Self-Managing Company

In my previous blog, I talked about personal development and mentioned that I use Strategic CoachⓇ for personal coaching. I also explained why I feel personal development is so important for every entrepreneur. I truly believe that every entrepreneur should look for a company, organisation or person for their personal development. 

One of the concepts that I learned from Strategic CoachⓇ, and this is straight out of their playbook, is the concept of a self-managing company. The reason I want to talk about this is because I have absolutely used this concept in my thinking for the strategy and development of my company. Therefore, I think it’s important to talk about it. 

The concept of a self-managing company, like a lot of these management concepts, isn’t necessarily something new. But sometimes you need someone to talk to you about a concept in a particular way and provide you with tools that allow you to get your thinking down on paper with some outcomes and actions. That’s what Strategic CoachⓇ did for me with self-managing companies. 

What is a self-managing company?

A self-managing company does what it says on the tin. In fact, I’d say most entrepreneurs and business owners aim for this. You want to build a company that doesn’t require you on a regular basis. You want to build it so that you’ve got the right team, the right structure and the right process in place. When you’ve got all of those key ingredients in place, it will allow your company to run and continue to thrive when you’re not there. 

When you get to that point, you’ve got options as to what you want to do next, which I’ll come on to a little later in this blog. The self-managing company concept really resonated with me. I realised that it was what I needed to work towards and to achieve so that I could sell the company and not have to work with the new company for a long period of time as part of the handover because the company would run without me. This was important for me because I wanted to minimise the amount of time I was with the new organisation. 

Selling the company is just one option though and that isn’t for everybody. The other option is to run it as a lifestyle business. It could be that you get to the age where you want to put your feet up a little bit, work fewer hours and play more golf. Personally that wasn’t for me. It might be that you want to go away and work on another project that either is or isn’t related to your existing business. If you’ve built a self-managing company that might mean that you’re moving into a chairman-type role where you’re there for the board meetings and to advise, listen to issues and help deal with those issues, but this actually doesn’t take much of your time and the business runs very well on its own and continues to develop and thrive. 

If you get to that stage, you can certainly put your feet up and play more golf, or you can look at another idea that you’ve had burning inside you for the last couple of years, just waiting for the opportunity to go and pursue it. Either way works. 

Start with the right-fit team

The first thing that I looked for, and what I feel is the most important thing in terms of creating a self-managing company, is the right-fit team. At Cake, we knew what we were aiming to do. We knew we were going to go for growth and we had a three-year strategy in place ready. The first part of that strategy was to make sure we hired the senior team that I felt we’d need for high growth.

It’s far better to do that at the start of that growth period than it is to do it halfway through. The problem if you start doing it once you’re halfway through that growth period is that you’re under pressure. That means you might hire the wrong person, or you might not find the right person quickly enough. By contrast, if you’ve got that person in place to begin with and you’ve thought about the structure and what the senior team needs to be like for you to be able to grow, then all you’ve got to worry about is building the teams under those people as you’re growing. 

For me, building a senior team and thinking about who that’s going to be ahead of any high-growth period is a really smart way of approaching it.

As an example, at Cake as well as myself I had a Commercial Director who looked after the operations in the company and some of the account management. But we were missing someone who could handle business development on the corporate side. I’ve talked previously about how we didn’t really have a sales team. We built our sales pipeline by sharing expertise, generating expert content and pushing it out there. What we didn’t have was any kind of corporate experience and there comes a point when you need that to engage with corporate entities. 

We were a very entrepreneurial-led company and, as a result, we didn’t really have anyone in the business who had worked in corporate for any length of time. One of the things I tried to do was hire someone who had that kind of corporate experience and who understood how corporate structures work, including the kinds of people they have to engage with to get things done, the job titles and all the kinds of things that perhaps as a startup or entrepreneurial-led company you wouldn’t necessarily know. This was a good hire. 

Quite early in our preparation for our high-growth period, we moved somebody into a part-time FD position. We already had a book-keeper, they did a terrific job of all the day-to-day accounting work and helped put the monthly management accounts together as well as a weekly cash flow. We had that as a process and it worked well. The FD was also the person who provided strategic advice around the financial side of the business. That meant whenever we wanted to go out and spend significant money, the FD would be part of the team who would discuss that before we made that decision with the board. It was really important. In fact, bringing in an FD was one of the first things we did ahead of our high-growth period. It is so important that I’ve written a separate blog about the value he brought to the business. 

