily in the business. This makes perfect sense as the founder typically is the one who has driven growth since the company’s start. It’s his vision, passion, abilities, drive to obtain sales, and ideas on market, service, and product expansion.
So what has the entrepreneur been doing instead of better organizing the company management and operations? Like many entrepreneurs, some of everything—marketing, sales, proposal development, product design, hiring, supervising production and installation, financial management, resource allocation, employee management, customer satisfaction, problem solving, worrying. …
With 18 employees, I assumed there were at least two to three key people he trusted and relied on for certain aspects of the firm’s operations and there were. The entrepreneur knew the business, and the firm was growing. In this situation it made sense to consider promoting from within the company.
Questions to consider when promoting from within a company
The client and I crafted a number of questions to help us evaluate the situation and help him make changes he felt confident about. If you are in a similar situation, here are some important questions to ask. It can help to evaluate your answers with a mentor, trusted business advisor, or Small Business Development Center consultant.
- Should you promote internally or hire a manager from outside of the firm?
- Who in the company do you already rely on and delegate to?
- What are functional area strengths of those trusted employees?
- Are they good with the other employees and co-workers?
- Do their colleagues respect and trust them?
- What functional areas of the company need a manager?
- Is there a good fit between your trusted employees and management needs?
- What does the financial performance of the firm look like, and how much could be available for promotions and compensation increases?
- How will those increased costs affect the firm’s financial performance?
- How will the more formal management structure position your company for future growth?
What I liked most about my entrepreneur client was that he was willing to embrace personal change and eagerly executed the new leadership strategy once he saw a clear path. He identified the functional areas in need of more formal management, and together we wrote a couple of draft job descriptions. At the time, there were no job descriptions in the company, and this did not surprise me. He identified comparable market compensation for his potential new managers and reviewed his financial statements to identify the financial performance impact. When he was satisfied with his management and employee promotion plans, he talked to the potential new managers and developed new job descriptions with them. Once promotions were in place, his new managers developed job descriptions with other employees.
Working on your business—not in your business—is a good growth strategy that requires leadership. Early-stage growing companies can only grow so much on the abilities, energy, and determination of the entrepreneur. A certain amount of more formal management and operations is necessary for continued success. Timing is everything, and every entrepreneur is their own mix of abilities, passion, and emotions. Successful entrepreneurs recognize when it’s time for a leadership pivot so they can keep up their energy and strategically lead the company’s future growth.