- What a leadership team does
- Who should be on a leadership team and why
- How to identify potential leaders
- How to make sure all members of the leadership team are on the same page
- Why everyone needs critical numbers
Effective leadership is one of the most important pillars of any organization. Good leadership listens, inspires, and gives direction. It creates a common goal for everyone to strive for.
The best way for any business to ensure effective and disciplined governance is to create a robust and capable leadership team. This can be difficult when you’ve only recently taken ownership of a company, but the sooner you’re able to identify the leaders at a company and design your team around them, the faster the company is going to grow.
Creating a leadership team is more than simply having different department heads overseeing their employees. It’s about creating structured communication between all segments of an organization so that it can run as efficiently as possible.
Before you can start creating your team, first we need to understand exactly what a leadership team does and why.
What Does A Leadership Team Do?
The primary goal of a leadership team is to ensure the business is both proactive and reactive. An effective leadership team makes sure that everyone has goals and is working towards improving the business, and not just only reacting to problems as they arise.
Sets and Maintains a Unique Culture
While the primary goal of an effective leadership team is to ensure people are working to improve the business, their secondary objective must always be to instill company culture wherever and whenever they can.
In order to achieve this, the business owner needs to know what culture they want to promote and then communicate it to their leadership team. The members of the leadership team then become advocates for that same like-minded culture within the company.
In order to create the best culture possible, it’s important to have a diverse skill set in the business and people from different backgrounds with unique life experiences. This allows for a rich diversity of opinion that can be drawn on in guiding the company and leading people effectively.
Core values are an indispensable tool for maintaining a high standard of speed. Those values, once instilled, will guide decision-making and let the company make decisions from the bottom up. This allows managers to trust that their employees are making the right decisions at any given time and being great representatives for the company.
Builds The Brand and Unique Identity of the Organization
They should all understand who the customer is and how the company plans to market to them. This allows for a holistic understanding of the overall strategy and differentiation of the organization.
In Scaling Up, Verne Harnish discusses the concept of the 7 Strata of Strategy, which is a very useful way to look at a business’ strategy.
- Own a word in your customer’s mind – This isn’t about having a snappy slogan for customers to remember you by. Instead it’s about finding words that guide the organization to create the external expressions its customers will experience. Declare a Brand Promise – A business should offer such a unique brand promise and be so good at it that customers won’t care if it’s bad at everything else.
- Establish a Catalytic Mechanism (Brand Promise Guarantee) – This can also be thought of as a brand promise guarantee. Essentially, now that you’ve made a brand promise declaration, you need to establish the “catalytic mechanism” that makes it painful to break the promise. An example of this is Dominos offering free pizza if it isn’t delivered in 30 minutes or less.
- Create a One-Phrase Strategy – Once a business establishes its brand promises, it needs to sub-brand them with a single-phrase strategy. Something that is easily communicable and easy to remember.
- Outline Differentiating Activities – These are the activities that a business can use to differentiate itself from other businesses that may have the same word or two. Any business can create the same brand promise, it’s the actions it takes that will set it apart. For example, Southwest Airlines was able to differentiate its pricing to create lower fares by waiving its baggage fees.
- Establish Your “X Factor” – This is something that is usually hidden from the marketplace. It’s the business’ hidden advantage that would give a company a 10 to 100-times advantage over your competition.
- Measure Your Profit per X and BHAG – This is when you boil your strategy down to a single metric. How do you measure your success? What number needs to go up in order to prove that you’ve succeeded at your goals? A BHAG is a “Big Hairy Audacious Goal.” In Scaling Up, the unit measure of the BHAG is the same as the unit measure of the “Profit per X.”
In Acquira’s case, our goal is to own the words “systems” and “SERVE” in the minds of our customers.
The leadership team should always be looking to promote, support, and celebrate a company’s culture.
Maintains A Financial Understanding
Every member of the leadership team should have a basic level of financial understanding. Of course, you can’t expect every person to be an accountant or a Harvard Business School graduate, but they should at least be aware of the financial goals of the company and how those goals impact their department.
