Luke Johnson, a successful entrepreneur, wrote in the FT last week that it is important to fire your existing management team if you want your business to discover reinvention. He says that gradual revolution is not enough and that when systems are broken small steps won’t work.
Whole swathes of businesses no longer work the way they used to. Book publishing and local newspapers are at the top of the list, but other business such as estate agencies, state education, financial services are all looking for new ways to do things.
We are not looking at a gradual revolution here – we are looking at business models that no longer work.
What does the successful entrepreneur do?
So, in these situations, how does the successful entrepreneur respond? Fire your management team, says Johnson.
In effect, the proposal is that you should remove your entire management team that was linked with the old business model. Why?
Firstly, turn around situation are short on time and demand decisive action. This is hard for anyone to implement, but particularly hard for a management team that have been working hard to save the existing model – or adapt it gradually to the new circumstances.
Therefore, existing management is weakest at performing major surgery.
I saw this happen in my previous business, where it was extremely difficult to get the existing teams to accept that things had changed radically and a more direct approach – removal of all management – might have brought about change faster.
Secondly, management is probably your most expensive single cost in a business. Yes, I know we all say that staff are your biggest cost, but actually, it is probably the management that is the largest part of that cost.
Thirdly, removing management shouldn’t affect day to day operations – at least not in a situation where the business volumes have shrunk.
Therefore, your front line customer facing and sales staff remain.
Lastly, your management team is paid to develop the business. In situations where radical action is required, the existing management are actually poorly positioned to do this because of the legacy and deep relationships they have built up with co-workers.
Contrary to popular thinking…
Contrary to popular thinking then, your management do not become more valuable as time goes on – but become more and more wedded to doing things the old way – or a gradualist process of change. Therefore, a management team with years of experience is not such a great asset after all and may become a liability when markets change quickly.
Indeed, if you yourself the entrepreneur are ALSO part of the management team, then you also need to fire yourself!
So, how do you fire yourself and the management team and expect the business to survive?
Okay, this simply isn’t going to happen – because you have set the business up wrongly.
Hand over – Mr(s) Successful Entrepreneur…
Therefore, instead of the entrepreneur growing with his or her business, he should aim to hand it on to managers very early on whilst still on an early upward growth path.
This allows two things
1. you, the entrepreneur can start new businesses and bring that experience via a board role in the business back to the existing enterprise
2. you, the entrepreneur are still available should a clean sweep of management be required
Now, if we set out to run and grow our businesses in this way, then we have the capacity to implement a clean sweep of management. Then the entrepreneur take control for a short but intensive time whilst searching for the new revenue model, whilst also developing the next generation of management for the new model.
Of course, the entrepreneur then has to leave the nest and go and do something else.
Therefore, entrepreneurs must leave their businesses – either by selling them, or by handing them onto a management team. This action early on in the growth cycle is likely to give the business the greatest chance of surviving the next business downturn.
The only question we are left with is this – when is the optimal time for the entrepreneur to exit the business?