I created this article series for companies running (or seriously contemplating running) EOS® Traction, Gino Wickman’s Entrepreneurial Operating System® for small-business owners. I run my company on it and found that, while EOS® is extremely effective for management and scaling, the core EOS® materials don’t provide the depth of guidance for the financial component so critical to small-business growth.
These posts are for entrepreneurs who want to polish and improve the implementation of EOS® in their companies by enhancing that financial lens. It can also help accounting and finance professionals be impactful leaders within their EOS® company.
Articles in this series can be found here.
Building your leadership team is a critical component of EOS®. It makes sense, right? Surround yourself with talent, with people who are better at doing specific jobs than you are. Having that team in place will also allow you to take off a few hats in positions where you are sub-optimized.
However, there is always the challenge of cash. Leaders are expensive. When you hear that everything came together for a company once they hired a COO, you feel compelled to hire your own COO. But can you afford one? Is that the best use of your cash right now?
Most of our clients, and the EOS® organizations we work with, recognize that building that leadership team is a lot easier said than done. They struggle with basic questions: “What position do I bring on first? How are we going to afford that? Does this need to be a leadership position? Is that really what I need to do?”
The CNO Example
When we started working with CNO (a pseudonym), a subscription product of the month club, they had about $3 million in annualized recurring revenue. Their customers were passionate about the products because of the niche market the company played in. Their product was unique and was not in retail.
They also had minimal direct competition. Amazon couldn’t compete because CNO offered highly curated and customized products. This also proved to be a challenge. Highly customized products meant high costs per product when they produced 100 units. If they could produce 10,000 units, though, their costs improved dramatically on a per-unit basis.
Identifying the bottleneck
They needed to drive to a much larger customer base. This would improve their purchasing power, drive their margins up and make the business more profitable and sustainable.
The co-founder was an expert in the company’s niche market. However, as the business grew, the pieces of that product life cycle, from working with vendors to customization and design, started to grow as well. As those volumes increased, the product cycle increased dramatically. The production lead times from these vendors also increased. Instead of getting 100 units out in four days, they did 10,000 units in two weeks.
Logistics and operations started to consume the co-founder. Marketing got pushed to the bottom of the list. Eventually, subscription growth started to curve downward. The CFO determined the bottleneck was not in marketing; it was in logistics. It was preventing the co-founder from being able to work on marketing.
Leveraging the founder’s expertise
CNO was able to secure a much lower cost resource to coordinate delivery, timing and orders. This allowed the co-founder to control the high-level brushstrokes and also shift more of his time to marketing.
CNO built a good engine, and the business continued to grow. They were able to hit some of their metrics.
Building the leadership team
As the business grew, there was even more opportunity on the marketing side. The co-founder understood that even though he was good at marketing, he had taken the company as far as it could go. They brought in a VP of marketing to take over and take the company to the next level. CNO migrated from understanding the bottleneck to hiring the operations manager to let the founder focus on marketing. Subsequent growth led them to hire that VP of marketing.
A Phased-In Approach
Directionally, “Traction” is right: Build your leadership team. As a CFO, though, I prefer a strategic, phased-in approach to building that team. It just doesn’t happen in a straight line!
Phase 1: Identify the bottlenecks
Figure out who or what is about to break as you grow. Where does your organization need some bandwidth? Leadership is great, but the last thing you want is too many people in charge and no workers.
Phase 2: Hire to work on your business
You already have leadership capabilities. You lack the time because you’re too busy doing other things. EOS® isn’t negligent on this. It does tell you to delegate and elevate. However, it’s critical to delegate the key jobs that will free you up to focus on your business. What positions can you fill that will afford you the most time?
Phase 3: Build your S&M machine
Focus on the external-facing roles first. The EOS® Accountability Chart talks about sales, marketing, operations and finance. It is somewhat, if not entirely, ubiquitous across the growth companies I work with. We work on the sales and marketing engine first. This is the face of the organization. It is what your customers see. It is the growth engine.
If you focus on creating a great backend instead, you create excessive bandwidth that you may not even need. You can fix the supply side or back end – operations and logistics – over time. However, you must ensure there is a demand for what you are doing first.
Phase 4: Focus on your core
Too often, we look at the entire management team and decide we need a head of sales, marketing, operations, and finance and accounting. It creates a paralysis because there are too many leadership positions still open.
Focus on your core instead. What is that core? It depends on your business. I’ve run into a handful of venture capitalists in Silicon Valley that are instructing their management teams to hire strictly for core operations. That means software development, customer service and marketing. The rest of the positions are contracted out because they are non-core.
For a financial services company, the core might include accounting. For another company, it might be critical to get an SEO expert in to drive revenue. Identify your core positions.
The CFO’s Role in Building Your Team
The CFO considers strategy, forecasts and cash perspective. They break this process down into smaller steps so that you don’t end up “swallowing the elephant”. They’ll also help you avoid hiring that $300,000 COO before you need one (or worse, before you can afford one).
What are the steps that you can take to unblock your bottlenecks? How can you give yourself more time to focus on the business? How can you get that demand engine humming, and then focus on filling that leadership position? Even if you’re venture funded and you’ve got millions of dollars in the bank, you need to prove that certain things are working. It’s a little different from that perspective. However, it’s essentially the same process, just faster.
As CFOs, we are often approached by founders who complain that they’re buried. They need someone right away. However, “someone” isn’t always the right answer. If you hire a leadership team, then each member of that team has to hire their own people. It has tremendous cash impacts. It has immense productivity impacts.
The CFO manages this growth. Where do you need people? Where are you going to get the most for the bang for the buck?
The CFO leverages a pragmatic approach to spending money. In CNO’s case, that meant getting the founder to focus on the things that they’re truly good at. It was getting them out of their own way. With the bottleneck removed, the founders could focus on their business.
Build your leadership team with a structured, phased-in approach that enhances your growth — one that ensures you get the right people in the right seats at the right time.