Situation: The Founding CEO of a professional services company has always been deeply involved as a service provider and rainmaker in addition to his role as CEO. As the company has grown he sees the need to spend more time as leader of the company instead of being a doer. What can be done to facilitate this transition, and what expectations need to be created? How do you transition from doer to leader?
Advice from the CEOs:
Another CEO removed himself from day to day business development activity by bringing in a new rainmaker. These were the adjustments made to facilitate the process.
During the first year he worked with the new individual in a team or partnership role.
Compensation was results-based. Discussion of equity consideration was deferred until the individual proved herself.
The CEO moved himself out of the individual contributor role except as needed to support the new rainmaker’s efforts.
All of this was accompanied with clear communication to clients: “this adjustment will provide better service to you; here’s my number if you need help.”
Rainmakers are a different personality type. To be most effective, they must be able to say “my team.” Allowing this will ease the transition and improve the relationship.
Create teams to deliver solutions that have traditionally been provided by the founder.
Identify skill sets behind the roles that are being delegated.
Build an organization that will fill these roles.
Participate in team meetings, but as an advisor rather than as principal decision-maker.
Adapt role and behavior in phases to ease the pressure of the change on both the CEO and the team.
How does the CEO manage his own expectations as well as those of the company as he makes this transition?
Delegation initially takes more time and effort than doing the work yourself. Be patient and let the investment pay off.
Larry E. Greiner of USC was an expert on the study of organizational crisis in growth. Per Greiner’s model, the company is currently at stage one – moving from principal and founder to initial delegator. It may be a useful to study this model.
Situation: The CEO of a professional service company is reaching retirement age. The plan for years has been for a key field manager to take on this role; however, neither the CEO, the founder nor most employees feel that this individual is up to the job. What can be done to either better prepare the key manager for the new role, or to demonstrate that this is unfeasible? How do you transition to new leadership?
Advice from the CEOs:
For the long-term benefit of the company, it is important to create a situation that will either prepare the field manager to succeed or provide the Company with a back-up plan for ongoing leadership.
If the CEO and founder are concerned about this individual’s ability to succeed, then coordinate a plan with the founder and then meet with the key manager.
Let the key manager know that the owners plan to sell the company in 3 years.
This can be an internal sale – the CEO and founder sell their shares to the key manager – or the owners will look for an outside buyer to buy out all current owners.
See how the key manager responds.
If the key manager expresses an interest in buying the CEO’s and founder’s shares, then require this individual to make the same level of financial commitment that the CEO and founder have made.
Another CEO experienced a comparable situation with an individual who was both underperforming and a significant shareholder.
This CEO created a very public vision of what he expected this individual to achieve – in positive terms. The CEO also put an outside hire in a similar role to create a performance comparison. The result was a significant increase in performance by the inside individual and a successful transition to additional responsibility.
If the key manager is to be put on a track that leads to the CEO role there will be two challenges: assuring that this individual can acquire the skills to succeed and assuring that the individual can demonstrate successful leadership within the Company. To meet these challenges, take the following steps:
Make a public announcement of the plan to transfer the mantle of leadership to the key manager;
Raise the bar of expectations for the key manager to demonstrate his or her leadership capacity;
Define a full program of training to provide the key manager with the skills to lead the Company;
Ideally, allow the key manager to prove his or her mettle through a highly visible responsibility – like growing a key market segment – so that he or she gains the respect of the others.
Require the same level of financial commitment that the CEO and founder currently bear, so that everyone knows that the key manager has “skin in the game.”
Put the key manager on the same compensation program as the CEO and founder, as this will become his or her compensation program on becoming CEO.
Situation: The CEO of a specialty service company is curious about whether they have the right internal focus to drive their business. Their internal focus statement is to the most competitive, most responsive company in their market with high profit per job. One school of thought calls this focus the Main Thing driving the company. Does your company have the right Main Thing or focus?
Advice from the CEOs:
Look at the tie between your Main Thing and your financials.
Determine an appropriate measure of efficiency – for example, billable hours per field worker per day.
Look at cost per field worker versus efficiency.
Ask what will generate the profit to grow to the level that the company has established as the revenue target.
If you can boost the gross margin on services, this provides far more benefit than merely cutting expenses.
Look for market niches that support higher prices without a parallel rise in either expense or risk exposure.
Do leadership and staff have the right skills and talents to support growth objectives? What can be done to enhance skills and talents?
Consider the following – By increasing efficiency and margins from 16% to 20% on $10 million of job revenue, the company can increase the operating margin by $400,000. If certain staff cannot work within a more efficient structure, you may want to move them to jobs that are less critical to the business. Having the right staff in the right seats is critically important to bottom line results.
Look at the company’s customer selection criteria. Using the 80/20 rule – 20% of customers generate 80% of revenue and/or profits. How do you improve customer selection?
