Management and Structure

[AndyF85]

Hi all,

Long time follower of the forum, only just signed up.

I have had a business for the last 10 years which manufactures detergents and disinfectants, manufactures plastic HDPE and PET packaging, and also imports chemicals for wholesale.

Our business is a B2B business, with most of the sales being done by myself with business relationships with other distributors (the finished detergents) or manufacturers (the packaging and chemical wholesale)

Over the last 2-3 years we have really started to grow, moving on from just breaking even to being able to re-invest healthy amounts of cash profit into new lines of products.

For personal reasons, i will have to be away from the business for lengthy amounts of time (perhaps away for 2 months, back for 2 weeks). I am looking to see if there is any structural way i can continue this growth we are currently enjoying, by being able to have someone replace me for the daily running and sales side of the company without risking the complete collapse of the place.

I will be able to be in communications with whoever could replace me for 3-5 hours of the day if needed.

What i am not worried about is theft and waste issues, as i feel as though those issues can be controlled through automation and CCTV.

What i am concerned about is how to maintain the growth of the company

- What type of payment structure should be suggested which will incentivise the replacement
- I am prepared to give equity to the new manager of the place, if it would mean that they would look more longterm at the job
- What practical steps are there, which would avoid the new manager just finding the suppliers and setting up a new company with our current customers? (by practical i mean things which can be done other than legal contracts etc)
- Is there anyone with experience who could also suggest any pitfalls of the entire thing which may not have been looked at?

I appreciate that maybe any replacement will not be as hardworking as i am about my own business, but i am also hoping that this challenge may turn into an opportunity, by looking into the possibility of getting someone who has more skills than me, that may help take the company to the next level.

Any help from the experiences here would help immensely!

 

[Ray272]

Is there not a healthy amount of work that could be done remotely?

The sales and procurement?

I know people who run companies from HK and work the UK and US timezones.

They use all sorts of tools:
VPN
Skype local numbers

 

[AndyF85]

The procurement i can do all by myself, as its mostly all from abroad done online or through calls anyway.

I think the Skype local numbers is a good idea to touch base with customers regularly.

But im not sure how to work a healthy pay package/commission structure to get the new candidate to keep pushing forward. The second issue, which may not be exclusive to someone who isnt in the office all the time, is how to make sure the candidate doesnt steal the customers and set up alone, i.e. how do i give him the best terms (also the best for the company) so he/she always knows they will be better off as an individual working inside this company?

Are there any books or literature people have read themselves which gives insight?

 

[tony84]

Is there no obvious choice in the company? Someone who has been there a while and knows the business but just maybe needs to learn a few extra bits?

You can put a clause in the contract to state they will not contact your suppliers/customers if they leave. You could also agree to make them a shareholder after 12 months if things go smoothly (obviously with set targets not just a vague offer)... hand it on a plate and it could be a case of easy come, easy go.

 

[Stas Lawicki]

I'm with @tony84 - try and hire from within. There are lots of reasons and benefits to doing this. Finding a new person who you trust enough with all the areas you have mentioned could be very difficult. Every new person is an unknown quantity and you would be a little unwise to grant somebody all that responsibility and control without knowing them well, and indeed, your other staff members.

As for equity. Do your other staff have shares? If not, why would you let a new person in to have some and not the existing team? Wouldn't that cause conflict?

There is only so much automation and remote monitoring that works. You can't replace the human contact and therefore (in my view), getting the right person or people in place to do the job is critical. Why not offer the job internally on a job sharing basis?

 

[AndyF85]

Thanks for your views. Just to add a bit more information, our company has only 4 staff including myself, with a turnover of 250k, so were not the biggest company, and thus there is no pool of staff to give support and fulfill this role.

I think the 1 year offer for a stake in the company is a positive suggestion ill take on board.

Are there any suggestions on how to motivate the candidate to keep them pushing, or is it just a simple commission structure for sales etc?

 

[AstEver]

Are your absences going to be temporary?
In general, performance-related pay encourages employees to focus on short-term activities and goals. Its potential to increase motivation has been questioned for a long time.

 

[Mr D]

Sounds like what you are wanting to do is move away from being a manager to being a director. Common enough for growing businesses though sometimes have to drag owners kicking and screaming into being a director rather than manager.

Its a change, it takes trust in your staff and either a manager who knows your business well or else someone from outside the business you can learn to trust.

