Robert Sher: Part 2 of an interview by Bob Morris

SherRob Sher is founding principal of CEO to CEO, a consulting firm of former chief executives that improves the leadership infrastructure of midsized companies seeking to accelerate their performance. He has published extensively on the successful leadership traits of CEOs of mid-market companies. His first book, published in 2007, is The Feel of the Deal: How I Built a Business Through Acquisitions. His latest book, Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers, was recently published by Bibliomotion in 2014. Rob is also a regular columnist for the online version of Forbes and CFO Magazine and recently published a seven part series on HBR online.

He and his partners act as consulting CEOs who help client companies’ CEOs and their top teams to navigate difficult passages. Running a company is a series of judgment calls, each of which can have major consequences. They often help make those judgment calls, drawing on deep experience as CEOs and by helping their clients think through situations. Some people call him a CEO coach. Others call him a CEO mentor. And some think of him as their own “Chairman of the Board.”

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Morris: When and why did you decide to write Mighty Midsized Companies?

Sher: The book project began in August 2010 with the development of the idea, a working hypothesis and detailed outline. The research began in mid 2011 and continued for about two years. The writing itself began in mid-2013 and concluded just as 2014 began. This book was written because over the years I’ve seen many CEOs from all industries fall into the same traps over and over again. The act of writing is one of the ways I learn and synthesize my experiences, and the creation of this book pushed me to put the thinking into a powerful format that will save many, many midsized CEOs a lot of grief.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Sher: Yes. As I strove to distill a central concept that tied all seven growth killers together, the concept of leadership infrastructure popped into my head, and it became the core of the conclusion of the book. Leadership infrastructure is the sum of all systems, people, and processes that allow leadership of a midsized firm to comfortably and consistently grow the firm over time.

Morris: To what extent (if any) does the book in final form differ significantly from what you originally envisioned?

Sher: Well, I started with 12 chapters (each devoted to a growth killer) and as the research unfolded, some weren’t validated. Others weren’t specifically targeting midsized business (they targeted all sized of businesses). But essentially the book is focused on the same audience, dealing with the same kinds of challenges as originally envisioned. The research and writing processed focused the thinking. Of course the title developed later, as did the seven problems, the final silent growth killers.

Morris: Many of your readers will be surprised to learn that, in the United States, there are about 200,000 midsized companies; that is, those with annual sales within a range from $10-million to one billion dollars. They account for about a third of the U.S. GDP and a third of all U.S. jobs.

What are the defining characteristics of a midsized company that is “mighty”? Of the 200,000 that are now operational in the U.S., about how many meet those standards?

Sher: A midsized company that can be called mighty must be growing, strong and resilient as well as ea pleasure to own or lead must deliver predictable results that serve its owners. There is very little research on midsized companies, so there is no data as to how many could be considered mighty. My estimate estimated based on personal experience is that it’s less than 20%.

Morris: To what extent are the CEOs of your firm’s client companies facing challenges today that are [begin italics] significantly different [end italics] than the challenges they faced only 3-5 years ago? Please explain.

Sher: I’m sure there are some differences, but largely the challenges are the same, including competition, delivering great customer service, and great products, innovation, managing waste, and finding markets hungry for products. The reason so many business struggle isn’t that the challenges change, it is that the people running businesses are human and make mistakes, some learn from those mistakes but many do not, and there are new business leaders emerging every year.

Morris: In your opinion, how can social media be of greatest assistance and value to midsized companies?

Sher: Involvement with social media is about building communities of people who have common interests and want to connect with peers. The first question, for any business, is how interested is your constituency in talking about your mission/products/services? Social media is not a new way to output marketing messages, but a way to engage in discussions. If you have a real community that is large enough to build momentum, it might be helpful. If not, spend your time and money elsewhere. However, like any new global behavior, it is advisable that business leaders engage in it to some extent so they are ready to dive in when an opportunity arises. Remaining ignorant about social media would be a blind spot.

Morris: No doubt many of those who read your book are thinking about launching their own company. In your opinion, what are the most important do’s and don’ts to keep in mind when preparing to do so?

Sher: My book is not for startups. While I’m happy they buy my book, they should skim it to raise awareness of the 7 silent killers when/if their startup grows, but then they should shelve it. They should not try to run their startup like a midsized business. They should read the plethora of books targeted toward startups (or small business) and follow that advice. Re-read my book around five million in revenues or a headcount of about 30.

Morris: Opinions are divided – sometimes sharply divided – about the importance of charisma to effective leadership. What do you think?

Sher: If you’ve got charisma, it’s a gift, and you should use it. But leaders who are most successful know they must not only attract and excite followers, but deliver the goods as well. Charisma alone starts to look like fraud after a while: all promises and no results. Leaders without charisma can succeed as well. They still need to attract people and inspire them, but there are many other ways to do that (a powerful mission, empathy, and on and on).

Morris: I’ve served as a CEO of two companies and then provided consulting services of various kinds to hundreds of CEOs. I cannot recall a prior time when the challenges facing a CEO were greater than they are today. What do you think?

