In the course of conducting research for our new book, Let Go to Grow: Why Some Businesses Thrive and Others Fail to Reach Their Potential, we analyzed more than 100 small and midsize companies. We found that many previously successful and growing businesses reached a point where the upward trajectory flattened. As we started to examine the reasons for sales stagnation, some interesting observations emerged.
The constraint to growth was generally not capital. It may not be easy, but with a good business plan and a lot of persistence, one can obtain financing. We found that the problem wasn’t usually a lack of good products or services. Most successful entrepreneurs have figured out how to deliver value to their customers. Market opportunity may limit global enterprises, but it doesn’t derail the growth plans of small businesses. There are always new geographies, new market segments and new product categories to exploit.
No, we found that what most often limits the growth of small businesses is the inability or unwillingness of the principal to let go. As a business expands, the time will come when sustaining further sales increases will be dependent on the owner’s ability to relinquish day-to-day decision-making responsibility and management of the frontline workers.
ServPro is a franchise business that cleans up and restores buildings after fire and water damage. Andy Bahen is the owner the ServPro franchise in Chesterfield County, Virginia. It’s now one of the 10 largest ServPro franchises in the country, but it wasn’t always that way, according to Andy.
“It took my wife seven years to get me off the truck, and it was the hardest thing I ever did?not to personally oversee every job,” says Bahen.
When Andy insisted on managing every job himself, the size of the company was constrained by his capacity. Growth had stalled at about 10 crews, because Andy couldn’t visit any more jobs than that in a day. Once he let go, and allowed his supervisors to manage the jobs, the bottleneck was broken and the company grew exponentially.
If the owner insists on making every decision and managing the details of all of the work, the business will plateau and further growth will not be possible. The principal has to delegate this work to managers for growth to continue. While this step may seem to be a subtle change, going from managing workers to managing managers is what we call the “Big Chasm.” Many don’t make the leap. One of the reasons delegating decision making to managers is so difficult is because it means giving up a measure of control and that can be very scary for entrepreneurs.
Another reason that business owners resist delegating decision-making authority is that they think, “No one can make these decisions as well as I can.” Perhaps, but cumulatively your direct reports can be more effective than you can. If not, you don’t have the right people.
Finally, it may sound oxymoronic, but principals can become too busy to delegate. Delegating properly takes time. You will have to train and monitor the person to whom you assign the task. When you first delegate, it’s often faster to do it yourself. Principals who are stretched to the max may find that they don’t have time to delegate. That’s why it is wise to delegate before your capacity is exhausted.
Whatever the cause of the principal’s reticence to relinquish control, he will have to overcome it if the business is to continue to grow. However, a note of caution is in order. The only thing worse than not delegating when it’s needed, is delegating before you construct the proper infrastructure. Doing so can be disastrous. We’ve seen too many businesses that veered off course without the owner knowing it when decision-making authority was delegated prematurely.
One company that has now become very successful almost had to file for bankruptcy protection because the principal was relinquishing decision-making authority. The owner delegated responsibility to an office manager who was not ready to accept it. Further, he didn’t have documented processes to let the office manager know how she was supposed to perform her new duties. There were no appropriate metrics to let the owner know if things got off track. After making a number of mistakes, the office manager attempted to cover up the errors. By the time the owner discovered the cover-up, the business was perilously close to the brink of disaster.
Before owners can safely delegate to managers, they must have three things:
- The right managers. Delegating before the right people are in place is a recipe for disaster. Unfortunately, getting the right managers often requires difficult choices. The principal faces a make-or-buy decision. Has she hired people with potential and invested in training and developing them or will the owner need to go outside of the company to find the necessary talent? The decision can be gut wrenching, because it can mean layering or replacing loyal employees who simply do not have the skill set to become managers. It can be even more difficult when friends or family members are involved. This is a critical juncture. Failure to make the tough call when it’s necessary can be the downfall of the enterprise.
- Documented processes. Yes, you actually have to write down the way you want things done. It’s not very sexy and no one will pay a nickel more because you have well-documented processes. Even so, once a business reaches the point where the owner cannot be personally involved in every transaction, good process documentation is the best way to communicate to employees exactly how you want things done. Without documented process, inconsistencies are inevitable. Further, documented processes enable continuous improvement. If a task is performed in the same way across the organization and someone discovers a better way to execute a piece of it, rolling out the change to the balance of the company is straightforward. If everyone is doing the task differently, this can be difficult or impossible.
- Robust metrics. This is what enables a business owner to know what is going on in the bowels of the business even though he isn’t personally there. While good profit and loss (P&L) documents are a necessary part of a robust set of metrics, they are far from sufficient. For example, tracking the number of shipments that are currently late can let the owner know if there is a problem with on-time deliveries while there is still time to fix things, and before customers are lost. By the time this shows up in a P&L as lower revenue, the damage is done. Good metrics are what allow a business owner to sleep at night.
With this infrastructure in place, the owner can safely delegate decision-making authority to managers. However, the principal will still have to hold these managers accountable for results. There should be rewards for success and consequences for failure.
Building the infrastructure necessary for effective delegation is critical. This means hiring and training people with the potential to be effective managers or bringing in talent from the outside. It means documenting processes and developing robust metrics. It’s hard work. However, at some point, it’s essential for successful growth.