“My Company is Outgrowing My Leadership Team”

Growing companies require new kinds of leadership — not better, just different.

The first 6 things to do when your rapidly growing company hits the wall.

Hey Founder,

I have a friend who started a fast-growing, successful entrepreneurial company. I’ll call her Lisa. She invited me to come visit her company to offer her some advice. Lisa’s feeling, well, a bit frustrated lately. Her company is going absolutely gangbusters and she’s attracted interest from what can only be described as the holy grail of customers for her particular line of products: Target.

Getting into the Targets of this world once seemed like a dream, but now that she’s knocking on the door it feels like a lot of pressure. On the one hand, her company stands to grow from $14 million to $40 million and become a player in her marketplace. On the other hand, failing to make the leap, she feels, will consign her company to irrelevance.

To compound the pressure she feels, Target’s asking for a big honking plan, complete with her vision, an analysis of her supply chain and an outline for a three-year pipeline of new products. Lisa doesn’t know any of this.

And then she realizes, “Oh my god, my leadership team can’t help me with this, either.”

Her COO, Todd, has been with her from the beginning. He’s built amazing relationships with key suppliers and there’s basically no problem, large of small, he can’t troubleshoot with a phone call. But now Lisa needs something other than a “go-to” guy; she needs somebody who can tell her what needs to be done next year and three years out to meet their goals. What kind of investment in technology and equipment will be needed, who to hire when, and so on.

What’s more, she needs to have Todd sitting in a room with his counterpart in charge of sales telling him they can “3x sales” if they can step up production and an HR counterpart weighing in on the cost in staffing the company’s ambitions over five years.

If she’s honest with herself, and she usually is, she has to admit that four out of five of her leaders probably need to be replaced, not because they are bad people, or bad at their jobs, but simply because the company has outgrown them.

But those are some hard conversations she doesn’t want to have! And so Lisa feels frustrated and, well, trapped, for lack of a better word. After all, she loves her team. She hand picked them, and since then they’ve bought into her vision and supported her every decision with passionate loyalty and creativity and … “Wait a minute,” Lisa thinks. “That’s the problem, isn’t it? I’ve hired followers rather than leaders. Or, to be a bit more generous, the leadership qualities I valued before, such as creativity and energy and resourcefulness, aren’t the strategic thinking we need to move the company forward.”

She thinks about that week’s Monday morning meeting when, surrounded by her top eight “doers,” Lisa fielded their problems and solved each and every one of them. When the company had 10 and then 20 people, this was doable. But, now at 40 people there are simply too many issues for her to handle. She sighs and says to herself, “I think my company’s outgrowing my leadership team.”

Congratulations, Lisa, you’ve made the first crucial insight a founder-entrepreneur needs to have:

What got you to where you are today won’t get you where you need to go tomorrow.

It’s a simple sounding declaration but one that’s packed with emotional challenges. But the truth is that entrepreneurs such as Lisa aren’t trapped. They do need a new kind of leadership team — not better, but different. Fortunately, there’s a productive and, more important, compassionate way to revamp a leadership team that only involves, really, about six steps:

1. Choose a CEO

That’s right, your rebuild starts with you. Are you the one-in-ten entrepreneurs capable of taking a company from Go-Go to Adolescence? Do you have a strategic mindset? Can you expertly recruit and lead a talented team of new executives? Do you have the patience to bring your ever-growing staff along with you? Or, do you need to hire a new CEO who can do these critical things for you? I wrote about this self-assessment here.

Now, it’s time for the new CEO, whoever it is, to turn their attention to the current team.

2. Assess strategic strength and weakness

So, the first thing the new CEO needs to do is assess her leaders’ weakness and strength to determine what kind of new talent should be brought into the company. A key part of this process involves sitting down with each member of the leadership and, together, assessing where they belong in the new version of the company. In leading three companies through such transitions, I’ve found that most of the time reassignment of vice presidents to directorships works better than firing them.

First, reassure the team that you’re committed to them, which you are. Then, sit down and have a frank and open conversation with them. I have a curve showing something I call the “leadership continuum,” which basically plots how far in advance people with different job titles should be comfortable thinking and acting. The further out your comfort level extends, the more senior your strategic leadership potential.

When I ask vice presidents of entrepreneurial companies to point to where they feel comfortable on the chart, most point at director or even manager. This is usually followed by an exchange of wry smiles between the “VP” and me.

Next, I share actual job descriptions of vice presidents at more mature companies so they can see the kind of knowledge, skills and experience required for these positions. A vice president of operations for a mature company, for example, might call for 10 years of experience running a 200-person company and leading the acquisition and integration of new technologies and facilities. I’ll point at each of these qualifications — in a friendly, information gathering way — and invite the “internal” candidate to share their experiences against the criteria. If they’ve got it, I’m the first one to applaud them and delighted to consider them candidates for the revamped vice presidency.

Most of the time, however, they don’t see themselves in the description and quickly realize they’re nowhere near where they need to be. By the time you finish, 90 percent say, “I’m not qualified.”

3. Reassign or part ways

Losing your title and perceived status are hard on anybody, so I am deeply committed to helping former VPs see their new status in a surprisingly positive light. First, since they are likely to want to feel empowered, I tell them they’ll be more empowered now than they were when the founder made all the decisions. Second, I let them know that we plan to hire a VP who can teach them over several years what they need to know and do to climb back up to VP, if they choose to. If they’re mature and thoughtful, I’ll put them on the search committee for their new boss.

Yes, there will be some who won’t fit or can’t fit into the new organization, and with whom the company will have to part ways. It’s far better to surface this kind of misalignment as early as possible and only after you’ve done all you can to find a place for them in the company.

4. Attend to money matters

Nothing quite takes the edge off of a demotion like knowing that your salary will stay the same. “Look,” you should say to the VP-turned director, “it seems like it’s going to be hard to adjust, but the good news is we’re not messing with your salary.” Most of the time, the entrepreneurial VP’s salary is low enough that you don’t need to cut it.

When it comes to salary, young go-getter companies rarely depend on industry standards and usually pay whatever it takes within their budget to hire the person they want. You, on the other hand, should take the personal equation out by using your industry data to rank everybody and get a full benchmark of where they stand. If their reduced rank puts them in the 150th percentile for director salary, for example, let them know they won’t be getting a raise no matter how well they do until they’ve developed the skills, knowledge and experience of a VP. If they fall in the 75th percentile for directors and 25th for vice presidents, you’re in better shape.

5. Skip the big announcement

I can’t think of a single good reason for a company at this stage to make an official “announcement” of a demoted leader’s new title. The unaffected staff know a reorganization is underway and don’t care that much about reassignments. Again, your goal is to bolster egos and not beat them down, so take the compassionate high ground with those you reassign. They will thank you by being more loyal and motivated. Print them new business cards, change the org chart and be done with it.

6. Plug in the holes

You can expect to take up to a year to hire the right people to fill those newly vacated vice presidencies, and this means you can also expect to be the one filling in for awhile! The good news is that you now have license — and the need — to do what you felt you could never do before, and that’s sloooow down!

It’s like driving. The entrepreneur is used to flying at 90 m.p.h. in the fast lane. The new CEO must pull over into the right lane in order to manage all the change and missing pieces. Then, as the leadership team falls into place and you have alignment across your organization, you can now do what you’ve been itching to do: slip back over to the fast lane.

Are you the founder of an entrepreneurial venture that seems to have hit a wall? What are you doing to get yourself to the next level? How are you managing difficult transitions within your team? I really want to hear your best-practices.

Sincerely,

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