Some key skills that they can brush up on include reading (and understanding):
- A balance sheet
- A P&L (profit and loss) statement
- A cash flow statement
- An annual report
Learning how to read and understand these common financial documents should be encouraged. It can help to hold regular workshops to help people gain an understanding of the business’ financial state. Workshops also provide an opportunity to teach a more nuanced financial understanding that can only help the business moving forward.
Sets Goals To Expand The Company’s Capabilities
Each member of the leadership team should always be thinking about how to expand a company’s capabilities. For example, the marketing team may set an objective to grow the mailing list by 4,000 subscribers. Once that goal has been attained, the overall capability of the company to reach more people has grown.
This is done through OKRs, which are a management tool designed to increase the capability of a department. OKRs have two components: The objective you want to achieve and the key results by which you measure your achievement. OKRs are overarching objectives with key results to measure how successful those objectives are.
OKR is an acronym for “Objective and Key Results.” A great leadership team will use OKRs to create projects that, once completed, will extend the capabilities of the organization. Their purpose is to focus employees on unified goals while increasing discipline. An effective OKR must ensure that each team and its leader are working toward the same purpose.
Under this system, every person has a number that they are responsible for. In the case of the marketing team, it may be one person’s job to create two pieces of content per week, another person’s job to create one piece of video content per week. A third person’s job might be to write two newsletters each week and send them out to subscribers. Then there is a person who oversees the analytics and makes sure that the team is on track to meet the objective of 4,000 subscribers.
Who Should Be On A Leadership Team?
When we say “leadership team” we don’t necessarily mean an executive leadership team. The team should comprise executives and managers from each business unit of a business.
Looking at it numerically, a leadership team should have a minimum of three people who are not technicians or customer-facing employees. Managers should manage while customer-facing people should face the customer. This ensures efficiency because each individual is concentrating on a specific task.
The team should include the owner or Acquisition Entrepreneur; the GM of each business unit (for example, if a business does service and contracting, it would have a separate GM for each); the people and culture person; the finance person (ie: the CFO or controller). It should aspire to include someone who manages revenue (sales, marketing, and growth). The team will likely also include key front-line managers (ie: the service manager for service, the superintendent for contracting).
Every company should have two people who know project management and two people who know process creation on the leadership team.
While the leadership team can have each of those people, in order to avoid becoming too bloated it should have a maximum of one person for every six employees in the company. So, if a company has 36 people working for it, the leadership team can have a maximum of six members.
People & Culture is a similar role to the traditional Human Resources Department. However, we believe it’s somewhat untoward to refer to our employees as resources. Instead, a P&C Person can handle all of the typical HR duties like vacation requests and hiring while also having a specific mandate to promote and instill culture. Any top management team should include a People & Culture person
Identifying Potential Leaders
As the saying goes, leaders aren’t born, they are made.
To that end, any competent business should strive to identify people who exhibit natural leadership qualities. These are the type of people who others follow, and cultivating their natural talent will help you get buy-in for any new strategic endeavors the business might want to undertake.
Basically, it’s a lot easier to get everyone to put in extra work to achieve a goal if there’s someone they already look up to who is passionate about the idea.
In order to identify potential leaders, a new owner should begin by asking the seller if there’s anyone who stands out in the organization. The new owner should also make a point of asking specific questions during one-on-one meetings to find out who people are most drawn to.
Some questions you might ask include:
- Who do you look up to?
- Who do you like working with?
- Why do you like working with them?
You’ll begin to notice the same names crop up in different interviews. Once the one-on-ones are complete, you should also hold physical group meetings and watch who physically flocks around whom and who is comfortable speaking up.
Cross-reference the names you gather from the one-on-ones with the people you witness at the meetings – these are the natural leaders within the organization.
Keeping Everyone On The Same Page
One of the greatest challenges in any relationship is communication. Whether it’s between husband and wife, the CEO and COO of a powerful company, or two friends playing on a playground, communicating what you want, feel, and think is a difficult undertaking.
An effective leadership team will have a structured communication cadence or rhythm to ensure everyone is on the same page.
An effective leadership team will have a structured communication cadence or rhythm to ensure everyone is on the same page. Regular meetings should be established between the leadership team and between the individual leaders and the people they oversee. This creates a culture where ideas can flow both up and down.