We also worked with a non-exec director who added a huge amount of value, experience, knowledge, badges and scars to the thinking within the company. On the technical side, we had a CTO, but we also thought carefully about the structure and how it would work. We didn’t want to become corporate, we wanted to remain quite flat and non-hierarchical, but we needed some kind of structure to grow and provide accountability. As a result, we appointed a Head of Engineering. In the end, we actually had two Heads of Engineering who oversaw all the different technical teams within the business. Each technical team had a team lead, and that was the structure we put in place. 

The important thing is that we thought about, and acted on, all of this stuff before we hit that high-growth period. We hired most of the people I’ve just talked about before our high-growth period, which meant we were actually top-heavy for six months. However, what it meant was that we could move really quickly, win more and more business, and have more and more people working for us because we had the right team in place to cope with that and manage it. It didn’t hinder our growth or put us individually under so much pressure that we couldn’t cope and let things slip. I think this was the right way of doing it.  

Introduce the right partners

Putting the right partners in place is something that I think is sometimes overlooked in these kinds of situations. But the right partners can also take the pressure off. So, where you don’t necessarily want to hire a full department ahead of high growth, you can have partners in place who you assign some of the tasks to as a supplier. If you work really closely with partners, treat them well and build up a really strong relationship, they almost become part of your team. I’ve discussed this in a previous blog too. 

Developing strategic partnerships was an important part of what we did at Cake. For example, we had a good team of lawyers who we always used, Bermans. We had a great marketing company, The Realization Group. We had a good set of accountants. We used Standby Productions as our video team, at a time when videos were only really coming to the fore on the internet. 

We also partnered with a number of software as a service companies like HubSpot, Harvest, Xero and, on the technical side, Atlassian and GitHub. We had a lot of these things in place ready for the high-growth period and they grew with us. 

Harvest is a great example. An HR system isn’t necessarily at the top of the list for most startups, but it very quickly becomes important as you start to grow. You need to have a central repository where you record any interaction with the team, as well as their personal details and any of the documentation that you need. At Cake, we had quite a high percentage of people from abroad working for the company, and we would have spot checks from the Home Office, so having all that information to hand and presented properly was absolutely key. 

Get your processes in place

Having the right processes in place is also key to creating a self-managing company. We spent quite a bit of time working on processes, some of which were so important that we published them so that they could be seen by our clients. In fact, some of our clients even used our processes, particularly our technical ones. 

What we didn’t want to become, however, was a typical corporate which is process led. We wanted our processes to guide the way we did things and make things easy for people. That meant when new people came on board, they would have something to refer to. It meant when clients came on board, they could see what our process was. Those types of things are really important, but as I discussed in my previous blog, you don’t want your processes to restrict creativity or innovation within the company. 

There’s a fine line to tread when it comes to processes. Processes are absolutely critical to any high-growth organisation and any self-managing company. If you walk away, you don’t want to be the person who has to be asked how to do something. You want to have a process in place that people can refer to, or a person that they can ask. It’s important to look at processes alongside culture. If your culture is to encourage creative and innovative thinking, you don’t punish mistakes unless they are continuing to be made and are absolutely careless. Sometimes people make mistakes because they’ve tried something and it hasn’t worked. That’s not a mistake, that’s a learning opportunity. Processes help you build a self-managing company. 

Culture is key to a self-managing company

I just touched on it briefly then, but culture, which I’ve talked about extensively in previous blogs, is essential for the creation of a self-managing company. I believe it can only be achieved when you have a combination of things and culture is a key component. If you have a defined culture that you live and breathe, and that is geared towards empowering your team and helping them to do the job quickly, efficiently, comfortably, creatively and effectively, then it will help you go a long way towards creating a self-managing company. 

People coming on board will be absorbed by the culture, but actually you’ll probably take them on because you think they’re a good fit for the culture in the first place. Your culture guides recruitment, which ultimately helps with a self-managing company. 

Don’t neglect your finances

You could argue that finance is just a process, and to a certain extent it is, but I want to call it out because it’s such an important element of what you do. 