 

[Mr D]

Are your absences going to be temporary?
In general, performance-related pay encourages employees to focus on short-term activities and goals. Its potential to increase motivation has been questioned for a long time.

Would profit share work instead?

 

[AstEver]

To me, it is no an either or question. The reward structure may be based on a combination of schemes, for a lack of a better word, such as performance, contribution, profit share and even service-related pay.

 

[Stas Lawicki]

It also depends on the individual. Most sales folk would expect commission on sales, bonuses etc. Few would be offered shareholdings.

Money isn't everything in a role so don't make the mistake of thinking that is the only way to motivate somebody/a new person. A lot of salespeople are too short-termist and therefore without some sort of affordable instant gratification, long term ideas (no matter how good), might not be correct. A year also isn't a great deal of time to decide whether to offer a chuck of your business to a relative newcomer. As per my last, what about your other staff? Why wouldn't they qualify (assuming they don't).

For a such an important appointment, take your time, work along side them and keep an open dialogue. Don't rush into giving away too much, and if you do, make sure you have the right contractual provision.

Finding the right personwith the right attitude could be a really positive move for your small business. Good luck finding the them.

 

[AndyF85]

Again thanks for the insight. I'm still fairly youngish (34), and i've bought this company up from 0 to something which i feel can hit the 1m mark within 2-3 years. All this information here is very valuable and am grateful for it.

I'm completely for profit share, i was thinking maybe 5-10% for profit levels now, and 10-20% for anything above?

Im taking this as a challenge, which even though is stressful at the moment, has the potential to take the business to the next level, if done correctly.

What are peoples views on bringing in someone younger (from a business and management studies) and supporting them? My thinking being perhaps they would appreciate the opportunity to take hold of such a position, and be able to grow it?

They may perhaps be less likely to try and use the information available to them and set themselves up as competition?

 

[AstEver]

What person do you need to help you reach the goals? What knowledge, skills, experience, potential, personality, intelligence, creativity, etc. will you need in 2-3 years?

Then, are you hiring in a tight labour market? What total reward would attract, retain and motivate the talent taking into consideration the market, competition and your organisation?

In my opinion, age is secondary.

 

[Stas Lawicki]

Again thanks for the insight. I'm still fairly youngish (34), and i've bought this company up from 0 to something which i feel can hit the 1m mark within 2-3 years. All this information here is very valuable and am grateful for it.

I'm completely for profit share, i was thinking maybe 5-10% for profit levels now, and 10-20% for anything above?

Im taking this as a challenge, which even though is stressful at the moment, has the potential to take the business to the next level, if done correctly.

What are peoples views on bringing in someone younger (from a business and management studies) and supporting them? My thinking being perhaps they would appreciate the opportunity to take hold of such a position, and be able to grow it?

They may perhaps be less likely to try and use the information available to them and set themselves up as competition?

Well done on getting the business this far - it't not easy and not everybody could have done that.

I personally wouldn't appoint somebody new out of uni for such an important role without the necessary experience. There are a lot of theorists but as we discuss on this forum over and over again, there is no substitute for experience. The world of work, as well you know, is very different to uni and people's expectation at that age is often very different to an experienced hand. That is not to say you shouldn't employ a younger person. I was 25 and running a million pound business, so if I can, so can most! Just be sure to find a balance between trusting the person to do their job but keeping a close eye on it. There are plenty of horror stories where people have handed over too much too soon and ended up in a mess. Perhaps you could reshuffle the roles a little and delegate more duties to others around the business, bringing in a competent person to fill the remaining duties.

The best way of ensuring people don't leave and setup in competition is to give them every reason to stay. You can't keep everybody but if the team buys into you and the vision for the business, are well looked after, paid well, treated well and have purpose in their jobs, they will be less likely to go elsewhere.

As the welsh farmers would say 'where there is livestock, there is dead stock'. You've got to accept the reality of running a business. You can't control everything.

 

[Socio South West]

Taking a longer term view of the situation, if the company is to grow as you perceive you are going to need this role permanently from hereon

I think you would be wise to hire a manager, salaried at this point. Subject to performance during your absences look at developing this to a profit share bonus package a little further down the line. There is of course nothing to stop you paying a bonus to any salaried person from day 1 if performance warrants it.

Personally I would be wary of incentivising a role for a new manager - there is a strong temptation for them to take costs back to the bone and sometimes beyond which is not healthy for a business growing as you state yours to be.

