“Your business is too dependent on you. You need to hire a general manager.” It’s advice I hear regularly in meetings with accountants, solicitors and business advisors, and on its own it’s dangerous.
Reducing founder and owner dependence – what I call ‘concentration risk’ – is one of the most common challenges in growing businesses.
Hiring a GM is often pitched as the silver bullet, but the numbers tell a different story.
When I review financials for valuations and sale preparation, about half of the businesses have employed a general manager or senior person as part of a succession process in the past 5 years. Usually only 1 in 5 of those hires is still there by the time I look.
It’s not you, it’s me
The difference between a GM hire that works and one that doesn't is rarely the person.
In one of my first engagements, a national electrical services business turning over $80 million appointed a general manager so the 3 founders could step back. Within months I was asked to remove him.
He wasn't the problem. The founders had never made their expectations of the role clear, and the business ended up with two trains on one track.
By contrast, a $35 million foodservices business I worked with more recently spent three and a half years getting clear on the role and finding the right fit. That patience paid off and the new GM is proving to be a genuine asset.
3 keys to getting it right
What separates these outcomes comes down to 3 things:
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Get specific about your expectations: what you want from the business over the next one to five years, and what the role will do versus what you'll keep doing yourself.
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Be patient and assess cultural fit, including whether a candidate can lead the team while working closely with you as owner, rather than simply falling in line.
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Build accountability and reporting in from day one, so the GM is accountable to you and the team is accountable to the GM.
I've made these mistakes in my own business too, and both GM appointments I made failed because of how I recruited, not who I recruited.
This is a pivotal hire that shapes the future of your business, so it pays to get it right.
New video digs deep into the GM trap
In my latest video I expand on the stories above, explain what the best GMs bring to the owner relationship and cover the 3 keys to success in more detail.
I've also written an extended blog on the topic, if you prefer a deeper read.
If you’re 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.
