Wednesday, June 4, 2008

Do I Harvest It or Step It Up? A Key Question to Consider

A discussion at a recent meeting of Chief Executive Boards International focused on an essential strategic question that business owners can't ignore. A member was talking about taking a big project which would have stepped his business up from $4 million to almost $7 million. He had already concluded this would put extraordinary stress on his management team (mostly himself).

As the Board asked him more questions, it turned out he was in "leadership gridlock" -- he had no one other than himself who he could count on for leadership within the company. And he was apparently already at the level of time and effort he was able to give it himself. So, he's in a corner -- step up the business and bring in the management help to support it or harvest the business -- optimize it at its current size while continuing to manage it by himself.

It became apparent to this member that he has a critical decision to make -- whether to limit his company's size to where he is right now (he's working as hard as he wants to work, running it by himself) or whether to expand his management team to position the company to be perhaps twice its current size.

Why are those the two choices? Isn't there a middle ground? Couldn't he just continue to incrementally grow by, say, $500,000 per year, and then hire another manager when he absolutely needs to? That's what most business owners do, isn't it? They don't realize before the fact that they're probably going to need at least two or perhaps three additional senior managers to help take the company to the next level, and they similarly don't realize that remaining profitable in the transition is going to take a "burst" of growth (by maybe 50%) to support that additional overhead.

So, they fail to commit. They play to decide, rather than playing to win.

As a result, they never get past the tipping point where the additional business actually overcomes the incremental overhead necessary to support it -- they never "break out" into another level of operation, but rather struggle against the bow wave caused by an inadequate management team. They chase success rather than planning for it.

The key question

So, when your company starts to max out your own ability to manage it by yourself, ask this question: "What would the management team need to look like to run this business at twice its current size?" Then set about looking for or fast-track developing those people. After all, you'll be there in 3 years of 25% growth or 5 years of 15% growth, won't you? Wouldn't it be great to have anticipated that management team need, rather than running your own wheels off trying to keep up with it yourself?

Or take the other road. During this same discussion, another slightly older member said "I've just realized that I'm completely satisfied with my company at its current size." An important realization. Rather than focusing on growth, he can take more of a harvesting approach to the business. Continue to optimize margin and cash flow by dropping low margin products in favor of higher margin products and firing lower-yield customers in favor of others. There's nothing wrong with this strategy. It's your business and you get to make these choices.

Either way will make the business more valuable in the future and the owner more satisfied with the results, especially if his destination is planned rather than accidental. Don't get caught in the middle -- working harder yourself for a less satisfying and less rewarding result, because you didn't surround yourself with the team you needed to be successful.

If you have come to a major strategic decision or realization about your company, such as growth vs. harvesting, please click "comment" below and share it with us.

To forward this to a friend,
Click Here

Terry Weaver

Chief Executive Boards International
864 527-5917

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it

No comments:

Post a Comment

Comments to CEBI Blog articles are moderated to ensure member privacy and control spam. All comments except those deemed inappropriate should post within 24 hours.