The right stuff

Real leaders know that starting up a business is one thing and running it is another.

The Sydney Morning Herald, April 19, 2005

the_right_stuff

When Graham Baillie was preparing to sell a majority share of his $85 million company, Outsource Australia, he looked in the mirror and asked himself if he had the skills required to lead an organisation whose turnover would leap to around $170 million.

Baillie’s company had achieved annual growth rates of 30 per cent since its launch in 1994. By selling a 75 per cent share to New Zealand Post’s Datamail last year, Baillie knew he would be better positioned to aggressively compete against global players in the business process outsourcing market.

He also knew it was time to examine his own strengths and weaknesses, and what additional skills he might need in his transition from entrepreneur to organisational leader.

Baillie, who sought assistance from executive coach Sarah Cornally of Leading People, believes too few business leaders are prepared to take a hard look in the mirror.

“We tend to think we are perfect and we tend to blame others when things go wrong,” he says. “I’m a human being, I make mistakes, and I wanted to make sure my strengths were aligned with what was needed to take my business to the next level.”

Baillie recognised different strengths were required of the entrepreneur who rolls up their sleeves and does everything in a start-up business, and the leader who must be able to adapt, change, develop their people and ensure skill sets are aligned with roles.

“It’s so important to get good people with clearly defined roles, get them all to understand your objective and aim towards it, then celebrate when you win. You find they take ownership, and that’s important for growth.”

Cornally says not every entrepreneur is able to make this transformation to organisational leader.

Many are turbo-charged individuals who excel in the start-up phase when the business is of a size they can personally control.

As it grows, they need to start transferring ownership to others, and learn to lead through influence rather than direct approach.

“That’s not their strength,” says Cornally, “but for the business to consolidate it requires a different orientation.”

Some entrepreneurs take up a strategic or business development role and recruit an executive to run the organisation. Others stay at the helm, but relinquish complete control as they form a team that drives the business.

“They understand what they’re not good at, and who is good at what. But these people are few and far between,” Cornally says.

Those who refuse to recognise the need for change are lacking what Cornally defines as “one of the most crucial abilities in business” – that of facing reality and dealing with it.

Denial is generally the result, and Cornally detects it in leaders from highly experienced CEOs who are concerned about losing face to start-up CEOs who stand to lose their dreams.

She feels it is essential for such executives to talk to someone they can trust, who has business acumen and experience and can enable them to face reality without feeling inadequate, bad or wrong.

Dr Chris Hall, associate professor in management at Macquarie Graduate School of Management (MGSM), says there are three possible causes for CEOs refusing to face reality.

The problem may be dissonance (executives cannot admit they are not as good as they say they are), ignorance (a lack of leadership abilities, which could be taught) or trust (an inability to listen to advice and trust it).

“If it is just ignorance, you can solve it with a consultant or a special mentor. If it is trust or dissonance, then there is a more complex and pervasive set of issues. A coach may help, but may not be enough.”

To assist entrepreneurs pinpoint where their skills really lie, Hall suggests they look at where their business can go, and how far they and their management team can take it.

“There is often a huge gap,” says Hall, who has developed a skills assessment spreadsheet to force entrepreneurs to think ahead to each stage of the business.

“It is one of the reasons venture capitalists tend to look first, second and third at the management team and how they fit, and if they have been through this before,” he says.

Dr Tom McKaskill, professor of entrepreneurship education at Swinburne University’s Australian Graduate School of Entrepreneurship, says executives should understand if they are best suited to a particular growth stage of a venture.

Some are starters, some are builders and some are minders. And not everyone wants to – or is able – to delegate.

“You can learn from others, but if it is not in your nature to alter your management style, you are better to sell out and let someone else take it to the next stage”, he says.

McKaskill says being able to share needs and fears in a confidential forum is essential for stress management and psychological health, but good business advice is also needed.

“Many entrepreneurs have grown into their job and don’t have the business education or larger company experience to guide them. Getting some experienced people on the board or in an advisory capacity is essential in a growing business.”

A key benefit of external advisors is their “impartial and fearless advice”, according to Duncan McKenzie, executive chairman of building surveyors McKenzie Group Consulting.

“You have a completely different relationship with someone who is outside the business. That person is not relying on the business for their income as an employee would be. You’re liable to get far more impartial advice, and far more fearless advice.”

McKenzie formed his building surveying company 17 years ago, and in 2000 began a mentoring program with Neville Christie, executive chairman of CEO Mentor Pty Ltd. Christie later became a board advisor.

McKenzie, who turns 56 this year, was concerned about succession planning, as well as his own place in a growing business that employs nearly 40 people, turns over $5 million annually and has offices in Melbourne, Sydney and Brisbane.

