Transforming the business for growth, sustainability & scale

Owner driven small and mid-size companies grow quickly, but may at some point, consider professionalizing the business, to allow the next generation to take over, or scale up the business, or to bring in strategic investors. Reasons could be many. Owner led firms usually depend on preferential access to clients (by virtue of the founder’s relationships), talent & capital. Clients would know them well, their bankers lend because of their track record, and talent within the company sticks on since they have grown with the founder. But it is hard for the next generation to replicate this pattern. The next generation may have other interests, succession could be an issue, the business may have passed the cash cow stage (and needs reinvention); there could be better opportunities; technology might be changing, allowing better positioned firms to take advantage of the existing franchise, or the founders may now want to take the back seat.
Apart from the above reasons, there could also be several internal challenges that necessitate transformation. It could be lack of expertise within the company to grow and scale up, inability to find the right talent, centralized decision making, lack of second level leadership, an informal culture that is reactive, lack of predictability and sustainability etc.
Regardless of the reasons, the transition from an owner driven to a professional structure involves various issues or blind spots, and it is well worth considering making changes along some of the following value drivers.
Goals & Strategy
Employees often cannot relate to goals, as they appear to point to some distant incongruent future. Daily activities seem more like fire-fighting and bear no link with either the goal or the ensuing strategy. Clarity on the goal at this stage in the life of an organization is essential. Goals should be about bringing in predictability in revenues, sustainability in operations, improving capabilities, transforming behaviour, team-work and co-ordination. While being cost efficient and reactive served the purpose all along, there needs to be a strong focus on being effective, becoming a prospector, exploring and exploiting market opportunities (using the Miles & Snow Typology). Such transformative goals should drive creation of strategy and subsequent work design. While leadership of the business is mostly clear on the strategy, it is the execution that presents difficulty. Hence identify core strategy, strengthen it first and then extend along adjacencies.
Organization Design
Organization design is critical to reach goals and implement strategy. Small firms grow as families, with decision making centralized with the founder-owner. Staff get used to the style over time and depend on the leader for decisions. The refrain from making any important decisions. Structures are also informal. A Goal means nothing to them, since it is considered the owner’s goal. Everyone is used to just taking instructions. This often leads to immense activity (as they are not clearly defined) and firefighting around thorny issues. It also indicates inefficient resource allocation. A well-designed structure that caters to the need of strategy – be it domain competence led, or product focussed or project focussed, will largely reduce such confusion. The structure also brings with it effective delegation and operational control that will reduce the burden on the founder.
Operational governance
Operational governance would mean implementing systems for co-ordination, information sharing, cross functional work flow design, assigning clear roles and responsibilities, checks and balances for operational governance, as well as performance management systems. It could be activity driven, result driven or behaviour driven. But, such systems help streamline work, documented processes enable hiring new talent, plugging them into the organization quickly and scaling up; teams then come together to get the work done and achieve goals. Behaviour aligns with the objectives and goals of the leadership. Rewards and increments that are usually subjective, need to be re-designed around performance and skills. It takes the load off the founder-leader and allows the leadership to focus on the next phase for the business.
People & talent
On the people front, smaller firms lack the broad range of expertise and deep functional competencies (while they do possess excellent domain/technical competence), especially in marketing, strategy, sales, operational governance. It is essential to bring in outside talent depending on the capabilities that need to be built out. For a leader, this could create a lot of noise, and leadership needs to rise above the noise. It would also be a good idea to outsource expertise and bring in external consultants. At the same time, existing loyal staff need to be assured that they are taken care of, need to be trained, and career paths need to be clarified.
Capability building
If core strategy going ahead is product development, then the right team needs to be hired, systems such as scrum/agile processes that enable iterative product development have to be implemented, market sensing skills have to be really acute and strengthened, product development team needs to be structured such that they are comfortable collaborating and networking with outside experts and technology partners. Outsourcing and contracting skills may play an important role too. Marketing capabilities need to be good enough to communicate the value of new products or solutions. An ability to create content & establish thought leadership may be crucial, especially in the B2B context. If operations and support and efficiency is the core strategy, then the capability needs to be built along different lines that bring in efficiency, meeting pre-set standards, quality etc. So, it all really boils down to the chosen strategy.
Change management
Last but actually the most important, is managing the change. Better to select small areas that can be worked on, and change can be demonstrated. This motivates staff, and helps other staff see for themselves as to what can be achieved. Hence mentoring people, guiding them, ensuring operational governance, having clear milestones are clearly important and clarity on these subjects will certainly help firms to transform and position themselves at the next level.