Rank all customers on measures of profitability of their business, payment time, and most importantly future business potential. Focus on customers with the highest scores, and “fire” low scoring customers.
Focus on cash flow: Look at early pay options or discounts to speed payment from large customers.
Incorporate a schedule of values in all contracts as an addendum to prompt earlier payment.
In proposals, include a payment schedule and finance the receivables through a factoring company – particularly in the case of slower paying or less desirable customers.
Situation: The CEO of a family business is anticipating retirement in the next two years. Currently, there is no succession plan. Other family members do not seem interested in running the company. What steps should the CEO be taking? How do you plan for retirement?
Advice from the CEOs:
To set the stage for your successor, make sure that you are being paid adequately for your job. If you are being paid less than some of your key employees, nobody else will want your job. Raise your salary to a point where it is appropriate for a CEO, and so it is attractive enough to entice a qualified successor. This will also help attract a buyer should you decide to sell or merge the business. Raising your salary will also help your bottom line if your company is an S Corporation.
Once you identify a potential successor, bring this individual into the business as soon as possible so they have an opportunity to understand the business fully and can receive on-the-job training from you.
Understand the numbers and red flags that give you the information and authority to run the company and the respect of your employees. Teach these to your successor so that this person has the same overview of the company that you command.
Look at what skills your successor needs to be CEO and start mentoring that person on those as soon as possible.
You may need to delay your planned retirement so that you have time to select a successor and prepare that individual to take on your responsibilities. Your current 2-year plan may not work, at least without compromises.
Without a management succession plan, the company may not bring in as much in a sale or merger as you expect. It is important that you improve the numbers to maximize the value of the firm if you choose to sell or merge the business.
Look at your current range of projects. Focus on those which are most profitable to you and emphasize these. You may be able to reduce staff and expenses by being more focused.
Situation: The CEO of a business that has been in place for several generations is frustrated by the challenges of working with family members. Relatives are involved in top positions, but frequently place personal concerns above the priorities of the business. This leads to tense situations where other family members, not in the business, will intervene to support their close relatives without appreciating the conditions facing the business. Must a family business always be “family”?
Advice from the CEOs:
For the business to thrive, you must match skills and talent to available positions – not just the “best” family member fit for the position.
Understanding that it is difficult for one family member to communicate negative news to another family member, consider hiring a consultant or HR company to evaluate and be the go-between in determining best family fit, or family/non-family choices for open positions.
If the company involved unionized employees, and some family member employees are union members, this may complicate your choices. Seek outside non-union counsel to help you evaluate situations and navigate solutions.
Hire a professional facilitator to assist in running company planning meetings which involve family members. A facilitator can approach the situation from a neutral standpoint, and does not carry the personal history of brother-sister or close relationships within the company. Choose an individual with experience with family-owned companies who can build a company vision that goes beyond personal relationships and concerns. This individual can also help navigate the operational situations facing the company.
Look at both your organization and ownership structure versus applicable regulations and licensing requirements. This may present new alternatives for you to consider.
Situation: A company is preparing for end of year reviews. They use several performance measures to evaluation employee performance, including 360 Reviews. The challenge is that both managers and peers tend to rate everyone at the highest levels – even though everyone knows that this is not valid. How do you get managers to honestly rate their teams?
Advice from the CEOs:
This is a common problem for companies. The central issue is that managers want to get on well with their teams, and may fear that giving someone a less than stellar review will impact individual and team performance. You have to change both the perspective and the methodology.
Start with the basics. Performance reviews are about communication and documentation.
Expectations should be based on an up-to-date Job Description for the position.
Job Descriptions should address skills, expertise and behavior. Clarity and specificity are essential.
They should anticipate growth, and include standards of performance to measure growth.
To prepare for a review meeting, the manager rates the employee against the standards specified in the Job Description, as well as any objectives established in past reviews. The employee self-rates against the same measures.
Following the review meeting, the manager must document the discussion and objectives for the next period set during the meeting. The employee reviews and signs this document.
For managers, a key performance measure is quality and substance of reviews.
Besides individual reviews, have your managers rank their people 1 to X along several metrics:
Reliability on the job
High or low maintenance
Use zero based thinking: Knowing what I do now, would I hire this employee for their current position?
Align the review process with the company’s goals.
Do a total ranking among company employees. Tell managers that those ranking last place(s) must be upgraded. The CEO approves the final ranking.
Situation: A company hired a sales person who looked during the interview process like a hunter, but turned out to be a farmer. The company’s product-service mix is new to the market and requires a sales person who excels at landing new accounts. How do you tell hunter from farmer sales candidates?
