Must Business Owners Fire Current Managers to Grow the Business?

Submitted by John Brown on Fri, 09/27/2019–10:00am

Building business value is a common goal among business owners. Many successful small business owners find that after years of growth, the company can begin to plateau. Sometimes, this plateau comes at the worst possible time for owners: right when they’re considering their business exits. It’s frustrating when owners and their longtime managers realize that all of the things that grew the business in the past aren’t doing the trick anymore. It’s especially frustrating when owners realize that the cause of this stagnation might be their longtime managers themselves.

Today, we’ll look at a touchy subject: what to do about management teams that no longer produce the business growth necessary to support a business owner’s ideal future.

Overcoming the plateau

Consider Netflix. In 1998, one of the original co-founders and then-CEO of Netflix, Marc Randolph, was on the path of building a company that would completely disrupt how people consume media. Then, one of Randolph’s biggest investors, Reed Hastings, decided that he wanted to take over as CEO. Hastings didn’t think Randolph had the skills to continue growing the business. Hastings demoted Randolph from CEO to President. Over the next few years, Netflix exploded into the behemoth it is today under the guidance of its new CEO.

This is the kind of example that business owners most commonly think about when they confront the fact that their current managers can’t get the company over the hump. It’s also problematic for many owners, especially if they feel a sense of loyalty to their managers. The idea of demoting or firing people who helped them build the business is unpalatable to many owners.

However, to effectively overcome plateauing business value, most business owners must install next-level management teams. Next-level management teams are the most important drivers of business value because they know how to build business value beyond what current management can do. As the Netflix example showed, sometimes, the ideas that grew the company at first aren’t good enough to grow the company going forward. Sometimes, change is absolutely necessary, and that change comes in the form of an injection of new, more fitting talent.

While flat-out firing managers who can’t get owners to where they need to be is certainly an option, it’s not the only option. Loyalty and change are not mutually exclusive. In addition to replacing current managers, owners and advisors can take two other tracks to install next-level management and still abide by their personal code of loyalty.

Reassign current managers

In the Netflix example, the new CEO replaced the old CEO because it was necessary for the business’ success. This is an important thing for business owners to understand. It is completely normal for growing businesses to replace all or part of an existing management team. The challenge is in explaining that to the managers.

One way for owners to split the difference is to reassign current managers to more fitting roles. For example, a business may have an operations director who does incredible work when managing 15 people. But for the business to grow to the point where the owner can reach financial independence post-exit, it needs an operations director who can manage many more than 15 people. Rather than hiring an outside director and firing the current director, the owner can hire the outside director and move the current director into a role where their skillset is still valuable.

Advisors can help owners create plans and communications to reassure current managers that they aren’t being pushed out. Once advisors establish an owner’s goals, they can shape strategies to fulfill them.

Retrain current managers

Current managers of successful businesses have obvious talent. Thus, it’s possible to retrain current managers to go above and beyond what they currently do. With help from their existing advisors and their advisor networks, owners can potentially train promising managers to continue building business value.

This strategy requires commitment and forethought. This may require outside counsel from a business coach or consulting firm, for example. Owners cannot simply expect current managers to “do more.” They must instead define, perhaps with the help of advisors, what they expect from managers and reward them for achieving expectations.

Conclusion

Many business owners must face the fact that their current management team might not be the right group to grow the company appropriately. In terms of planning a business exit, “appropriate growth” means the amount of growth necessary to provide the owner with financial security and let the owner achieve their other Exit Goals. The most consistently proven way to do that is to find or train next-level management.

Whether that next-level management comes from outside the company or inside, owners should expect to reassign, retrain, or replace current managers to grow the company. Fortunately, with the right advisors and planning strategies, owners don’t necessarily need to be cutthroat about building business value.

Takeaways

• Next-level management is the key to overcoming plateauing business growth.
• Owners must understand that changing or replacing current managers is normal for growing businesses.
• Although change is often necessary, change and loyalty can work together if owners work with advisors to find the right fits for existing managers.

Originally published at https://www.exitplanning.com on September 27, 2019.