Whether your business is young or well-established, focusing on assembling a great management team is key to building a successful, enduring business.
Having a great management team also makes your business more valuable and easier to sell.
Jack Welch, the former CEO of GE and one of the most respected management thinkers of all time put it like this:
“Focus on a few key objectives … I only have three things to do. I have to choose the right people, allocate the right number of dollars, and transmit ideas from one division to another with the speed of light. So I’m really in the business of being the gatekeeper and the transmitter of ideas.”
While as a small business owner you may have more roles to play (and fewer resources to allocate) than Welch did as CEO of a Fortune 100 company, you should nevertheless focus on building your team.
It can be easier said than done.
But, putting people in the right seats for the right jobs is a major part of working on your business instead of in it.
As a founder or owner of a business, there is no more important role than growing your team and its leadership.
How and When Do You Get Started?
When you’re putting together your management team, keep in mind that the roles and size are going to change and evolve over time. Your management team is not immediately going to look like the board of a major corporation–nor should it.
Many business owners will choose to promote from within. Data from the Wharton business school suggests promoting from within is a smart move.
It is also less expensive to hire from within. Data from the Saratoga Institute suggests 1.7 times cheaper.
How do you know when somebody is ready to move up to leadership?
Entrepreneur Magazine asked 15 experienced entrepreneurs just that. Among the answers given were the employee starts to use ‘we’ instead of ‘I,’ the employee has reached the necessary level of technical skills and the employee is already managing to a certain extent in their current role.
The famous management author Tom Peters suggests another important consideration when picking your team: nobody should be promoted to management who does not ‘get off’ on helping others.
The other consideration of course is not adding management too quickly.
Management requires structures and processes. Extra layers of management brought on too early can become burdensome and slow the business–and are also expensive.
It can be exciting and feel ‘professional’ to start having executive roles at your business. But don’t start hiring until your actual sales and revenue reveal real growth and repeatable systems.
The timing of when to grow your management team will often be heavily dependent on your resources and financing and whether you’re bootstrapped or have outside investors.
What Are the Traditional Management/Leadership Roles?
The first management role you’ll fill has a lot to do with your industry, of course.
Three of the first management positions that many growing businesses fill are COO (Chief Operating Officer), Head of Marketing and Head of Sales.
Does every business need every position listed below? No.
Is having the exact titles as those listed here terribly important? Probably not–the understanding of the functional role is more important.
Keep in mind also that a corporation’s board has legal authority and requirements as outlined in the corporation’s bylaws–covering things such as how frequently it meets.
Unless you’re a corporation assembling your board, your management team does not need to have that level of formality or meet specific legal requirements.
Also keep in mind that you’ll read a lot about boards being responsible to shareholders–that only applies to public companies. You can learn more about the formal responsibilities and structures of boards here.
What you must determine as you assemble your team is the benefit each role provides for the development of your organization. Your culture, operations and your unique workflows will affect this as well.
Assembling a management team shouldn’t be a vanity project–although it can certainly be fun and exciting.
Here are some of the traditional leadership roles on a management team you’ll want to consider.
Chief Executive Officer (CEO)
If you own a small to mid-sized business, you are the CEO. That is, you’re the final decision maker.
You may not have to answer to shareholders like Satya Nardella does at Microsoft–you don’t have that constituency to serve.
The stakeholders you need to serve are customers, employees and investors –if you have them. Partners can also be another set of stakeholders.
So what makes an effective CEO? What are the key responsibilities?
That’s a question that many, many management gurus and business school professors have written on over the years.
In general, there’s agreement that your key responsibilities are setting the vision for your business and helping develop the strategy to make it happen.
Chief Executive magazine has a good article on the necessity of strategic thinking for CEOs.
You’re also responsible for building the team. And you have responsibilities for setting cultural expectations as well.
You’re fundamentally also responsible for resource allocation.
Not an easy job.
Harvard Business Review recently published an article on how CEOs of major corporations spend their time. While your business may not be as large, the article will give you some good insight into what leadership responsibilities at a business look like–especially as you grow.
The article also points out that as your business grows, you’ll rely more and more on your ‘direct reports’–that is, your management team.
A CEO’s direct reports are the company’s most senior executives and include some of its most skilled managers. They span all the key elements of the business and offer CEOs the greatest opportunity for leverage. The leadership team, working together, can be the glue that helps the CEO integrate the company and get the work done.
Chief Operations Officer (COO)
The role of the COO is to focus on the actual logistics of running the business. They look at the operations of the company and develop metrics which allow for effective progress toward goals.
This position is also tasked with creating the corrective actions which are necessary when the metrics are not being met as expected.
The size of the business often dictates whether or not a COO is necessary on the management team. Smaller businesses, with a single location or two, will usually have their location managers handle these responsibilities.
