A friend of yours runs a successful Stage 2 business – but is also frustrated
that things aren’t going as well as he’d like. It’s your job to set him
on a new path.
How do you create that inflection point – that clarity of understanding and
focus that sets a new path and provides the basis for success?
Let’s look at how it works for Ebenezer Scrooge, because if ever there was a
tough customer for a strategy consultant to work with (cheap! close-minded!
domineering!), he is one. But Scrooge’s consultant (the ghost of his
former business partner) designs a great process that holds lessons for any
He starts with a look at the past (fond memories of Scrooge’s childhood).
What core principles show up then that Scrooge needs to reconnect with
today? What lessons does the past hold for Scrooge?
He then looks at today, from different perspectives than Scrooge usually sees
(a joy-filled market, a family feast, a miner’s cottage). What can
Scrooge learn from those people? What is happening outside of his normal
view that he can use? What does Scrooge have to offer those people?
And finally, he looks at the future to see where Scrooge will go if he
continues on his current path (a neglected grave!). What are the results
Scrooge will get from his present efforts? What results does Scrooge
want? Do the likely results line up with the desired ones – and if not,
what needs to change?
With a process like that, it’s no surprise that Scrooge emerged a new
man. Full of energy. Renewed with purpose.
The Wikipedia entry
about Scrooge’s transformation sums it up well, capturing both the immediate
impact and the long-term sustainability of Scrooge’s new thinking:
“Scrooge has become a different man overnight, and now treats his fellow men
with kindness, generosity, and compassion, gaining a reputation as a man who
embodies the spirit of Christmas. The story closes with the narrator confirming
the validity, completeness, and permanence of Scrooge’s transformation.”
So, as you do your annual planning, use the wisdom of Scrooge’s planning
process in your Stage 2 business, by tapping into the Ghosts of your
The Ghost of Business Past. What was at the heart of your success
in Stage 1? What was fun about the business? What made you
special? As you look to the future, you need to reconnect with that –
especially as your company has to change.
The Ghost of Business Present. Life in Stage 2 is more complex
because you are connected to so many more people and organizations, and because
you need to deal with broader markets rather than just isolated
customers. To come up with an effective plan, you need to take a more
holistic view. What are your customers thinking? Your
suppliers? Your competitors? Your employees? What is
important to them? What trends are happening in the market? You
need to see the world from other eyes, and use that perspective to come up with
The Ghost of Business Future. Stage 2 companies have reached a
point of sustainability, so now their leaders have to turn their attention to what
they are sustaining. What impact do you want your business to have on
the world? What results are you looking for from your business?
What does your business stand for? And what gaps and problems can you
identify today so that you can deal with them before they are urgent,
expensive, and entangled?
Successful Stage 2 leaders understand that it is not easy to design an effective
planning process, and so they put the time and effort into “planning the
When they do, the result is a business that is transformed overnight – with the
power to sustain that change over time.
What do you see when you go on a tour with your ghosts?
Enjoy the holidays, and best wishes for a good new year.
So, you’re thinking about what life will be like at your company when you’re gone. Congratulations. Really. It’s a sign of maturity when a leader has the courage to imagine being out of the picture, and the foresight to care before it’s forced to happen.
Having worked with dozens of Stage 2 leaders, what recommendations do I have for you about succession? A few thoughts come to mind immediately when thinking about my clients.
First, those of you who are strong leaders… we love you, and it’s amazing what you have accomplished and do accomplish… but this may be the biggest challenge of your career. The strength that you have in your role means that your shoes are going to be hard to fill. And, strong personalities have a hard time handing things off, so it’s never going to feel like the right time, and your successor is probably going to seem far from ready when you start the transition.
Second, having a healthy company is important to managing a succession. You want a healthy company to retain or attract the best talent. And, successions take resources, because transitions always put a burden on an organization. (Think about how many coaches have a “transition year” when they start even if they’re good and have good players.)
Third, start as early as you can. Succession is best managed not as one big event (“OK, here’s the company…don’t screw it up”), but as a series of small hand-offs. Most of my work on succession is on choreographing the series of small hand-offs based on the departing CEO’s capabilities, the incoming CEO’s capabilities, the needs of the business, and the needs of the transition process itself.
