Most entrepreneurs want to grow their companies. However, the road to success is often a bumpy one. While many businesses start quickly growing revenues and profits, they frequently plateau well short of their potential. This often leaves the owner confounded regarding why his or her once thriving enterprise has fallen on hard times. It can be a frustrating conundrum.
Research shows that the constraint to growth is generally not capital. With a good business plan and a lot of persistence, you can obtain financing. The problem isn’t usually the lack of good products or services. Successful entrepreneurs know how to deliver value. There is always market opportunity―new geographies, new market segments, and new product categories to exploit.
No, the thing that most often limits the growth of small businesses is the inability or unwillingness of the owner to let go. To grow beyond the start-up phase, the principal must delegate the primary work of the business to others. Some entrepreneurs just simply don’t want to do that.
If the principal can delegate the primary work of the business to others, the business will continue to thrive. Eventually, sustaining further growth will depend on the principal’s ability to relinquish day-to-day decision-making responsibility and the management of front-line workers.
If the owner insists on making every decision, the business will plateau―growth will stop. To break the bottleneck, decision-making must be delegated. For many, this is more difficult than allowing others to do the primary work of the business. The reason―delegating decision making to managers means giving up a measure of control and that’s scary for entrepreneurs.
It should be. The only thing worse than not delegating when it’s needed, is delegating before you construct the proper infrastructure. Doing so can be disastrous. The business can veer off course without the owner knowing it. Stories abound of companies that failed because the owner trusted the wrong people and/or the proper systems were not in place to support delegation.
One company almost had to file for bankruptcy after the owner delegated responsibility to an office manager who was not ready to accept it. There were no documented processes to tell the office manager how to perform her duties. No metrics existed to let the owner know if things got off track. After making a number of mistakes, the office manager attempted a cover-up. By the time the owner discovered this, the business was perilously close to the brink.
Successful delegation requires three things:
1. The right managers – Delegating before the right people are in place is a recipe for disaster. Do you have the right people internally? Will you need to go outside of your firm to find the management talent you need? It’s a make versus buy decision and these choices can be excruciatingly difficult. Layering or even dismissing loyal employees who simply do not have the skills to step into management roles can be difficult, but successful entrepreneurs will make the hard choices.
We have a bias for promoting from within. It is good for morale. It can help with retention and the new manager understands your company in a way that no outsider could. He or she is already imbued with your culture. We have a bias for promoting from within, but we also have a bias against setting people up to fail. If you are going to promote from within, you will have to invest in helping your people to develop the skills they need to be good managers years in advance.
2. Documented processes – It’s not sexy and no one will pay a nickel more because you have well-documented processes. Even so, good process documentation is the best way to communicate to employees how things are to be done when you aren’t there. There are three reasons having well documented processes is important:
- · Ensures that things are done consistently across the organization and over time – When the business was small, the principal could ensure that things were done the same way each time, because he or she was there to monitor the work. As the business grows, that’s no longer possible. Good process documentation ensures that employees know how to do the work.
- · Serves as the basis for continuous improvement – If each employee does things differently and one discovers a better way to do the work, it will be difficult or impossible to spread the new knowledge to others. On the other hand, if all employees are following the same documented process, changing the way things are done and capturing the benefit across the organization is straightforward.
- · Provides consistent training for new employees – Well documented processes become training manuals for new employees, ensuring that their onboarding is consistent and that nothing is inadvertently overlooked.
3. Robust metrics – This is how business owners know what is going on in the bowels of the business without being there. It allows them to sleep at night. Financial statements are an important part of these metrics, but they are insufficient by themselves. By the time problems show up in the P&L, the damage is often already done. What’s needed are operational metrics that are reported on a daily, weekly and monthly basis.
Consider a business that fulfills orders by shipping product to its customers. Orders start to go out late. Will this problem be reflected in the P&L? Sure, eventually the P&L will show a decline in sales. Unfortunately, by this time, it’s too late. The customers are gone. A daily or even weekly report that shows the percentage of orders shipped on time would allow the principal to correct the issue before customers leave.
With this infrastructure in place you can safely let go and the business can grow.