by Real Business - Thursday, 30th August 2007

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Luke Hughes launched his upmarket furniture company two months before the 1990 recession struck. He had raised £250,000 through the BES scheme and opened his doors for business in May. By July the private market for superior quality wooden furniture had all but vanished.

“It was a bit like being at sea in a sieve with some Blu-Tack to patch up the holes. But I was good at surviving by the seat of my pants,” says Hughes.

There were mistakes of course – such as the factory he opened in Wiltshire, but the business grew slowly through the recession and went into profit in 1993. Turnover is now a healthy but hardly enormous £1.5m and Hughes plans to more than triple it by the millennium.

To ensure that happens, Hughes has just taken the unusual step of demoting himself from managing director to design and production director (while remaining the largest single shareholder) – and bringing in an expensive but top flight professional managing director over his own head, to pilot his company to greater things.

“Having a survival mentality isn’t very useful in a healthy economic climate,” says Hughes. “I was, am, short of a host of serious business skills – marketing, finance, negotiating, team-building and strategic thinking, to name but five. My shortage of skills was holding the business back,” he admits.

It may be unusual to relinquish control and add a costly overhead to a business that is still in its infancy, but Hughes is unusual in that he has grasped the cruel and largely unspoken paradox awaiting the ambitious leaders of all small businesses.You may have had the original idea. You may have had to bulldoze mountains to get it going. You may have spent years putting in 15-hour days, sweating your assets, whipping your staff, fibbing to creditors and cajoling suppliers to get it off the ground.

Everything you see around you may be the direct result of your efforts, energy, talent and vision. Your health and personal life may lie in tatters as a result of your labours.But the truth is that if ever your business is going to succeed, really succeed, beyond the chugging mediocrity of most small companies, it can only be without you. In all likelihood you, like Luke Hughes, are the greatest single obstacle to your company’s success.Ironically, the only way your business can possibly have any value is without you. It has to be able to function and flourish, independent of its founder. Alternatively, you may have dynastic ambitions and want to hand on the business to your family of workforce. In which case, exactly the same reasoning applies.

The frightening thing for any businessman is the number of ways they can hold back or even destroy the object of their energies without even realising it. Your personality, psychological factors, your intellect, the lack of a wide range of business skills and, most important, an inability to let go, are all common causes of the managing director being “the problem.”

According to some, the psychological make-up of entrepreneurs makes them particularly prone to this self-defeating syndrome. “In Freudian terms at least, entrepreneurs are often running from large organisations which represent father authority figures,” says Eric Flannigan of Matrix management consultants. “Successful entrepreneurs were often worshipped by their mothers. They create their new companies in her image, as a female animus (archetype), which they can worship and control.

“As the company gets bigger, procedures inevitably become more important and the father figure threatens to return. The way out is to find an organisational way to maintain freedom from the father figure.”

A particularly good method to achieve this is to delegate all the important but mundane stuff and leave the managers to be conventional control freaks, while the entrepreneur is freed up to do whatever it is he does best.

While Hughes is hardly the sort of man to admit to creating a “female animus” (he makes chairs for God’s sake), his real-life solution to his problems bears more than a passing resemblance to Flannigan’s theoretical musings.

“It was passion that made me start this business. My main assets are architectural knowledge, I am a good designer and very good at solving technical problems. But a couple of years ago I realised that I didn’t enjoy and wasn’t particularly good at selling. So I recruited a professional sales and marketing director.”

He found the experience so liberating that last November he resolved to appoint a managing director. Clearly it was going to be a difficult decision and one with major personal and business ramifications. Hughes was determined to get exactly the right person and went to considerable pains to make sure he did. He advertised once and got a sackful of replies, mostly unsuitable. He then interviewed a series of headhunters and appointed one to find the new managing director.

A second advert in the Financial Times produced nearly 300 applicants. This was winnowed down to a shortlist of four. In the end Paul Duffen was appointed – but not before he had unusually spent a day meeting everybody at the company and receiving the thumbs-up from the workforce.Hughes is clearly happy. “I am delighted, he’s a cracking bloke. We are going to have a lot of fun together.” What’s more, now he feels far more confident that he is going to meet his target of tripling turnover within three years.

Hughes identified his shortage of specific business skills as his particular problem. But a study carried out recently by management development company, etc, suggests that the problem is not his alone.

It found that smaller companies are lagging behind their bigger rivals in training – at all levels, but especially of managing directors. It showed that most owner-managers claim that they learn from experience. In reality this means that they rarely use any formal management training to improve their strategy and skills.

The problem has become particularly acute with a buoyant economy which means that larger companies are snapping up employees and smaller companies are finding it difficult to compete. This leaves them with few options but to develop existing managers to take on new roles.

The answer is obvious and comparatively simple: training. “Development for managing directors is most likely to have the highest and fastest payback. When they return from a new programme, they can set the whole company on fire with new ideas and methods,” says Sally Wilton, managing director of etc.