Fourth, don’t look for another you. He or she is going to be too hard to find. Use this as a chance to build up your company’s strength in a new area. (You’ll need to do some strategic planning to think about what area that should be.) I had one client hire an experienced sales and marketing exec because they realized they were weak there. I had another hire someone strong in operations because they were going to need to tighten up that area if they were going to be able to grow. Was the new exec everything that they needed in a CEO? No. But neither are you! You have a whole eco-system around you that complements and supplements your strengths. You may have forgotten about it because it’s designed around you, but no CEO can be everything – and the search for another you is based on flawed thinking that one person can lead your company.
The good news is that, if you plan out and use a succession process, all of these issues are manageable.
Congratulations, Second Stage CEO. You’ve gotten customers, survived cash flow crises, created a vibrant team. And, now, at last, created job descriptions! You put it off as long as you could, because job descriptions are so un-startup. But you’ve realized that it’s time to get clear on what people are responsible for, so that there’s more accountability, and so that it’s clear whether that new hire is getting the job done (or not).
If you’re a young Stage 2 company – say, 10-30 people – your job descriptions can focus on people’s responsibilities – what they do…their functional tasks.
But if you’ve passed 30 people, you’re going to need more from your job descriptions – rather than responsibilities, you’re going to need to focus on competencies.
What are competencies? They are the things that people are able to do – which could mean making copies or putting a design into AutoCAD, or could also mean handling angry customers or juggling multiple priorities. Sometimes competencies are the functional tasks, but frequently competencies are behaviors that go beyond the task. Competencies give a much deeper view into what a person, position, or team is capable of.
Responsibility: process assessments
Competency: recognize errors and problem-solve when one is found
Responsibility: respond to customer inquiries
Competency: empathize with customers in pressure-filled situations
You need to know the functional responsibilities of your people. And if you look at the competencies you need in a position, you’ll paint a much richer picture of who can be successful, and what training your people might need.
I work with a relatively small Stage 2 company that recently changed over 40% of its staff – and is far better because they did.
When I started with them, they had several employees who had been great during the start-up. They handled the relatively focused and simple work that needed to get done, and they were flexible.
But then the company started to leave the start-up stage – client work came more regularly, there was less experimentation…and there was more work! The work got harder and more complicated, and it needed to be done on schedule.
After almost a year of struggling as a company, the leaders realized that many of their struggles were tied to not getting the productivity out of the team that they needed. The employees were still good people and good workers – but the company had different needs, and these people were no longer a fit. And, because these employees weren’t in jobs that fit for them, they were starting to create a negative culture.
This wasn’t an easy decision. Some of the workers were friends. Some had helped build the company. And, truthfully, the decision took probably twice as long as it needed to because of the loyalty the leaders felt to these staff.
But when it became clear that the business needed new team members, the leaders made the decision, and gave the old staff generous severances.
Then they found the right people for the environment, taking their time and thinking about what they needed.
The results are dramatic. The team is happy. The finances are strong. The work is interesting and fun. It really is a different company – because it’s a different team.
In Stage 2, the team is what is most important, not the quality of the work. I know it’s not easy to make personnel decisions, but there are huge dividends for Second Stage companies that take an active approach to Talent Management.
My sons love Legos. They love building the kits based on the instructions that come with them – and they love building their own creations out of a bin of parts that is the resting place of all those well-made sets.
When my son is building a triple-winged rocket, or an army base, it’s very clear that the creation process is not connected at all to the sales process. Yet, for some reason, when we are working on an innovation in our business, for some reason it’s much easier to think that the creative process is inherently connected to the commercialization process.
But it isn’t.
Being a business owner, I sometimes think as I watch my son and his Legos, “What would it take to make this little hobby a business?” My mind first goes to customers – their feedback, engagement, and money. And then it goes to logistics – managing the schedules, inventory, work flow.
You need creativity, customers, and control to commercialize innovations. The creativity part comes easily for Stage 2 companies – but if you don’t have customers and control, you’re just playing with Legos. Which, I can tell you from watching my sons, is engrossing and rewarding…but is not a sustainable business model.
As your company grows in Stage 2, you should use your sales process to drive more value – yes, for your company…but also for your customers. The only sustainable growth comes from win-win sales, so your sales process will benefit you and your customers.
One of the most important ways that your sales process can increase the value you bring to and get from your customers is by uncovering what the real need is. Oftentimes, customers don’t know what they don’t know, and by managing the sales process well, you can help them realize what they really need. In doing that, you also make sure that you’re paid for any premium value that you give them.
