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Category Archives: Organizational Development

Transitioning From an Entrepreneurship to a Professionally Managed Firm Part III

NYC Executive Coaching avatarPosted on October 12, 2022 by Doug BrownOctober 12, 2022

Editor’s Note:This is the second installment of an ongoing series surrounding what it takes to move from a relatively small, micro-business to a more robust, larger organization. Each article explores a different aspect of that journey.

In the previous issues, I discussed the initial phases of transitioning from a business in its infancy to becoming a sustainable business. I discussed the challenges and the growing pains that are experienced by many companies in that part of the growth curve and understanding the six key organizational development tasks to navigate.

In this issue, we will identify and help you better understand the four major stages and the typical characteristics of those stages that an organization must pass through on its way to greatness.

Those stages and characteristics are:

DescriptionDevelopmental NeedsTypical Revenue Size
1. New VentureNiche and marketsLess than $2 million
2. ExpandingResources and operations$2-$10 million
3. DevelopingProcess management$10-$100 million
4. IntegratingOrganizational cultureMore than $100 million

 

Stage One: In the first stage, revenue ranges from a pure startup to revenues approaching $2 million. As we have covered in detail previously, the essential thing that the owner must be concerned with is developing a focused approach to building the business and securing customers. This happens by identifying, defining, and developing appropriate niches and the carriers and markets to serve them.

Stage Two: In the second stage, the firm has expanded beyond the $2 million range and may hit $10 million. At this stage of development, it is not unusual for the firm to experience a period or periods of rapid expansion. This expansion obviously will involve top-line sales revenues but will likely affect any number of employees and multiple locations.

Stage 2, therefore, provides the management of the firm or organization with a new set of challenges surrounding development. How often have people talked to us about their resources being stretched almost to the breaking point when increased sales require ever-increasing people resources, cash flow, office equipment, supplies or office space.

Simultaneously, just trying “to get the work out the door” is restricting the owner’s attention to recruiting new staff, managing the ongoing training of staff and paying adequate attention to customers and clients other than the renewal period. Since the problems of this period tend to be more associated with growth than survival, this is when people will be pulling their hair out.
It may play out as follows:

  • Supplies run out unexpectedly
  • Some invoices get paid multiple times while others don’t get paid at all for months on end
  • The quality of customer care and responsiveness for existing customers is decreasing with nobody inside catching on to it
  • Fighting fires and dealing with the crisis of the hour or day becomes the norm
  • Staff turnover begins to spike at the worst possible time due to the stress or burnout
  • The impact of poorly designed and executed recruitment processes and lousy hiring decisions come home to roost
  • Errors in handling paperwork (in a paper-based system) lead to missing files, letters, backup documentation, or requests for changes that lead to blaming, confusion, wasted time, and embarrassment
  • Errors in scheduling discipline or too many promises made by too many people may mean the staff will need to be in two places at once or crisscrossing all over the state or country on the same day

 

Ultimately, it can become so devastating that the organization collapses and goes out of business. Usually, this is because the founder or owner did not deal effectively with the issues and managerial challenges that occurred as the organization grew. Having an effective operational system infrastructure that is scalable as the organization grows may be more critical than many people realize. Often owners are not as concerned with what has been dubbed by some as “organizational plumbing” as maybe they should be.

Stage Three: At Stage 3, the owners, and any partners and managers, realize that there is more to becoming even more successful in the future than strictly throwing money into people, equipment, and space. It will be critical that a transition to a different type of organization occur. The movement from an entrepreneurial management style known for its informality to a much more professional leadership style must occur.

It is time to have well-defined strategic plans and operational goals and plans. Regularly scheduled meetings are needed to ensure that everyone stays on the same page and doesn’t feel left out during the quickly changing pace of business. Everyone should have a position description and a well-articulated scope of responsibility used as day-to-day management tools. If not yet in place, it is time for a performance appraisal process to be part of the overall management control system. The people who manage the firm also must change their role and skill sets, approaches to their position, and competencies to keep up with business developments. They probably started as a hands-on manager or a super-worker. They may have maintained that posture through the first two phases. It is unlikely that this same style will serve them well in the future.

