Leadership Lessons For Emerging Growth Companies
Stage #3 & Stage #4 Keys
A mini-series on practical leadership focus for growth companies
This is the fourth of a 5-part special series

This series explores how leadership focus and skills must evolve as a company grows from a raw startup to an expansion stage successful enterprise.  Go to first article in this series by clicking here. This week we will look at the appropriate leadership style in more depth for Stage 3 and 4 companies.

Stage #3 Leadership Focus Keys

At this stage of a company's development it is time to start leading the company by the numbers.  It is imperative to have processes, systems, and measurements in place beyond just the entrepreneurial philosophy that got the company to where it is today.  Therefore leadership now requires some serious "professional management." Many entrepreneurs have great difficulty making this transition because their style is one of trial and error learning and "seat of the pants" flying.  This is why most founders are quickly replaced by venture capitalists who recruit a professional and experienced CEO.  Managing by the seat of your pants is fine for a ten or fifteen person company, but becomes stretched and difficult at twenty-five people and a formula for disaster beyond this size.  Of the five stages of company development, most of us are only very good at two or three.  With coaching and flexibility we can all learn to evolve with the company and grow into a new role, but this in impossible without some outside wisdom and perspective and a proactive effort to address this problem. 

I recommend developing a corporate dashboard, which I define as a single piece of paper with all the key metrics. This ensures that the business is running smoothly by taking the pulse of each department with key metrics. A dashboard, when properly designed, will give advanced notice of any problem areas but it is also very specific to each business.  A dashboard can take years to get right and must contain not just sales, turnover, and costs but also key ratios and time series that do not change as the business grows.  Developing this is a key to becoming a market leader instead of always struggling with working "in" the business rather than "on" the business.  Most companies reach their maximum size and are limited by the founder's ability to throw out the behavior that got them to that point and change that behavior to be more appropriate for a larger company.

At this stage leadership is starting to be more about small messages filtered through many people than about personal charisma and individual expertise.  It is more about people seeing the right things happen as a result of what you do, instead of seeing what you actually do.

Stage #4 Leadership Keys

Leadership now becomes a lot about leading the company on a larger scale and over longer period of time in terms of goals. It is now less about leading the individuals. At this stage of a company's development the leader must be backing off from direct involvement in any details.

Deal making and positioning the company for sustainable long-term competitive advantage are now the keys to your success.  Odds are at this stage you can afford, and have probably hired, day-to-day management help in the form of a COO, president, or general managers to handle each product or division.  You cannot scale until you get all those day to day issues off your to do list anyway, as scaling is all about growing the business, not working in it. 

Leading individuals becomes easier now because you have groomed your best people for the top and they are proven on the battlefield.  They understand you and vice versa. You can communicate in shorthand and they have been trained by you to take entire hills without much help from you. These people are true executives who can be given big missions and challenges and be trusted to come back if they need help. They can be managed by exception.  Therefore leading the masses becomes a series of simple messages and meetings delivered less directly and more through your senior lieutenants.

The amount of information delivered to individuals within the company directly by you is now very limited. People will get most of their leadership from the senior managers directly over them. If you have done a good job the philosophy you have developed will be there.  The leader must have learned to trust their senior staff completely, and must also have the systems in place to really know that everything is operating smoothly in each area of the business.

To become a market leader you probably need to make some bold moves now.  You are prepared to do this with little risk because you have been collecting the information needed for years and training your troops. You understand what your organization can and cannot do and how long it will take.  Leadership at this stage is about improving the business design, diversifying, identifying new markets and products that the company can deliver well, and working on other big picture ideas.  Developing training programs and a learning organization is worth much of the CEOs time here.  Half your time should be spent on finding and developing the best people you can at the top levels of the organization.

Some leadership actions that might be appropriate here:

1. Acquiring other companies.
2. Going public to finance market dominance or market leadership.
3. Moving into complementary product or market areas that will increase profits as well as secure the strategic position of the company for the long term. 
4. Vertically integrating the organization to capture more profit along the value chain that you now control to your customers.
5. Looking for ways to create more value for customers and shareholders.

These are very different skill sets than those needed in a stage #1 or #2 company, but they also have some overlap. The ability to synthesize lots of information from many different sources to form a plan is still critical.  However, now you must be thinking on a much larger scale and be prepared to take less risk with bigger moves.

As you can see, the demands of leadership evolve with any company's growth and you must adapt and change your focus. If you do not your company will cease to grow and become just another company without any chance of major success and market leadership.

The second additional leadership key at this stage is the ability to select the right people. This can only be learned through experience and if you have not learned to do it you probably should not be starting a company yet. However, there are ways to alleviate this risk using testing and the experience of others. You also need to correct mistakes in hiring very quickly.  The first twenty people hired in a new company will determine the culture of the company for a long time to come.  These people will hire others and lead by your example.  Finding the first few experts in specific areas is actually easy compared to finding and hiring the right people across all disciplines that will set the appropriate tone and example. As Jim Collins so aptly state in the book Good to Great, "Getting the right people on the bus" is the key to success.  There is no lack of proof and anecdotes showing that choosing your first people is among the most critical decisions you will make.  It can even be life and death for the company.  I would argue that the intelligence, personality, ethics and drive of these first people is even more important than their specific skill sets.  Skill sets can be learned but personality, ethics, and drive can not be taught or forced.

This leadership challenge is not just about people selection, but also about defining the right roles needed. There are many choices that must be made by the leader. Do we hire young, cheaper sales people, or do we need expensive six-figure proven superstars? Or could we do with something in between these two extremes? There are no pat answers as every situation is very different.  Only wisdom and experience can manage this risk, with a good amount of testing too.  There are many ways to skin a cat and many thousands of ways to design a corporate organization. 

I have seen people with this people selection skill succeed even though they lacked basic management skills.  There is nothing more important at this stage of a company's development.  Why is this part of leadership? Because you must sell the company, the idea, the culture, and yourself successfully to attract the best people. This is a leadership skill - you are "selling the vision" to get employees, vendors, investors, and customers to see the benefits of working with you.  This is the most sensitive time in forming a company, where even a single bad hire can mean failure, if not corrected quickly.  Getting the first few people right is not that hard compared to finding twenty people that set the right example. Remember these people will effectively make all the future hiring decisions for you so weaknesses they have could be exaggerated tenfold later.

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