Sher: I think you’re feeling your age, Bob. Every generation remembers the good old days versus the terrible scary world we’re in today. I think it has always been hard. In the good old days, getting data on your own business was incredibly hard. Now with modern computers it’s much easier. In the good old days we had to wait forever to get inputs, sometimes a month after we mailed the letter to get the response. Now its just seconds by e-mail. In the good old days, making friends in distant lands and staying connected to them was arduous. Now with social media and e-mail and video chats its so much easier.

But what does all this matter? The leaders of today must learn, adapt, and strive to succeed…and many do. Ditto for the leaders of 2114 and 2214. It is our job, and it will be hard. That’s what makes it so fun! Great leaders thrive on challenge.

Morris: What do midsized companies share in common with smaller and larger companies?

Sher: Many things, but first and foremost is a need for a powerful strategy that drives growth. We don’t have to worry about what stops growth (the focus of my book) if that growth isn’t there in the first place. Strategies aren’t timeless, so what works at one point (and in one scale) may not work at other times. But the best strategies propel growth in all companies for periods of years. Of course, fundamentals of business like accounting, marketing, etc. are present in all businesses but in different forms.

Morris: Now please focus on differences between midsized companies and those that are smaller or larger. You suggest that leaders in midsized companies face six challenges that are [begin italics] unique [end italics]. How so? First, a low tolerance for risk

Sher:
Midsized firms have much more to lose than startups. They have many more employees that depend upon them, and their owners have a larger portion of their personal wealth at stake. Adding to their aversion to risk, midsized companies just aren’t big enough to survive too many missteps. Their investors keep a vigil on profits and growth to fuel investment value, and typically pay no dividends. Startups, by contrast, are all about risk. If they fail, everybody goes out and gets a new job. Their investors know the risks and, in the case of venture capital and private equity, have diversified portfolios to manage them.

Deep-pocketed Fortune 500 companies, of course, have the resources to experiment with new products and even new business models. They can assume great risks because they can write off multimillion-dollar failures. But in bootstrapping their small firms into midsized companies, many executives have survived hard times by being frugal. Such frugality makes them risk-averse and often holds them back from getting to the next level. That would mean making risky investments in talent, infrastructure, R&D and brand building.

Morris: High barriers to internal collaboration

Sher: Midsized companies typically have more than a single office (or even more than a handful of offices), and their dispersed teams must communicate in order to conduct business. Yet they aren’t so large as to be able to afford taking their managers away from their daily tasks to attend the off-sites or all-hands meetings that larger companies use to get everyone pumped up and aligned. Nor are they rich enough to pay for in-house organizational development teams or the other tools that big businesses use to keep top management in synch. Startups, on the other hand, typically have all their people in one place, focused on the same or closely related tasks at the same time, brewing their coffee in the same kitchen. Collaboration is easy when you’re rinsing out your mugs in the same sink. Midsized firms are caught between critical mass and unencumbered nimbleness.

Morris: Few ways to develop talent

Sher: Midsized firms (especially those growing quickly) typically don’t have large HR functions to develop leaders, or the cash to invest in successor positions or training the way large corporations do. In slower-growing midsized firms, top managers can’t (or won’t) create adequate opportunities for advancement for younger talent, their future leaders. Midsized companies without multiple business units can’t give aspiring leaders P&L responsibilities. In just about all midsized companies, it is rare to find executives who can spend time mentoring. Everyone is too busy doing his or her own job, making the business run.

Morris: Less investor patience for leaders learning on the job

Sher: When a business is backed by venture capital or a private equity firm, there’s a hard horizon for an expected return. Investors typically believe that the leaders of the businesses they put their money behind should have the skills they need to succeed. They’re not interested in waiting for them to develop. If the leaders don’t produce within the investors’ timeline, they will be replaced. This can lead to a turnover rate at the top levels not experienced by smaller businesses (often run by their owners) or larger companies (in which leadership training is a core activity.)

Morris: Less strategic thinking

Sher: Big firms have chief strategy officers and teams dedicated to strategy, M&A and corporate development. Startups have a central belief in one opportunity they race to embrace. Midsized firms, however, busy working to make the business they already have run profitably, often have to do their strategic thinking on the fly, with the part-time efforts of the CEO. Maybe, once or twice a year, they’ll have an offsite at some nearby hotel equipped with a conference room. Bigger midsized firms ($300 million to $1 billion in revenue) might be able to afford a few senior executives in corporate development. In general, midsized firms don’t have the time, inclination and skills to consistently think strategically.

Morris: Less seasoned talent

Sher: In midsized companies, a high percentage of owners, CEOs, and other leaders began at the bottom. They rose with the business, which means they may never have acquired or got the chance to polish the executive skills you see in Fortune 500 companies (and don’t often need in smaller businesses and startups): disciplined planning, financial acumen, relationship building both inside and outside the business, talent development, mentoring and leadership. Take any one of my law firm clients: great lawyers but no business training or experience. Another retail client started the business in college and grew it to over $300 million revenues in 12 years, without ever holding more than a summer job as a teen.