Increasingly, what will be needed are the skills associated with formalized planning and administration and overall motivation, including reward and recognition systems and leadership competencies. One tendency to avoid using attention to detail is to under-invest in the management infrastructure until it is almost excruciating.

Stage Four: During Stage 4, the main focus is integrating. Once the organization has somewhat mastered the issues discussed in the prior stages, the crucial work of organizational development begins- the care and feeding of the corporate culture. The culture impacts the day-to-day running of the business. It can also have a considerable effect on the level of profitability.

Since day one, the organization has hired multiple people. They may have come in waves (almost referred to as the class of ‘XX) as the business surged through various levels. In many cases, the staff hired early on probably was hired using a much less formal environment and process. Often, one only needed to demonstrate the basic skills to be hired. Culture, whatever existed, was transmitted via word of mouth and observations surrounding, “That’s how we do things around here.” During the second bout of growth and hiring, the employees who were hired early on in the firm’s history become the carriers and keepers of the culture.

As this process becomes replicated, maintaining the culture gets harder and harder for two reasons. First, the sheer number of people hired can overwhelm the number of early hires. The second challenge comes from expanding via branch offices and locations. It is almost impossible to establish and maintain the desired culture while only relying on casual means. It is time to bite the bullet and establish a formal approach to groom the culture. So how do we characterize the differences between an entrepreneurial style and a professional management style?

In simple terms, many entrepreneurs tend to be relatively informal in their operations, lack processes, and systems, and have a freewheeling nature. They are much more likely to decide based on a gut feeling. An organization with professional management tends to be more formal, has well-developed processes and systems, and exerts internal discipline to achieve its business and profitability targets.

In his book, Making the Transition from an Entrepreneurship to a Professionally Managed Firm Eric G. Flamholtz articulated nine discreet result areas that differ between the entrepreneurial and professional management styles: profit; planning; organization; control; management and development; budgeting; innovation; leadership; and culture. The differences are striking, and understanding the methods behind each form of management leads to an enhanced sense of purpose for an organization during this change.

In the next installment, we will discuss developmental items and tactics, explain and assess the organizational growing pains, and plan the transitions that the leader must successfully execute. Watch for the next installment.

Posted in Organizational Development, process improvement | Tagged effective leadership, strategic planning, strategic thinking

Transitioning From An Entrepreneurship to a Professionally Managed Firm – Part II

NYC Executive Coaching avatarPosted on September 14, 2022 by Doug BrownSeptember 14, 2022

Editor’s Note: This is the second installment of an ongoing series surrounding what it takes to move from a relatively small, micro-business to a more robust, larger organization. Each article explores a different aspect of that journey.

In the 1st installment, I discussed the initial phases of making the transition from a business in its infancy to becoming a sustainable business. We discussed the challenges faced and the growing pains experienced by many businesses in that part of the growth curve.

We will identify and help you better understand the six critical organizational development tasks in this issue. These items are essential when the organization is experiencing fast growth and doesn’t have the luxury of a well-seasoned management team.

A strategic view of the situation must begin to shape and harness the resources that can take the business through future phases. This process will involve:

  1. Identifying a market niche
  2. Appropriately expanding the product and service mix
  3. Acquiring or building additional resources
  4. Developing and implementing a system of back-office functions that support production
  5. Developing and supporting the proper management systems
  6. Creating and maintaining a corporate culture that supports the current initiatives and future growth

 

Task One: One of the subjects we have covered in articles and sessions is the need to become a well-known fixture within a market niche. Identifying and defining what that market niche or market segmentation strategy will be going forward is critical.

The firm must look to stake out or capture a sustainable competitive advantage that will grow over time. If a firm is fortunate, it selects an opportunity in an area with little or no current competition.

It is a tremendous advantage to be the “first kid on the block” to do something in some instances. Not only can you potentially fly below the competition’s radar for a while, but you can also develop momentum from the public.

Suppose the “cost of entry” for competitors is high enough. In that case, you can discourage competition from coming onto the scene until your firm starts to hit a capacity “pinch point.” An old expression from the oil and gas industry says, “Until the first pipeline is full, someone can’t justify the high cost of building a second line that will also be running at less than capacity.” There is a cautionary tale to be noted. Changing market focus without adequate support from the customer base can be a costly mistake. Think of the number of firms that have over-expanded their product or service lines. They are seen as abandoning their sweet spot in the market. They have lost focus by trying to become everything to everyone.

