“As the business grows, you need to bring in talent and manage through other people. Many founders struggle with this step.”
Small businesses are very much about cash and owner management. The founder is the shareholder, the MD, the FD and the manager all at once, and they tend to manage the entire team directly. As the business grows, you need to bring in talent and manage through other people. Many founders struggle with this step.
At the top end of the SME range, you have to manage through more layers – you have a leadership team, a management board and junior management. This is when you start to go into the corporate world, and that needs a completely different set of skills. You become more of a figurehead and you are no longer involved in the day-to-day management of the business. Some people can go through this transition and others can’t. You go from being a manager to becoming a leader.
Cash flow becomes less of an issue as you grow because you get access to capital markets and a team of people and advisors who can manage that for you. In a nutshell, it’s a gradual journey – it’s not sudden, it’s progressive.
What advice would you give to a CEO of a business going through the growth transition?
I would always say, begin with the end in mind. For example, you may have a very good business that has value. One avenue might be to grow, but at the same time it may make sense to sell it because you have taken it as far as you can go. The business may be turning over £10m – you’re making a million and you need to decide whether or not to go to the market to secure the funds to invest and grow, or you may decide that’s your limit.
You will need to invest in more senior hires, more salespeople, a better product... that might result in you not making any money for a while, effectively giving up your million in return for higher profits that you may not have the skills to achieve. Your stress increases and that’s a massive change. The rewards could be huge, but suddenly you’re risking a comfortable life and something that you’ve built for a huge unknown.
You might take the money at this point, exit the business and start working as an angel investor or build another business of a similar size.
It’s about risk vs reward. If you do continue, it’s about getting the best people around you.
Get an excellent finance director, sales director and operations director, and then build a great plan. A business that makes 10% on £1m turnover doesn’t necessarily do the same as it scales – especially if it means opening up other locations.
What do you look for in a leadership team?
I like to back founders on the basis that I can see a strong work ethic, and an ability to learn and be flexible. As an example, I might invest in the initial idea, but as things develop, the founder may need to pivot and reinvent the company. This is why the individual’s make-up is more important than the business in a lot of early-stage investments.
You also want to invest in individuals who have the ability to look years ahead and know what’s coming up in their industry. Sometimes corporates know what’s coming but they can’t change quickly. They can see the changes, but the staff are not bought in and change is slow. They tend to have no vested interest in the success of the company. An owner of a small or mid size business has bet their career, their home and their life on making a success out of it. So, if they see changes ahead, they can (and do) react swiftly. After all, they’re going to want to beat the market and be the first mover. That’s what I’m looking at when I think about investing.
Obviously, you look at the numbers too. It’s easy to make money on a spreadsheet – you see loads of weird and wonderful numbers on them, but you often know in your gut that it’s never going to happen. By challenging that, you get a very good impression by seeing how that person reacts – do they listen or get defensive? I invest money and give advice.
If they don’t listen and consider the advice carefully, then would they be listening to their team or their customers? The best ones listen and argue the case back, they adapt their plans by taking account of someone with experience.
Tell us about your personal journey as you’ve grown your business to an MSB
You’ve got to make lots of your own mistakes. There’s nothing quite like just getting on with it, taking action and moving forwards. You can analyse and review something forever, but you don’t know if it’s going to work unless you start moving forward. Take some action, and it might only be 80% right but at least you’ve done something positive. You can still resolve the problems with a little course correction, but that’s fine. If you stop moving and overanalyse or procrastinate, that’s when the real problems start.
What training or other learning has helped you build your business?
I like reading and going to seminars. The biggest thing for me was going to Tony Robbins weekend – a 4-day seminar covering motivation and many other things. It removed lots of the self-limiting beliefs that I had. I grew up in a humble way, and when you start your business thinking, “it would be amazing to make £100k” it feels great to get there – but then as you start to make millions it’s hard to comprehend. Your brain can’t fathom what that looks like. This can hold you back or even cause you to subconsciously work against yourself – it’s a kind of fear of success.
Coaching and surrounding yourself with people that you want to be like – like-minded people who you can learn from – is also essential. You tend to become the sum of the people you associate with.
We like to work and socialise with other companies in our industry, but you always try to stay one step ahead of competitors. You want them to be impressed with what you did so they think, “argh, we need to catch up to them!” In the meantime, we need to be working on new products and services to keep us one step ahead. We talk about what we’ve done, not what we are going to do.
What advice do you have for leaders when setting up and leading the board?
Employ people on your board that are better than you. If you’re the founder, you want a team of superstars around you. You want the best people in the market.
Your job is to lead and make the ultimate decisions. These people are there to advise and guide you but, as the CEO, you make the call. The buck stops with you. I think small business boards are much more dynamic and have less politics than a public company board, for instance – and the longer you can keep it that way, the quicker you will be able to adapt to the changes in your business.
“Get an excellent finance director, sales director and operations director, and then build a great plan."