Building a Leadership Team

This might be the hardest phase for a recruitment agency founder: when an investment in leadership is required for your business.

Why are you building a leadership team? A subtitle for this article might have been “How recruitment agencies reduce their dependency on the founder”. 

This article is not about leadership in isolation as there are plenty of airport management books on that topic. My objective is focussed on explaining why leadership capability becomes increasingly important as businesses grow and/or mature, and how the founder's ability to develop, support and renew that capability influences sustainability, future options and ultimately equity value.

The symptoms appear early

I am yet to find a business owner that suddenly decides “I want to lead people”. The need for leadership capability rarely appears as a strategic insight. It usually arrives as frustration.

• I'm overloaded.

   

• Nobody makes decisions.

   

• Everything escalates back to me.

   

• We're inconsistent.

• Growth is slowing.

   

• I'm tired.

But it is not just driven by personal challenges. There are strategic, logical and timely benefits for the founder to invest in a leadership team.

The benefits are broader than simply reducing workload. A leadership team can improve execution, increase decision quality, create sustainability, reward loyal staff with opportunity, reduce founder dependency and ultimately provide the founder with greater freedom.

When a leadership team is necessary

There are patterns as to how a founder decides when to invest in a leadership team. 

In most instances, the development of a leadership team begins as a recruitment agency grows through the 5-20 size, as recruitment teams start to form, back-office functions take on some size and rigour, and the business seeks greater consistency and structure in its core activities. 

How that evolves may depend on the number of founders and the complexity of the business, such as number of sectors, temp/perm/compliance requirements, geographic spread, and the provision of value-added services.

What is important to observe for companies of this size is that in most instances the founder still has direct influence of every aspect of the business, The span of control over every function can usually be maintained as the company grows up to around the 20-person size.

It is beyond the 20-person size that changes occur. Functions that sat on the founder’s desk become functions on their own, with specialist staff hired or functions outsourced. 

Importantly, the span of control over the core recruitment function begins to break down and structure and delegation is required. New delivery and reporting systems are needed. Some hierarchy of control is implemented. Not every activity is intimately known by the founder. 

What changes for the founder?

These changes are not easy. As written previously, I hypothesise that this change is so difficult that it might explain why such a very high percentage of Australian recruitment agencies are less than 20 people in size.

The founder is now required to move from being absolutely in control “this is how I am going to drive my company”, to being a leader of leaders. From telling how it is to be, to inspiring those who have been delegated tasks to lead the execution of those tasks. From knowing everything about the business, to trusting in those who have been given responsibility.

This transition is often uncomfortable.

The founder has to become comfortable being less important. The very process of creating a team of capable leaders and delegating responsibility to gain some freedoms also has the uncomfortable result of others being more visible and holding important relationships.

Those that have been associated with the staffing and recruitment industry for a while can usually identify companies that have struggled at certain growth levels. Most notable are those that have grown from the high teen staff numbers to the mid-twenties and then fallen back and possibly suffered this bounce numerous times. I’d contend that it is not external influences that cause this, but the struggle of the founder to adapt.

Leadership as a structural issue; the 3 hats

Leadership capability determines whether the business can operate beyond the founder. 
It is not a theory. Or all about personality. Or reliant on charisma. It is certainly not about titles, or the structure drawn on a sheet.

Most say that the challenge is building leaders. But I believe it is about the founders, who used to be totally in control, allowing leaders to lead. Establishing shared responsibility and delegating decision-making.

Many businesses say they have a leadership team, but in reality they have the founder and some senior employees. Some characteristics to observe about the founder include:

• Can they tolerate different styles?

   

• Can they allow mistakes?

   

• Can they stop solving everything?

   

• Can they share client relationships?

   

• Can they relinquish control?

We often use the “three hats” analogy of Shareholder, Legal Director, and Executive as a way of describing the changes a founder goes through as the organisation grows through stages.

As a small business of up to 5 staff, the three roles are indivisible as the business is becomes established and commences operating. 

Small changes happen during the next phase of growth. There is less of the “this is my business and we are going to do it this way” and more of a cooperative environment, albeit with control still driven from the founder.

It is when a leadership team starts to emerge that the three hats, the three functions of a founder, become very important.  When working with a leadership team I propose that the founder now needs to act as an Executive, as a part of the leadership team, about 95% of the time. About 5% of the time the legal Director hat is worn, considering governance and risk issues. And the Shareholder hat should never be worn at work; that is reserved for discussions outside the business.

Leadership teams struggle when founders switch between hats without warning. A discussion about strategy can suddenly become a shareholder discussion about risk or dividends, or an operational discussion can become a governance discussion. The discipline of wearing the correct hat at the correct time creates clarity for both the founder and the leadership team.

Is a leadership team always required?

As we often state, a feature of the staffing industry is that all shapes and sizes of businesses can find their place. Not every business needs scale, not every founder wants to embrace complexity, and not every founder needs a leadership team. 

However, longevity in business does create change. Relationships with client mature, sophistication of service changes, commitments to service level emerge, and sustainability of business is sought. All of these lead the founder to implement more rigour in the business and that usually involves delegating some responsibility to senior staff.

And it is a fact that a business that is dependent on the founder has different characteristics and fewer strategic options. The value of that business is also less, so wealth creation needs to be addressed differently.

When to Renew

Does an established leadership team itself need renewal over time? Absolutely. Leadership teams age and businesses evolve. The team that gets a business from 15 to 30 staff may not be the team that gets it from 40 to 60 or from 70 to 100.

The strategic issues sitting on all leaders’ desks change as the business grows. The complexity of the challenge, the strategic implications of the decision, the size of the decision, and the need for anticipation of future issues (not just reaction to current problems) grows with the business. 

Not all leaders are ready for that, not all can educate themselves and grow themselves with the business, and not all are suited to a role with the bigger company. The founder’s job is to look after the business (and all the stakeholders), not protect loyal staff.

HHMC Global operates within the staffing and recruitment industry on equity transactions, market valuations and business growth advisory. Contact us to discuss further.