Advice from the CEOs:
The hunter sales person is naturally more aggressive and loves the thrill of landing new accounts. The farmer excels at follow-up sales and cultivating existing accounts for new purchasing potential. Neither is particularly good at the others’ job, and it is rare to find individuals who excel in both roles.
To differentiate between these two personalities, behavioral interviewing is better than tests.
Screen resumes for past sales success in companies in a similar size range as yours to select a group for further evaluation.
Behavioral interviews are very different from traditional interviews. They the focus on specific skills and requirements associated with the job and require candidates to give concrete examples of when and how they have demonstrated the skills needed for the job. The interviewer then follows up with probing questions to elicit more details. Responses can be verified in follow-up with references provided by the candidate.
During the questioning process, the interviewer may interrupt the candidate with a question like “what are you thinking right now?” These questions provide more insight into the interviewee’s personality and also help to filter out B.S.
You are seeking someone who’s “been there done that” in a company which resembles yours and who can convincingly demonstrate what they’ve done.
Thoroughly check references – not just those provided by the candidate, but dig and talk to others in the same companies.
Strongly align the pay and incentives for a hunter. Hunters prefer a comp package that is heavily commission-based and this will scare away farmers. If they don’t sell, they get paid little.
Offer an extended trial period with burden of proof on performance by the sales person.
Situation: The CEO of a small-to-medium business wants to reduce day-to-day management activities and spend more time focusing on new opportunities. How do you shift focus from management to strategy and how do you identify the right person to take on the management role?
Advice from the CEOs:
As CEO your primary focus needs to be on the future more than the day-to-day. As a smaller company, the management role needs to be filled by an individual with broad multidisciplinary experience. To replace yourself, you need a Renaissance person – someone with industry knowledge and experience who buys into your business model.
As you evaluate candidates, look for attitude, not resume.
Analytical skills are critical – mental capacity.
These need to be complimented by guts – emotional intelligence.
Your current business is not the business that you and your co-founders started. It is a larger entity, more solid, and you need to bring in people who can take it to higher stages of growth. Finding the right person to fill your role is a long-term process.
Bring in 3 to 4 solid candidates as employees in important roles. Test them with challenges to see who can grow into the larger role of company manager.
Look for people who can grow your downstream businesses as candidates to manage the full business.
In the current market you have time on your side. While hiring is improving in some regions, there are still many more candidates out there than available jobs. This is unlikely to change soon.
Situation: A company has a number of key employees who are nearing retirement. These employees possess software skills and company knowledge which will be difficult to replace. How are you planning for baby boomer retirements, and what advice would you have for this company?
Advice from the CEOs:
Following the loss of investment value after the 2008 market crash, Baby Boomers may retire very differently from their parents. Many don’t have the savings to support themselves during retirement and may well work 10 years later than their parents did.
Brute economics will force Boomers to continue to work. However, Boomers may want to work their own hours and on their own terms as they age. The focus may switch to part-time jobs just to maintain cash flow.
One solution is to offer more flexible working arrangements that allow individuals to keep working but with more freedom to work as they wish.
To replace in-house talent, develop mentor and apprentice programs now to pass your knowledge base on to younger workers.
The Internet has significantly changed the picture. People considering retirement may relocate to less expensive regions but virtual employment or virtual office solutions can keep them working.
Rising health insurance costs and questions about the viability of Medicare under the Affordable Care Act are concerns for Baby Boomers. This is another factor that may keep them working.
Situation: A company, noting that business conditions have improved, is planning for growth. This means keeping current customers and taking on the next tier of customers. They are also focused on improving customer service and the customer service experience. All of this costs money. How do you control expenses as you grow?
Advice from Andy Wallace:
As a small business, you can’t spend more than you have. You need to focus on all expenses from supplies to workers compensation. Major expenses are inventory and payroll. You need to focus on the line items, control the little things and control the big things.
There are three areas that we monitor frequently: inventory control systems, overtime, and assuring that safety is first to reduce accidents and control workers compensation costs.
Employees respect employers who respect them and their families. Recently we had an employee who was called by school because their child was sick. We told the employee to take the rest of the day off to take care of the child. The employee was back in an hour, having made other arrangements for the child’s care.
As you grow your payroll, hire the right folks with the right skills. Take time and don’t rush – you need to fill the position with the right person. As a small company having the right skills is important and reduces the costs for training and on-boarding new employees.
Important skills for us vary by position but include solid computer and technology skills; attention to detail, as well as writing, communication and math skills; the ability to multitask and respond positively to interruptions.
The culture of our company is extremely important. It’s the foundation of the company and we want to perpetuate it. Culture starts at the top with the leadership as examples for the employees to follow. It can’t be “do as I say, not what I do.” Employees know who arrives early and stays late, who is attentive to details. If we don’t set the right tone as leaders of the company, we can’t expect them to follow.