Reducing founder and owner dependence – what I call 'concentration risk' – is one of the most common challenges I see in growing businesses. I call it the general management syndrome.
It shows up differently in every business and it applies across industries and sizes. Typically it hits hardest in businesses going through rapid growth and scaling, often somewhere between $5 million and $100 million in turnover, though it can happen outside that range too.
The advice that sounds right but usually isn't
I regularly sit in advice meetings with business clients alongside accountants, solicitors, business coaches and advisors. The conversation often goes the same way: “Your business is growing so well but it's highly dependent on you. You need to get a general manager.”
On its own, that is dangerous advice. It gets pitched as the silver bullet to growing a business to the next level – “go find a general manager” – as if the hire alone solves the problem.
Here's why I'm sceptical.
When I do business valuation work and help clients contemplate a sale process, I typically find that out of every 10 clients' financials I review, five have had some evidence over the past five years of employing a general manager or senior staff member as part of a succession process.
Of those five, usually only one still has that person on staff by the time I review the business. The success rate for recruiting general managers to support succession is not high.
War story one: two trains on one track
About 2 and a half decades ago, one of my first clients was a national electrical services business with three founders. The business had been running for more than 10 years, was turning over about $80 million and was scaling fast – busting at the seams. The founders had high-level technical expertise but no real strength in people management or overall general management and operations.
They took independent advice and appointed a general manager so they could step back and focus on the business at a higher level. Not long after, I got the call: “James, we can't take it anymore. We've lost control of the business. We need you to remove the general manager.”
It wasn't the general manager's fault. He'd been told the business needed help running things day to day and he took that seriously – control of the business, strategic direction, key decisions financial and otherwise, a team aligned to his vision. The problem was that his direction wasn't aligned with the 3 founders' direction. Two trains on one track heading straight at each other.
The general manager genuinely believed he was doing the right job. The real issue was that the founders' expectations of the role were never made clear at the outset. It ended in a mess, with no surviving general manager and the founders forced to take back control and pick up the pieces.
Where did it go wrong? The founders skipped the first and most important step: thinking clearly and in detail about their expectations for the role – what it should and shouldn't do and how it related to what they would keep doing themselves. They were effectively wearing two hats – a quasi board role and a specialist role inside the business – but they weren't used to handing over leadership of the team.
The team felt it too. There were grey areas of accountability. People didn't know whether they reported to the general manager or the founders. It created a dysfunctional culture and a business that started spinning its wheels, made worse by a lack of strong, robust and accurate reporting.
War story two: the value of patience
Contrast that with a foodservices and wholesale business I've worked with more recently, turning over about $35 million with three decades of history. One owner built it from scratch. The management team was small and strong but getting a bit long in the tooth and in need of refreshing.
By the owner's own admission the business was very dependent on him. “James, I don't want to sell, but I want the option to step back or potentially sell part or whole if the opportunity arose. And I know that if that opportunity arose now the value would be diminished because all the key decisions are in my control.”
We worked with that owner over 3 and a half years to identify a couple of key management people to refresh the top bench, including a general manager. Yes – 3 years to make an appointment. That wasn't slowness for its own sake. It was a deliberate focus on getting clear about expectations: what the roles would do versus what the owner would keep doing and, critically, the strategic fit of each candidate.
Did they have the technical expertise to have credibility with the broader team? And just as importantly, did they have the human communication and cultural behaviours to fit the business's culture? Answering that question properly against real candidates over that period meant being very patient to get the right person.
That patience paid off. The general manager has now been in the role for several months and is proving to be a real asset – someone who genuinely makes 2 heads more valuable than one at the table.
The best GMs value what the owner brings
The very best general manager you can recruit is one who recognises the value the owner adds to the business. Most general managers need to be tied closely to the founder or owner.
There are certainly owners who want to step back entirely and be a shareholder who approves the business plan once a year. But in many cases the owner still wants heavy involvement because they carry significant risk in the business.
A general manager or senior person you recruit to reduce that concentration risk needs to accept, understand and work closely with the owner – complementing their objectives while still adding value, challenging, driving and developing the business.
Ultimately they need to understand they're doing this for the shareholders and the founder. There are issues on both sides here: being vulnerable enough to mesh together and work jointly when, as an owner, you've been used to doing it all on your own.
Understanding how a prospective general manager is likely to operate in that dynamic – before you make the appointment – is critical to getting the right person.
Even I've fallen into this trap
I've made these mistakes in my own business too. I've recruited a couple of general managers over the years and, looking back, both appointments were failures – not because of the people themselves but because of how I recruited them.
I made the same fatal mistake I've described above: not being clear on my expectations upfront, and not just at the high level. The detailed, day-to-day questions matter – who does what, where the accountabilities sit and how the role fits the vision for the business.
The other area I failed in was being too impatient. I recruited people I felt were right for the role based on a positive view of them in another context outside my business. That's where I was fooled – I didn't take off the rose-coloured glasses and assess them objectively against what the role actually required.
This is a pivotal hire. It shapes the future of your business, so it's important not to get it wrong.
Three keys to getting it right
1. Get specific about your expectations. Figure out in detail what you expect from the business over one, 2, 3 and 5 years, and what you expect from the role and the person in it versus what you will keep doing yourself. Be clear – not vague.
2. Be patient and assess cultural fit. Take a cautious, detailed approach to assessing candidates against your requirements. Measure and assess cultural fit specifically, and evaluate the degree to which they can lead and manage while also integrating and working collaboratively with you as owner – testing and driving the business forward rather than just falling in line.
3. Build accountability and reporting in from day one. Make sure there's a clear level of accountability for the role and measurement systems that allow for robust and accurate reporting – so the manager is accountable to you and the team is accountable to the manager. If your reporting systems aren't yet where they need to be and part of the reason you're bringing in a GM is to fix that, have a transparent conversation about it upfront. It's fine for those systems to start at 6 out of 10 if part of the role is bridging the gap to 10 – provided you're honest about that from the start and keep your own influence over the business where your expertise still matters most.
Getting the reporting and systems right, and keeping them simple, is central to a general manager's success – and to genuinely lessening your concentration risk as a founder or owner.
If you are worried that your business is not saleable, or will be marked down due to owner risk, don’t fall into the GM trap. Get some valuation advice that is actionable around addressing the real and practical management diversity needed in your business. Feel free to contact the JPAbusiness team for a confidential, initial discussion to get started.