 

[Financial-Modeller]

You have mentioned that growth has enabled your company to launch new product lines @AndyF85

Can you determine (and share) whether the driver of future growth will be:

• selling more of your current products
• launching new products
• efficiency gains from scaling production of current and new products
• other?

The skills required for each are obviously quite different, which determines the terms on which you source those skills.

Focussing simply on the sales side, as others have already addressed this, a progressive bonus / commission structure is probably the best basis to recruit. If your hire turns out be great for your business, you can explore equity participation in due course. It would be unwise to give part of your company to an unproven stranger.

 

[AndyF85]

Thank you for the responses. Absolute gold

The growth will come from 25% selling more of our current products, and 75% launching new products.

We cut back to brutal levels in expenses a few years ago, so we are fairly lean at the moment, and i don't anticipate extra overheads for the new lines such as warehouse staff etc, so our overheads as a % of sales will decrease, further making us competitive.

 

[MikmakFer]

If you're looking to move away and step back, you need to get a handle on your Company via reporting.

You need to understand what your sales KPI's, operational KPI's and other business metrics such as cash are and receive a report or notification of them every week. That way, you can monitor the business progress - these KPI's are effectively what your business does to produce it's profit.

In terms of growth, you need to incentivise the staff based on the KPI's above as if the metrics above are achieved then growth is achieved. You also need to ensure that staff are assessed on KPI's they can influence.

When it does come to being absent, you want a managing director/general business manager who's responsibility is to manage the KPI's above and improve them and all you need is a weekly call to discuss progress - this will help you achieve what you're looking for?

In relation to trust and control, you might want an accountant or someone else you trust to pull together a monthly summary report as they are more independent and can possibly recognise any bulls**t that you're getting from a mile off. Also if you got an accountant to do this then you'd spot stock issues such as theft and the such like by monitoring your GP. If there are any material issues, they'd show up here.

In relation to your other points:-

1. How to incentivize - under no circumstances would I give equity away, you don't need to. Ensure that they've got a solid incentive plan based on KPI performance. If you do give equity away, ensure that there's a clause in their contract that states if they leave then the equity comes back off of them.
2. I can only think of legal contracts and clauses which would work because an employee has a fiduciary duty to an employer inherently not to mention that a director has a higher duty to do the best for the entity.

 

[Chris Ashdown]

Realistically we need more information on the company , what do the other three do in the company, when you say you need to be away for 2 months at a time, is that just away from the company or out of the country, who will be doing the selling whilst you are away or is that part of the new manager

Automation can be as simple as using a fulfillment center of buy in equipment or hire specialists to work part time doing specific jobs like accounts etc

At £250k you are not a large firm and would face massive risk being away with a new person running the company, and its far harder to get to £1 million than from £1 mill to 5 mill, so is your projection realistic

With communications so good nowadays you can easily still run the company from afar especially if you hire middle manager to control the workforce and re-route all incoming calls direct to yourself for the five hours you say are available

Forward troubles is what happens to existing staff on holidays or sickness, 3 is a small number of staff, to provide coverage

Myself I would consider hiring a full time manager to run the office, keep control of the clients and purchasing to yourself, offer no shareholding or directorship but a wage in order £30-35k if outside London is still a good wage and see how it goes for the first two years( up to that time you can always let them go if they are not up to scratch). Spend at least the first 32-3 months with them to teach what you need them to manage

Get a solicitor to draw up contracts with no compete and data security clauses for all your staff

If just bottling and dispatch consider sub contracting the work out so you are just a office rather than needing staff but may not be possible

 

[Guy Incognito]

Profit share would be my suggestion - maybe with payments staggered over the following couple of years like banks now do.

I'm surprised there is so much left with 4 employees and a turnover of £250k but congrats on having very good margins!

My wife was a similar age when she started our business 3 or so years ago. We went £50k > £400k > £1.5m in turnover and now have 5 employees but none of them are on a profit share. We didn't hire our first employee until we reached the £1m mark.

We're looking to train and promote someone internally to run certain parts of the business to allow us to step back a bit as we continue to grow.

 

[GiggiAt]

You will need to find someone who will dedicate just as much energy and create a relationship with the individual as if its your partner and make sure they know your rely on them and that they are appreciated. Also, constantly ask for feedback from them, about everything, from the way things are run to the company culture. Pay incentives are a good way of getting people to emotionally invest their time in the business as well.