How CEOs Can Choke Off Growth: Four Lessons From A Mid-sized Firm
by The One Page Business Plan Company, July 7, 2020
When every decision, large or small, has to pass through the CEO, midsized companies develop an overwhelming bottleneck to growth. It takes a team of strong, focused, and aligned leaders for companies to keep growing.
The growth tales of travel insurance company Seven Corners Inc. should be a familiar one to midsized companies in every industry. Founded by Jim Krampen and Justin Tysdal in 1993, the company grew steadily year after year in its first 20 years, to just shy of $40 million in revenue. Believing nothing could stop them, the founders (who made themselves co-CEOs) raised their ambition: $100 million in revenue by 2020. But in 2014, growth came to an abrupt halt, and it left the founders searching for answers.
After months of painful deliberations, Krampen and Tysdal finally put their finger on the problem: It was the leadership. In leading their international travel insurance and specialty benefits management company, they had dominated leadership team discussions. Every decision, large or small, had to pass through them. The result was predictable: They became an overwhelming bottleneck to growth.
The co-CEOs of Seven Corners realized they needed good decisions to be made rapidly by executives hired for their specific expertise to make those decisions – whether they were about marketing, systems development, sales, HR, legal or other areas outside the founders’ mastery. So, they created a new structure, new roles for themselves, and hired talented executives to fill the gaps. The early results are encouraging, and Krampen and Tysdal believe they’re finally on their way to $100 million.
The founders of Seven Corners made four crucial moves:
1. They wrote a short but unambiguous business plan. As part of the restructuring, Seven Corners adopted a rigorous planning process, with an annual two-day strategic offsite, and one-day quarterly retreats where they agree on the five to seven most important initiatives for that quarter. The transition always starts with the creation of a guiding document that a team of leaders can look to for direction. Create a clear, written plan that your leadership team can follow. While great leaders often quit quickly if they are ordered around, most are completely content participating in creating a written plan and following that plan. Those leaders realize that it is more satisfying to be on a team of leaders creating something big, than to be an all-powerful single leader creating something small. Without such a plan, strong leaders on a team run at cross purposes, and some just run amok.
2. They replaced marginal members of the leadership team. In October of 2014, Krampen and Tysdal brought in a consultant and spent three months architecting the new corporate and leadership structure and developing a five-year corporate vision, which was presented to all employees. They spent significant time on planning and committed to regular follow up on their five-year vision. The COO shifted to CFO, and they hired two new leaders, a CIO and COO, to end up with a five-person c-suite. Now, all decisions require consensus from all five leadership members and Krampen and Tysdal also hold the two board seats should a tough decision require a tie breaker. Many teams aren’t cut out to lead a company at midsized. Sometimes “helpers” get promoted into roles with leadership titles but can’t lead—they still need instructions. When left to their own devices, they make bad decisions, or aren’t proactive. Some can’t see the big picture or hate change. Please don’t turn over leadership of your company to a bad or incompetent team. The only outcome will be failure. Instead, embrace your duty as CEO and upgrade your top team as needed so you have a team of leaders, not a team of helpers. This would be a team you are proud to lead, who you believe will make better, faster, stronger decisions than you would have. They probably have experience you don’t.
3. They supported their leadership team but made each member accountable for delivering on their promises. The company holds one 90-minute c-suite meeting weekly to make sure their quarterly goals are on track, and they huddle weekly for short-term operational issues. They track some statistics on a weekly scorecard, and other KPIs each month—with the results visible to all 200 employees. Furthermore, each function holds quarterly business reviews and share KPIs openly as well. The shift to clear goals and strong accountability wasn’t to everyone’s liking. Some long-term employees missed their targets and chose to quit rather than fight. But after six months, the company had improved their bottom line by 2.5%, by saving over a million dollars in operational efficiencies in their government service unit.
You must both support and demand leadership from your team. Organize the team to hold each other accountable for results. Coach your leaders to support their efforts and change leaders when needed. Make the occasional judgment call based on strong work by your team.
4. They stopped acting like the Wizard of Oz. In January of 2015, they abolished the role of Co-CEOs and established five company functions: Strategy, Revenue, IT, Operations and Finance. Krampen, whose strength was sales, went from Co-CEO to Chief Revenue Officer. Tysdal, whose strength was in strategy, became the Chief Strategy Officer. Nobody holds the title of CEO or Co-CEO. Stop acting like the all-knowing Wizard of Oz, and start coordinating, bringing the best out of the team, and keeping them aligned. It’s a different job than what entrepreneurs do to start a business. It is slower. It takes patience. It means you have to talk less and ask far more questions. It means you must not give answers so quickly, and instead challenge your leadership team to find the right answers for themselves. Your role is redefined. You might have time to dive back into your favorite function (maybe even lead it) since you won’t be spending the bulk of your day telling everyone how to do everything. So, if you’re not personally “directing traffic” in your company, what does your CEO job become? Some CEOs love sales and are the face of the company. Others are IT wizards, so they lead on the technology side.
Now I’m not advocating abolishing the role of CEO. Yet it is interesting that Krampen and Tysdal felt that they needed to do away with their CEO titles to change both their own behavior and the way their top team interacted with them. The benefit of having a team of leaders is lost if people abdicate their authority to a CEO. Great CEOs of midsized businesses are humble. They don’t believe that they always know best. Instead, they believe that they can bring the best out of a team of strong leaders.
For Krampen and Tysdal, moving from an entrepreneurial model to a midsized company ‘corporate’ model was challenging, but they were committed to doing so. Tysdal says, “Every day we came into the office and with every decision we made we had to break ourselves of old habits that we had picked up over the prior 20 years. Responses to issues like ‘that’s how we have always done it,’ ‘that’s the way it is and always has been,’ and ‘we’ve tried that before and it didn’t work,’ had to be challenged, and it takes conscious effort and thought to do so. After 12 months of this new structure and mind set, we finally started to hit our stride, and our new way of thinking, reacting and responding to issues became natural.”
In 2015, Seven Corners finished off the year with $39 million in revenue, a 5% increase over 2014, much better than being flat in prior years. The firm’s capabilities to generate growth are strong. In early summer they launched new products (kidnap & ransom insurance and travel crisis management insurance) which are well on their way to adding a million dollars to the top line before 2017. They have stepped up the analysis of their core products, and in one case (international student programs) have seen 123% year over year increases. Today, the 2016 projected revenues are over $40 million and Krampen says, “we are starting to see the changes we made in the last 18 months compound. We can clearly see a path to hitting our $100 million revenue target before 2020.”
Why did the Seven Corners’ growth stagnate in 2014? Because one leader can only go so far. Many CEOs and founders try to break through the growth barrier with never-ending workdays and by being more directive, issuing order after order. Those approaches might get them a tad further, but growth inevitably stalls. It takes a team of leaders for midsized companies to keep growing. And that team must be strong, focused, and aligned.