Price is a function of value, and the surprising fact that you need to know is that value is established when the need is defined, not when the solution is defined. If a customer comes to you and tells you what they need, then they have already set the price in their mind. On the other hand, if a customer comes to you and asks you to help define what they need, then you create the value together.
If you’re like most Second Stage companies, it’s hit or miss whether you’re talking to customers about the answer or the problem. It takes a clearly-defined market strategy, and a disciplined sales process, to ensure your conversations consistently focus on the need. That takes some work, but it’s also the best way to grow your small business in Stage 2.
As a small business emerges from the start-up phase, and becomes a Second Stage company, the sales process can and should be formalized.
It can be formalized because you now have enough experience with sales to know some standard steps that you usually follow.
It should be formalized because you need to start building consistent expectations with your customers, you need more consistent information for your team, and you need to start to build up systems around your sales that will need some standardization.
I’m not suggesting you go overboard on this – just some general guidelines or steps that you’ve learned help you.
How do you create a (somewhat) standard sales process?
As a first step, think about the customers or orders that your team handles smoothly. What usually happens when those orders come in?
Then, think about the customers or orders that are a hassle. What usually happens with those orders – and what do you notice doesn’t happen with those.
When I asked these questions of a 20-person manufacturer last year, they realized that most of their sales followed 4 basic steps – but also that complex, unclear orders (which happened to be their highest-value work) needed a different process. They outlined the two different processes, and when I met with them 3 months later, they said, “We’re handling all of our orders much, much better. And the customers are a lot happier.”
If your small business has grown into a Second Stage company, your team and your customers will appreciate you starting to understand and standardize your sales process.
Once you have segmented your customer base, the question is, “What can I do for my best customers that will drive value for them and us?”
The answer to that question should be captured in an Account Plan, which outlines the relationship and opportunities you have with a key customer.
Here’s what I recommend you include in the Account Plans you write for your Second Stage company:
– History and highlights of the relationship
– Background on relevant people you know at the company
– Description of why they work with your company and why they think you’re valuable
– Immediate and next-year opportunities that you’ve identified, as well as the 3-5 year potential for the relationship
– Likely relationship and engagement for the coming year
– Plan for additional activities to expand or enhance the relationship and engagement in the coming year
You’ll be surprised at how much you learn about your customer and yourself when you write an account plan.
I’m working with a $2MM firm right now to build in a performance-based aspect to their compensation program.
Usually, I would follow a process of compensation strategy (guiding principles for how we make comp decisions) > compensation framework (the components that go into comp decisions) > performance framework (the specific definitions of performance). (If you want a full description of the process, you can get it from my book, The Stage 2 Owner’s Manual.)
But with a small firm, we’ll be able to skip the comp framework step. That’s the step where “What does it take for you to stay in the game?” changes to “What is the right amount to pay you?” It looks at things like market pay rates, and what the role of the person is.
If you’re a small Second Stage Company, the most important things to address when you upgrade your compensation program is why you pay people what you do – the overarching principles that are at play, and the specific performance drivers you look at. When you get bigger, or when compensation starts causing you problems, you can fine-tune your pay program based on some more sophisticated thinking about what makes up employee compensation. But that’s a short-cut that, in most cases, is fine to take when you’re smaller.
Stage 2 management focuses on getting approximate answers, not precise ones – and then using judgment to realize when an answer can be more approximate, and when it needs to be more precise.
Have you ever thought about the impact of over-paying, or under-paying, the staff in your Second Stage company?
If you are over-paying, then you are taking resources away from other parts of the business that would give you a higher ROI. Over time, you’ll under-invest in the areas of the business that make your company stronger, and the result is a company that is paying its employees relatively well while weakening the business.
If you are under-paying, the opposite is true. You are “mining” your employees for the value they create, and if they don’t feel rewarded, you will be faced with a triple-whammy – you’ll lose someone who was providing more value to the company than you realized, you’ll have turn-over costs, and you’ll have to spend more than you expected to replace that person.
Compensation is about aligning the rewards that employees get with the value that they create for the business. As your business gets more complex in Stage 2, that alignment gets harder, and more important.
You’ll never pay someone exactly the right amount, but making sure you’re close is important for you, your business, and your employees.