As a business grows, however, having someone focus on the complexities of daily operations becomes a requirement. The demands become too great to manage operations and devote enough time to strategic thinking and other responsibilities.
A note of caution: don’t make the mistake of thinking that a COO doesn’t need to be a strategic thinker. Under Steve Jobs at Apple, Tim Cook was the famously successful COO.
He was tasked with making the hugely complex international supply chains work on time and profitably for Apple–a critical part of their success and competitive advantage.
Chief Financial Officer (CFO)
The role of the CFO is to manage the money. He or she is responsible for determining the financial strategies that lead the business toward success.
Budgets are set, control systems are built (a key need not to be overlooked), and debt is managed within this position.
As your starting out, this role will largely be played by you, the owner. The lead financial person often then becomes your accountant, who will also often not be a full time employee at the outset.
Look for an experienced professional who has worked with small businesses and is willing to take the time to listen and understand your business goals.
As you grow, accounting will move in-house.
As with COOs, don’t neglect the strategic role of a great CFO.
A great CFO will also be a strategic counselor with operating experience in the business world. They’ll not just manage your finances, but will bring creative financing strategies and options to the table that can help you achieve your goals more quickly and safely.
They’ll also have the experience and wisdom to advice against actions which may present risks you’re not aware of.
Chief Information Officer (CIO)
The CIO (or sometimes called CTO–Chief Technology Officer) is responsible for the technology that is used within the business. Obviously, this is a very imprtant role in business today.
The right technology can empower your business or slow it down.
This is the team member that you’d want to talk with if, for example, you want to implement a content management system.
There is usually a purchasing component assigned to this position as well. They build contacts that help your business obtain fair prices on new technologies that make your teams more efficient.
Finally, your CIO is also going to be your point person on cybersecurity.
Chief Marketing Officer (CMO)
In the past, companies have left the responsibilities of marketing to someone outside of the C-Suite.
The CMO may be relatively new to the team, but their work, and their creativity, is incredibly important to the success of the business.
For your growing business, having someone take responsibility full-time for generating quality leads can be a critical step in growth and scaling.
Make sure when hiring your lead marketing person that you’re clear on the goals and responsibilities. And make sure both of you are clear on what success looks like.
Does your business require a certain number of leads that convert at a certain rate by a certain date? Marketing goals can be left as soft and fuzzy, which can create confusion and unrealistic expectations.
Set specific targets if you can, especially in the digital realm. Define success.
Sales Director (CSO)
Your Sales Director leads your sales team.
When you’re young and growing, you might have a couple of sales reps and no actual Sales Director. But as you scale and successful processes are systematized, you’ll want a sales director to led the charge in this area.
A Sales Director is responsible for overall sales results and for building the sales team and its processes.
Typically, a Sales Director will have been a successful sales rep themselves, but it’s important to remember that not all great sales reps make great Sales Directors. And many great sales reps don’t aspire to move up to management.
Being a successful Sales Director means knowing how to manage teams and develop systems, understand and motivate competitive individuals and lead interaction with other departments, especially marketing.
There may be specific leadership roles that your company requires that fall outside of these standard roles. That’s fine.
Just keep in mind that setting clear definitions or responsibilities for each role is critical.
Resources You’ll Need to Bring to the Table
To bring in the best people for your management team, you’ll need to allocate some resources. Talent and dedication aren’t free.
One of the biggest surprises that growing businesses encounter when finding new executives to join their team is the salary cost.
Inc Magazine looked at some of the data about how much private companies with 10 to 1,000 employees pay their leadership.
They found that the ratio of pay for CEOs and their top managers stayed relatively constant, no matter the size of the company.
Expect to pay about 70% of the salary of the CEO for a good COO.
The cost of a CFO and CTO/CDO will run about 60% of the CEO’s salary.
Keep in mind as well that if you’re going to serve as the CEO, it’s not your salary that your prospective employees will be basing their salary requests on (which for many small business owners starting out is below market rate).
It will be the standard for your industry and your geographic location.
Let’s say you decide to pull a salary of $150,000 from your company. In your region, where the cost of living is higher, an established company might pay their CEO $700,000 each year. That means your prospective COO might ask for a salary around $500,000 each year.
Just because you make a lower salary doesn’t mean other team members will be willing to settle.
This can be a real challenge, obviously.
You’ll often have to look at creative ways to compensate to attract great talent–such as non-cash benefits and potential equity stakes.
Of course, you should also be selling the vision of your company and its opportunity for growth as a benefit.
The final piece of advice to keep in mind is that self-awareness is one of the key requirements for putting together a great team.
As an owner, you’re probably confident and prone to do it all. And you probably can do most things better than most.
But you can’t do everything well (and certainly not all things better than all others). And you certainly have a few key things you do the best.
Be honest with yourself about this. Solicit honest feedback from a trusted advisor or mentor.
Look to your management team to complement your strengths to achieve the best leadership possible for your business.