McKenzie and Christie spent “many, many hours” working through the group’s structure, service agreements, the best way to move the business forward and a succession plan.

After relinquishing the role of managing director to a younger colleague in 2003, McKenzie became executive chairman, reduced his shareholding to 30 per cent and now works three days a week in an overview role.

“I recognised there would be problems if I tried to hand over responsibility but maintain control. I can understand how people who build businesses have a huge amount of difficulty doing that – some people never get over the need to strive, grow and improve their business.”

Christie, who specialises in advising fast-growing small to medium enterprises, finds CEOs are most likely to call for help in the very early stages of the business or at the “fear stage” when they employ around 10 people and are facing growth issues.

“They need advice in areas where they or their team don’t have competency,” says Christie, who believes the increasing complexity of the business environment and the speed of change mean few entrepreneurs have all the skills required to successfully run an organisation.

Acknowledging many SMEs are “desperately short of cash” to pay advisors, Christie says a small retainer plus a success fee for agreed achievements is preferable to a straight consultancy fee.

“You are then moving from a cost to the business to an added value. You are helping generate the revenue and the profits – then you get paid,” he says.

Case study

But what of the start-up business that can’t yet afford to employ staff, let alone pay an advisor?

Lily Jhang, who spent 10 years in corporate marketing before launching her Peony brand in late 2003, says this was one of the major challenges in her first year of business.

“I was working crazy hours, it was the first time in business for myself and I was not confident about making some decisions,” says Jhang, who constantly talked to friends and any business people willing to listen.

Peony began wholesaling very high quality bedlinen Jhang had made to order in China, but she discovered this generated insufficient volume and revenue. She expanded into silk, wool and cashmere scarves and wraps that are now sold through more than 110 stores around Australia.

Jhang last year found an informal mentor in Dr Chris Hall of MGSM, who had been her lecturer at the University of Technology Sydney when she did her MBA 10 years ago.

He invited her to attend his MGSM lectures on new enterprise management, an experience Jhang says was invaluable because it made her focus on timelines, deadlines and an exit strategy.

She consequently set a deadline for a decision on distributing the bedlinen.

“I will give it another six months, and if it still doesn’t take off I will drop it,” says Jhang who, on the upside, is targeting 200 outlets for her scarves and wraps by the end of 2005.

Breakout

The lives of entrepreneurs can be lonely, says Professor Tom McKaskill of the Australian Graduate School of Entrepreneurship.

“They carry the responsibility of the payroll and stewardship of shareholders’ investments, but there is no one to look to for advice and guidance. Associating with like-minded individuals is very important,” he says.

Forums and websites that can assist entrepreneurs at various stages of their company’s growth include:

  • The NSW Department of State and Regional Development’s small business website (www.smallbiz.nsw.gov.au) features resources and links to networks and events for groups including home-based businesses, exporters, women, Aboriginal businesspeople and youth in business.

  • The Victorian Department of Innovation, Industry and Regional Development’s website (www.business.vic.gov.au) offers comprehensive small business advice, including workshops for new business owners.

  • Both state government have established a number of Business Enterprise Centres – visit www.becnvic.com or www.becnsw.com.au

  • The NSW-based Australian Business Limited assists members with advice on a wide range of business issues – visit www.australianbusiness.com.au or call 13 26 96.

  • MGSM Networker started as an alumni group for MGSM graduates, but now has a mix of graduates, students, entrepreneurs, investors and business professionals. There are no joining fees or fees for regular networking events – visit www.mgsmnetworker.net

  • The Executive Connection (www.tec.net.au) has chapters in Melbourne and Sydney. Members must be CEO of a company established for at least two years, with a turnover of $1.5 million-plus. Call 02 9922 2211 or 03 9818 6209.

  • Young Entrepreneurs’ Organization members are aged under 40 and are founders, co-founders, owners or controlling shareholders of businesses with a turnover of $1 million-plus. YEO has chapters in Melbourne and Sydney – visit www.yeo.org.au

  • The CEO’s Institute (www.ceo.com.au) is for leaders of organisations with an annual turnover of at least $2 million – call (02) 9904 3744 or (03) 9563 5388.

  • Victorian Chamber of Commerce and Industry services include training, networking and consulting – visit or www.vecci.org.au or call (03) 8662 5333.

  • The State Chamber of Commerce (NSW) has resources for small to medium businesses, including the Enterprise Club. Visit www.thechamber.com.au or call 1300 137 153.

  • The Australian Institute of Management has a comprehensive range of training programs and events in NSW and Victoria – visit www.aim.com.au