After all, you want to hear from the people in the company who are actually dealing with customers on a regular basis. In order to achieve this, you need to create a culture within the organization where it is okay to bring ideas to the leadership team.
For example, a regular, daily stand-up meeting can be very useful for ensuring everyone is working in tandem. The team must be disciplined at keeping these meetings under 10 minutes in length or the meetings risk becoming burdensome.
A Leadership Team Creates and Communicates Critical Numbers
It’s been said before that “what gets measured, gets done.” In order to ensure that things get done and the company truly grows, each member of the leadership team must have a Critical Number that they are responsible for.
There are a few critical numbers, specifically:
- Departmental missions, associated deliverables, and their success metrics; and
- Quarterly themes and their associated critical numbers
These numbers are different from OKRs, and they must correspond to a section of the P&L (profit and loss statement), balance sheet, or to a section of the company flywheel.
Those leaders then design their goals around that number. Once the leadership team has been built out and the company has been fully integrated, those critical numbers should be consistently met.
Departmental Missions
Each department of a company should have its own defined mission, and connected to that mission are a set of deliverables and their success metrics.
For example, the Head of Operations is concerned with the company’s profitability and so she sets a profitability goal. She then creates an initiative to help reach that goal – say, increasing the efficiency of the supply chain. Her key metric then would be profitability vs budget – the company sets a budget for the year and she ensures her department hits those targets. The difference between profitability and budget measures how successful her initiative is.
The Head of Marketing worries about how much revenue the company brings in, but what metric can he use to judge his success? That person might choose click conversions, website traffic, or cost per client acquisition.
Quarterly Themes And Their Associated Critical Numbers
Obviously, all metrics are important, but the Critical Number is the main priority that must be measured above all else. When looking for the critical numbers associated with quarterly themes, begin by making a list of all of the tasks that need to be accomplished, then look for a common denominator that impacts each of those tasks. Then find the one task that every other task depends on to be completed.
You might think of this as the first domino in a line of dominos, or a specific bottleneck that needs to be addressed first.
For example, the General Manager or owner of a manufacturing company may set a specific cash target for the year. Each member of the leadership team must then choose a critical number for the quarter to help reach that target. The Operations Manager could look to reduce the amount of money spent on parts to repair machines, which would save them significant money and contribute to the cash goal.
A Note On Company Size
Many of the businesses that our Acquisition Entrepreneurs buy are small independent companies with not many employees. It might seem premature to start thinking about installing a leadership team for companies on the smaller side.
However, if you want to eventually sell these companies for a higher multiple than what you paid, you need to grow them. The only way to build out a company like this – one that sets goals and meets them, one that has a distinct vision, and is properly systematized – is to have the right people overseeing the daily operations.
As we said earlier, a leadership team should have a minimum of three people who are not technicians or customer-facing employees. Even a company with only ten employees can benefit from a three-person leadership team – usually the owner/AE, the GM, and the P&C person.
As the owner of a business, you can’t be responsible for everything. By putting the right people in charge, you can ensure that the correct culture is communicated at all times and everyone is working towards the same goals.
Conclusion
Building out an effective leadership team is part of the training we offer at Acquira. It’s an important step for any business that wants to grow at a respectable rate. Who comprises the leadership team and what they’re each responsible for is one of the most important decisions that an owner or manager will make.
Acquira can help you build your leadership team and grow your business – or help you find a company if you’re still looking for a business to buy. Please schedule a call with us to learn how.
Have you had any particularly bad experiences with a boss or leader? We’d love to hear about it in the comments below.
Key Takeaways
- To ensure effective and disciplined governance, a robust and efficient leadership team is needed.
- The leadership team is in charge of tracking numbers AND maintaining and promoting company culture.
- Potential leaders should be sought out from within the organization.
- Structured communication ensures that all members of the leadership team are on the same page.
- Each member of the leadership team should have a critical number that they are responsible for.
Acquira specializes in seamless business succession and acquisition. We guide entrepreneurs in acquiring businesses and investing in their growth and success. Our focus is on creating a lasting, positive impact for owners, employees, and the community through each transition.