Lack of skills is only part of the problem for most managing directors. There is a consensus emerging among management thinkers that the biggest single obstacle they place in the development of their own businesses is their own inability to let it go.Colin Barrow of Cranfield Business School has analysed how the best owner-managers spend their time. “The best devote roughly a third of their time to management tasks such as monitoring performance,” he reckons. “A third of their time is spent motivating, counselling and developing his management team. And the final third is spent on developing strategic thinking to form the shape of the future business.”

In terms of day-to-day operational matters and day-to-day management, it seems the managing director should be very nearly redundant. But few have the courage, maturity or confidence to do that to themselves.

Brian Wiseman, managing director of electrical switch gear manufacturer Terasaki, is one who did. It wasn’t even his company, but a wholly owned subsidiary of a Japanese manufacturer.

Wiseman joined the company 20 years ago as an accountant; in ten years he rose to become managing director. “My predecessor was a typical entrepreneur type. The company had a workforce of 50 – because he rightly said he couldn’t control any more people than that. But that was because he kept it all to himself. It was terribly demotivating for anybody like me beneath him.”Within a year of Wiseman taking over, turnover doubled from £4.2m to £8.4m. Why? “I just let people have their heads. The first thing I did was to initiate a lot of staff training, but more importantly I started monitoring which managers were training their people and which weren’t. This not only improved the quality of staff and lead to fewer mistakes, it also revealed the managers who weren’t really looking to the future.”

Wiseman soon realised that as he withdrew further from everyday business, so his managers and staff grew in stature and proved themselves quite capable of doing it themselves. “I started refusing to get drawn into problems, which was fine as long as I thought that others could handle them,” says Wiseman.

Of course, it wasn’t just a matter of sitting in his office and twiddling his fingers. Wiseman had to work hard at giving himself less to do. “I instituted a range of ‘soft’ measures, such as training and quality control. But I also put in place some hard-nosed bean-counting measures such looking at gross margins, keeping tabs on direct and indirect overheads by departments and carefully measuring returns on capital employed.”Confident in the quality of his managers and safe in the knowledge that he can take an accurate temperature of any part or aspect of the company through his management information, Wiseman now leaves even major projects to others.

Now he divides his time between thinking about how his company can work better, developing a vision for the future and strategies to achieve it and travelling the world setting up alliances and developing new ideas.

A prime example is that he has just finished setting up a worldwide network to service electrical switching gear on oil tankers. It’s a scheme that will generate a lot of good business for his company, but which he would never possibly have thought of unless he had the time.

“I have just come back from a trip to Singapore and do you know how many e-mails were waiting for me? Six. And two of those were copies,” he says with pride.The basis of Wiseman’s approach is trust. But trust is a difficult thing, especially for a control freak and doubly so for control freaks steeped in the British class system which can often cast workers as lazy, stupid and dishonest.

Another individual inspired by the corporate approach of Japanese management rather than the traditional confrontational British model, is Ken Lewis, chief executive of Dutton Engineering, a small sheet metal working company.

Lewis set up his company in 1972. It chugged along quite adequately until the early eighties. By then it became clear that British companies were being taken to the cleaners by Japanese competitors. “Customers wanted better quality and we just couldn’t give it to them,” says Lewis.

In 1987 Dutton became one of the first companies to apply for BS 5750 accreditation and won it in 1987. But still there was no radical improvement. Lewis started instituting total quality measures. Even this still didn’t turn his company into a top-flight operation able to compete with the best in the world.

It was only when Lewis visited Japan to see their methods at work that he realised the key to their success. “It was trust. We tried to inspect quality into our products from above through a quality inspection department. But quality is a holistic thing, it can’t be inspected into a product. It comes from the commitment of the workforce.”

“I realised that I was the problem, the starting point for lack of trust in the company. Because I wasn’t trusting I had recruited and promoted for technical ability alone. So I hadn’t built a team, I had built a series of clones,” he says.

His first move was to shut down the quality control department. This started an almost inevitable process that led finally to all his workers being organised into multifunctional teams and the teams being given more and more power.

Now all Lewis does is set sales targets and lets the teams do the rest. There is no time clock and no set working day, or even week. They set their own budgets and even their own salaries. “My role is simply to set the vision, agree goals and to be a resourcer,” says Lewis.

The results have been startling. In 1989 turnover was £1m with a workforce of 40. Now it is £2m with a workforce of 25. But much more important, whereas before 60 per cent of orders were delivered within a week, now 99 per cent of orders are delivered within 24 hours.

“It was me controlling everything that limited the business. I had to change. I admit found it very difficult to let go. But once I had learned to trust, – something you have to do gradually, it worked very well. Anybody else who leads in the old-fashioned way will also be limiting their business.

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