By Robert Mindick, Senior Vice President, Middle Market Lending, TD Bank
Many people start a business because they have a passion or expertise for a certain industry, but as that company grows, the challenges and operational issues they face can require new levels of expertise that even the most skilled founder might not possess. As the growth continues, the ability of a company's founder to not only recognize these needs, but to recognize the timing to implement changes can be critical to the success of the business.
Determining such timing accurately can be a daunting task, as it can be different for almost every middle-market company. The need for additional senior staff such as a CFO, head of human resources, senior sales manager or Chief Information Officer is influenced by factors unique to that organization. The factors that drive these decisions include the CEO's skill set and bandwidth (including existing managers wearing multiple hats), the company's growth rate, the need for outside capital or to make acquisitions to expand or operate efficiently, opening additional locations or the implementation of new systems.
The task of building out a management team can be surprisingly difficult. The first major obstacle is the founder relinquishing some control over a business they've invested so much in and allowing another person to make critical decisions — without the founder micro-managing the process. If this transition is mismanaged, it can cause ill will or even result in the failure of the business. On the other hand, the CEO's acceptance of a new, strong team can result in he or she being able to focus on more strategic matters that will generate further growth and enhancement for the company.
Even after successfully recognizing the need for hiring a senior management team, the recruitment process can be difficult. It can be challenging to persuade top talent to join a smaller company, and sometimes a growing company will need to increase target salaries or provide some type of equity opportunity as an incentive. The founder must also consider the impact of making the wrong hire: an incompetent manager may make decisions that aren't right for the company leading to a costly termination or turnover of other employees.
Despite the challenges, the benefits of effectively building a top management team can be exponential. By allowing the management team to focus on the day-to-day operations and the management of people, the founder/CEO can focus his efforts on strategic planning. These strategic decisions can lead to increasing market share through expansion of product lines and growing markets geographically, resulting in increased revenues and, when managed properly, increased cash flow and company value.