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Why Salaried GM's Fail In Medium Sized Businesses

  • Aug 15, 2022

John has a successful medium sized business that has a turnover of about $6M and a reasonable profit. The problem is he is tied to it and can’t get to the Bach or go fishing as much as he would like. Getting in a GM seems like the answer and his accountant recommends a successful sales manager, Peter, who he believes is ready to step up to a GM role. Peter is 32 and currently works for a much larger business. John likes Peter and offers him the role after the first meeting. Peter is happy because it is a step up for him in both responsibility and salary.

Peter has been in sales roles all his working life and has had limited experience in other functions within a business. No clear job responsibilities have been agreed and Peter flounders in a role above his experience level. Peter sticks to what he knows and there is no organisational structure to support him with the training required. There were no monthly reviews or KPI’s set. He is not freeing up John’s time to spend on the other parts of the business he enjoys and taking time away from the business is difficult. An overseas owned competitor with deep pockets offers Peter a senior sales role and he leaves John back at square one.

What Mistakes Were Made Here?

  • A competitive process should have been conducted to secure the right person and Peter was not equipped to be the GM.
  • While John's Accountant was well meaning, he is not an expert in talent identification.
  • Medium sized businesses are not a training ground for new GM’s and generally have limited resources for this work.
  • When hiring a GM ensure that the responsibilities are clear and KPI's are agreed.

Why Skin in The Game Would Have Been the Answer

  • Skin in the game would have attracted someone who is already successful at GM level and is looking for an ownership stake. A medium sized business cannot compete on salary alone to get the right talent.
  • As a part owner they would treat it like their business and be prepared to be hands on.
  • They would have invested in the business and are not just going to leave for a new opportunity.
  • This could form part of John's succession plan and he could sell down further tranches of equity over time.

Platform 1 finds the complementary talent to work with you full-time to help drive the business forward. This person will have different skills from you, typically honed from experience in a much larger business. With real ‘skin in the game”, they are vested in the business and share your growth aspirations.

About the Author

Mike Warmington is a Director of Platform 1 NZ Ltd - The New Zealand market leaders in business owner transition. Platform 1 specialises in using executive search techniques to find business partners with capability and capital for business owners wanting to partially or fully transition.