Durable Management Structures At Middle Market Firms: Q&A With Moss Adams Partner Steranka
Just about every growth company hits the wall at some point, its increasing sales and client numbers overwhelming the founders’ ability to manage. In these companies, all decision making is routed through a founder. All the customers are brought in by a founder. And key decisions on finance, hiring and technology are made by a founder.
It’s a prescription for a crippling bottleneck, one that can, at worst, drive away a company’s most valued employees and even its customers. There has been a lot of discussion lately around the magic number of employees a founding team can effectively manage before hitting the wall, with this smart article settling on 150 workers. I’ve seen companies hit the wall earlier, and later. But the good news is that the process of curing these bottlenecks – when done correctly – sets a middle market company up for a second, more sustainable phase of growth, enhances the value of the company, and often improves the founders’ quality of life.
This issue was in the back of my mind when I sat down recently to visit with Mark Steranka, consulting partner at Moss Adams. With a staff of more than 2,500 – about 300 of them partners – Moss Adams, based in Seattle, is one of the country’s premier middle market accounting and consulting firms; Moss Adams has offices around the Western U.S. and clients spread nationally. As such, it’s a great place to take the pulse of middle market companies and, with them, the vitality of the U.S. economy. Following are excerpts from my conversation with Steranka.
What kind of problems are clients bringing to you these days?
The good news is that many of the problems our clients are experiencing revolve around growth. The issue may present itself as strategic, or involving marketing, or supply chain, or financing. But more and more, we see the solutions revolving around people — hiring and retaining the right individuals and then successfully and fully involving them in the business. There’s often a lot of problem-solving firepower at these companies that hasn’t been tapped.
A classic example is a recent project we did for a manufacturing company. Four founders had their hands in every decision, even as they grew to about 60 employees. And the founders were feeling overwhelmed, even as significant new growth possibilities presented themselves. There was no clear middle management or next layer.
We helped them identify the skills they needed to fill out an operating team that would support a larger company. Then we surveyed in-house talent. It turns out, two thirds of what they needed was right there. This is no ding against the founders. This happens all the time. Everyone’s too busy to change the way they do things, too busy to delegate, if you will. Taking a deep breath and a fresh look at the team often results in discovering hidden value, we find. For a third of the skills, they went outside. We helped them develop a compensation plan to reward this team, and to tie it to the company’s long-term success.
Yes! The best part was, when we visited with the company a year later, the founders said that employees at all levels had stepped up to take more responsibility. I think seeing a half dozen employees promoted and given management responsibility was a signal to everyone that there’s upward mobility. The founders are young, mostly in their 40s, but now they’ve got potential successors and a platform for growth. The company’s a lot more valuable, as a result.
As I recall, you left Moss Adams for about a decade, taking marketing and sales leadership positions at operating companies, including Flextronics. Did that help you as a consultant?
Sure. Companies are changing so fast these days – through acquisitions and divestitures, by adding new technologies – that line management can seem like a series of consulting projects. And things move fast. So it probably made me more flexible – less tied to any one way of solving a problem. And it really helped me see the value of identifying the right people to lean on. A great strategy without the right people to implement it isn’t going anywhere.
How about companies that aren’t growing – they’re either static or shrinking?
That’s painful and sometimes they have to reduce headcount. But we find those same companies also often need to develop a team that can operate independently of the founders.
We did a project for a large architectural and engineering firm recently. Like everyone in their industry, they were hit hard after the 2009 financial collapse. The founders were in their 50s or 60s and, all of a sudden, what had been expected as a comfortable exit time turned into difficult rebuilding. But it was great to see them pull it off. Just like our growing manufacturer, they had to build a new layer of managers and empower them to bring in business and make difficult decisions. The firm was about 100 people. Once again, I think their bench was deeper than they’d realized. They had to install a new compensation system. And when building activity picked up again, they had the right team to resume growing. After a painful few years, they’ve emerged as a stronger company, one that can prosper even if the founders depart. To me, that’s a true sign of success.
High employee engagement is how you build good companies. It requires founders to redefine their roles. Some don’t do that until a crisis hits. But thankfully, more and more leaders are realizing they’ll succeed best by getting other people at their companies to step up and lead.