Task Two: The second area is appropriately expanding the product and service mix to meet that market niche. This challenge includes the design of a product and the service delivery aspect.

To be successful in this realm is dependent on effective strategic market planning. Understand your desired potential customers and prospects. Learn what want(s) and need(s) exist, how they like to buy or purchase the product or service under consideration and what can tap into perceived value.

Task Three: The third element involves acquiring or building the additional internal and external resources that adequately meet the expectations of that market niche.

It is possible that a firm has identified the right market opportunities and built or packaged the right product for that line of business and yet not be able to compete in it effectively. This shortfall may be caused by inadequate financial resources, either from a cash flow or capital point of view, or insufficient production and support. This shortfall can be in physical space and equipment or people, whether staff or management positions.

Carefully balance the need to manage and invest in new people and equipment to support the current demand levels with the projected growth needs. For example, poor investment decisions in infrastructure will cause the firm to have to go into the market for additional physical space or equipment prematurely when this doesn’t happen well.

Since this change usually negatively impacts the flow of the operation, this can be the equivalent of “buying something twice instead of buying it right the first time.” This situation gets tricky because the firm must have the financial strength and cash flow resources to avoid becoming overextended during this period of underestimated rapid expansion.

Task Four: Author Eric Flamholtz, Ph.D., described these operating systems as “organizational plumbing.” While it certainly isn’t a sexy area to talk about, inadequate “plumbing” can be a tremendous frustration for internal staff and customers alike when trying to get answers quickly. The fourth area of concern is developing and implementing a system of back-office functions and systems to support day-to-day production. This area covers the aspects of accounting and payroll, advertising and marketing support, customer service, sales production and human resources management (that would show up as recruiting and training) to execute the strategy adequately.

Author Eric Flamholtz, Ph.D., described these operating systems as “organizational plumbing.” While it certainly isn’t a sexy area to talk about, inadequate “plumbing” can be a tremendous frustration for internal staff and customers alike when trying to get answers quickly.

Task Five: The fifth area that must be touched on, especially in larger firms, is developing and supporting the proper management systems. These are the pillars that will need to support the business long-term. These traditional areas of planning, organizing, scheduling, budgeting, contingency planning, etc. provide management oversight and control. Developing a planning system and a management-development system would typically fall into this area.

This area includes things like who reports to whom (organizational structure and chain of command) and how the workflow is organized. Preparing the next generation of leaders and managers to run the business is planned. Control aspects get addressed within this item. Processes that define items such as budget, goals, reward systems, and performance appraisal need to be agreed upon and implemented.

Task Six: The sixth area is creating and maintaining an agreed-upon corporate culture that supports the current initiatives and future growth. As we have discussed in other articles, establishing corporate values that are well-publicized and shared guides people’s behavior.

Values can speak to how the organization wants to operate even “when no one is looking.” Well-constructed values typically define expectations and relationships between and among employees, customers, suppliers, stakeholders, partners, the community, and any regulators as appropriate.

The culture also speaks to all the unwritten rules, norms and expectations that play out as “that’s just the way we do things around here.” When carefully crafted and managed, it can profoundly impact both the people inside and outside the firm or organization. It can communicate, “This is what we stand for, and this is what we won’t fall for.”

Studies have shown that whenever most people in an organization believe their top leaders are honest and adhere to very high ethical standards, they too will behave that way at work. When they believe that top managers say one thing but do another in terms of ethics and honesty, they will slip and behave in a consistent way with what they perceive. It is almost like them saying to themselves, “If top management is going to get theirs, I may as well take mine.”

These six areas are critical to the development of a firm as it progresses along the growth curve and must become intentionally integrated or symbiotic. They must build on each other. Similar to Situational Leadership, where the leaders’ style must flex to meet reality, these areas will need attention based on the organization’s challenges at any given time.

In future installments, we will further explore the predictable stages of organizational growth, discuss developmental items and tactics, explain and assess growing pains and plan the organizational transitions. Watch for the next installment.

Posted in Organizational Development, Strategic Planning | Tagged organizational development

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