[THIS BLOG IS THE FIRST OF TWO PARTS!]

At Covenant Family Wealth Advisors I work with a number of highly successful business owners and founders across Canada who generate annual revenue from $10 million and up to $300 million per year.  These entrepreneurs often face the following six challenges to company growth.

Bonus Structure

First, no matter how good a company, you need people to make the business function.  How do you motivate people effectively, from executive leadership to the client-facing service person?  There are many aspects, such as benefits and company culture, but a major though not sole one is, of course, the extra pay.  How to set up a bonus structure can be a vexing problem.  Sometimes bonus plans evolve, and are originally set up in particular circumstances, but then become inappropriate—and yet expectations have been set.  A sense of entitlement may creep in—and that is difficult to change.  With clients we can provide an outside perspective along with industry research. 

What is appropriate compensation?  You can determine what percentile you are in re the bonus pay in relation to base salary.  The bonus system should be a combination of both corporate and individual performance.  Corporate performance should be tied to net income rather than gross revenue.  Company owners may not want to reveal their actual profitability, but they should make clear to everyone in the organization how money is made and how individuals can impact profitability.  The bottom line is that the bonus program should be an incentive to reward performance and to shape people’s action in the pursuit of the company’s vision and mission.

Innovative Culture

Second, entrepreneurial businesses start because the founders innovated—they did something new, different and unique with a practical commercial application.  The seed of an idea took root, a market was identified, and a team was created to fulfill that need.  In the early days of a company, when the organization is not too large, the entrepreneurial spirit of the founder can infuse others with enthusiasm and shape the culture.  As a company grows, however, the personal influence of the founder diminishes and a system needs to be put in place to reflect, sustain and build an innovative culture. 

This is not easy; in fact, for many companies it is seemingly impossible.  We see the carcasses of yesteryear’s innovators littering the economic landscape.  At the same time, there are many companies that build an innovative culture—it just takes a lot of work and often a lot of time!  There needs to be great clarity around the vision, mission, values and culture of the organization—and this must not be reliant on the ongoing presence of the founder.  Success is evident when the company owner doesn’t need to get involved in the operational side whatsoever, but can focus strictly on strategic issues.

Organizational Clarity

Third, “Who’s on first, what’s on second?”  Thus goes the old comedy routine.  Unfortunately, this can mimic reality.  Many organizations would be hard pressed to put together a clear organizational chart.  The most common issue that arises is that the structure has unofficially morphed over time and no longer reflects what’s on paper.  So, we have a corporate mismatch.  There are people with titles, job descriptions and slots in the organization structure that don’t reflect what they are doing.  This can sometimes be good in the sense of people taking on more responsibility due to their competence or individuals getting the respect of their peers and constantly being consulted on matters that belies their organizational status. 

The challenge, however, is that the organizational chart must stay ahead of or at least track these changes and reflect the reality.  Otherwise, some are paid too much, and others too little, for what they are doing.  Some should be promoted and others effectively demoted.  The biggest challenge, however, is that if there is a vacuum at the top—such as the unplanned departure of the company owner—then there will be chaos.  To prevent disruption there should be organizational clarity.