I mentioned before about having an FD in place, as well as a non-exec. Ian Brooks, our non-exec at Cake, really helped me professionalise the way we dealt with the finances of the company. We did okay on that front, but it wasn’t as professional or as rigorous as it should be. You need to know what the cash flow is at all points. You need to have management accounts within a week or so at the end of the month so you know exactly where you’re up to with the various figures in those accounts, whether it be sales, net profit, gross profit, expenses or something else. Whatever it is, you need to have your finger on the button of finances. 

The single biggest reason for companies failing is that people do not have a grip on their finances. I can’t stress enough how important this is. If it’s not something that comes naturally to you, and it wasn’t for me, it is important that you have processes and people in place to look after that side of the business so that it’s not ignored. Without it, you won’t be able to build a self-managing company. 

Another important element within your finances is cash flow. It’s a well-known fact that cash flow is the biggest killer of most startups for various reasons. At Cake, we would always aim to have three months’ cash in the bank. That’s something you’ll have to work towards as a startup, you’re highly unlikely to have that to begin with unless you’ve got substantial investment. The bigger you get, the more cash you need in your safety pot, so it’s a continual thing. 

As well as being on top of that, we also had some rainy day money. We were in a position where, if the worst-case scenario happened, we were probably okay for 12 months. That was through a combination of knowing that you were never going to completely run out of work, so you would have some money coming in, but also having cash in the bank as our rainy day money.

COVID is a really topical issue related to this at the moment. A lot of companies who haven’t looked after their cash properly and who haven’t built up that kind of reserve will be hit by something like COVID that comes out of the blue and all of a sudden see their turnover drop. Their sales drop and then the outlook isn’t so rosy. At that stage, having that rainy day money in the bank is what you need to get you through those kinds of unexpected, unpleasant surprises. This cash allows you to trade your way out of this kind of situation and prevents you from having to suddenly shut up shop. 

It could also allow you to gain a competitive edge because at a time like this there’s less noise in the marketplace. That means you should go out and make some more noise, rather than withdrawing to a safe place. If you make noise, when you come out of it you will come out quickly and be stronger than you went in.

The ultimate aim of a self-managing company

When you’ve built a self-managing company, you should ultimately know that you can go away and that your team will continue to drive the company forward. You’ll know that they can lean on the people within the company and the people outside the company that are part of your network for support in your absence. 

You are no longer critical to the development and running of the organisation. That gives you options. You could decide to really grow the company and spend time strategising and doing what you need to achieve that. Or you could decide you want to put your feet up and only work three days a week. Or you might decide you’ve got another itch to scratch, so you’re going to leave the team in place, sit on the board as the chairman and be there whenever they need you, but have the time and space to go off and do this other project that you’ve been thinking about for the last few years.

The whole point is that, once you have a self-managing company, you have options. 

The final point worth noting about self-managing companies is that they are considerably more attractive to an acquirer than a company that relies very heavily on the owner. There are two reasons for this. One is that when a company acquires you, there is the likelihood that you’ll leave at some point. If the company is totally reliant on you then the acquirer will be nervous about letting you go anytime soon, which might not be what you want. You could end up working for this new organisation for a lot longer than you’d hoped for, whereas if you’ve got a self-managing company you can make that clear from the outset and be more realistic about the time you have to continue working for them. 

You might want to work for the new organisation on an ongoing basis, in which case, fantastic. But in my experience, a lot of entrepreneurs want to use this opportunity of being acquired to go off and do something new. 

If you have a self-managing company, it will be more valuable to an acquirer too. Acquirers work on risk, so the higher the risk, the lower the value of your company, it’s as simple as that. 

A really well-run company with an amazing senior team, a bunch of partners in its network and all the other elements I’ve talked about in this blog, is going to have a much higher value than one that relies too heavily on the owner. But the other reason your company will be worth more if it’s self-managing is that there will be more competition to buy you. You shouldn’t underestimate that. 

When I was at Cake I always used to say that I didn’t want to have to chase someone to come in and buy us. I wanted it to be a natural situation, where someone looked at us and thought that we would really supplement what they were doing. That was what happened.

There are two reasons why I feel that someone approaching you to talk about your value is beneficial. The first is that they’re more likely to be an appropriate partner for you. The second is that you’re on the front foot at that point in terms of the value of your company because you’re not looking to sell and this company that has approached you really wants to buy you. That puts you on the front foot when it comes to an acquisition.

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