Morris: Now please shift your attention to what you characterize as “the seven silent growth killers” with which leaders in midsized companies must contend each day. You devote a separate chapter to each. For those who have not as yet red your book, please explain the unique power of each and how to avoid or overcome its lethal impact. First, Letting Time Slip-Slide Away

Sher: This growth killer is silent almost by definition because it has to do with that most ephemeral and subjective thing, time. When an organization loses its sense that time is a limited resource, deadlines on critical projects get pushed back with few if any consequences to the individuals and teams responsible. It’s very easy to overlook time that slip-slides away, especially if a CEO allows it. Meetings are poorly run, wasting time. The sense of urgency seems to be missing in the leadership team. In order to overcome this killer, leaders must create a sense of urgency around deadlines by tying projects to the calendar—combining time boxing, expectations, prioritization and intermediate deadlines. This creates clarity and ongoing pressure, thereby leading to greater appreciation for time and better results.

Morris: Strategy Tinkering at The Top

Sher: For midsized companies, tinkering with the business’s core strategy can be deadly, particularly when changes are made without proper research, planning, and testing. Rather than assessing new strategies in a thoughtful, well-planned manner, they are jumped on as soon as the leader thinks about them, stealing focus and resources from the core business. New strategies are often abandoned in favor of the next idea. Any changes made should be necessary, well-planned and in alignment with organizational goals. To ensure this is true, leaders should conduct strategic planning and operational planning as separate tracks and with a high level of discipline.

Morris: Reckless Attempts at Growth

Sher: In the effort to scale, organizations face increased risk and expense. If the attempt at growth costs too much and the revenue doesn’t match the expense, growth won’t materialize, but a cash crunch will. Signs of this killer are big campaigns with heavy investment that often fail because of poor execution, a poor response from the market, and poor forecasting. There are three ways to take the “reckless attempt” out of growth, and the midsized firm must be good at all of them. They are:

o Gaining a deep understanding of your market
o Developing well-founded forecasts
o Making evidence-based assessments of your ability to execute

Morris: Fumbling Strategic Acquisitions

Sher: Acquisitions can be vital part of a growth strategy, but they can also derail an organization. Successful less than half of the time, acquisitions are less about the deal and the closing and more about what happens afterward: the integration process and execution of the acquisition plan. To beat the odds against acquisition success, leaders must carefully consider four critical factors: alignment with the buyer’s core strategy; the M&A experience level of the buyer’s executives; the fit between buyer and seller as to scale, culture and operations; and lastly, the discipline and focus of the integration process.

Morris: Operation meltdowns

Sher: They help to explain how a rapidly growing bottom line and a rigorously lean operation can actually be a death sentence under the cover of success. When chaos erupts and operating teams become overwhelmed with customer orders and requests, threatening income and reputation. Leaders must be able to recognize four early signs that an operational meltdown is looming. They are: an overbearing sales culture; an outdated IT or physical infrastructure; a skills shortage; and too many eggs, not enough baskets. Further, leaders should reduce the organization’s risk of an operational meltdown by creating operational resilience and gaining a firm handle on budgeting and forecasting.

Morris: Liquidity Crashes

Sher: Running out of cash means leaderships focus is exclusively on finding more cash. A short term mentality takes hold. Layoffs, angry trade creditors, fearful employees and customers and managing upset banks and investors can consume management’s energy. To sidestep this growth killer, leaders must learn to manage their balance sheet, aggressively cut costs upon sensing market weakness, maintain tight bookkeeping standards, relentlessly scan critical business performance metrics and ensure owner liquidity and alignment.

Morris: Tolerating Dysfunctional Leaders

Sher: Having top team leaders who are no longer effective, or are high-maintenance (requiring babysitting) is a growth killer. At midsized, each functional area leaders should be BETTER than the CEO at their function, and should be actively pulling the business forward. Organizations must not tolerate high-maintenance leaders or those that are consistently underperformers—regardless of their popularity. Leaders must regularly assess the strength of the leadership team, and strive to reduce the range between the lowest and highest achieving performers.

Morris: These “silent growth killers” do indeed comprise a covey of destructive troublemakers. In your opinion, what are the defining characteristics of a leader who will be most effective in terms of (a) avoiding them or (b) eliminating them?

Sher: The leader must deftly balance the use of process and teams with personal leadership to create the right amount of leadership infrastructure, given the size of the firm. Under their leadership, they will be able to comfortably assess risks, challenges and opportunities and respond to them appropriately in the normal course of business. They will be able to attract and retain top talent.

Morris: Obviously, these silent growth killers can develop at all levels and in all areas of the given enterprise. To what extent can a comprehensive early-warning system be installed and then maintained to monitor potential threats? Please explain.

Sher: It can be, and in fact, this is what the entire book is about. The level of comprehensiveness depends on if you can afford it. Sometimes we have to settle for a bit less comprehensive, especially if the strategy which drove our growth is long in the tooth. A few key elements are solid planning (and plan maintenance), a strong leadership team, and enough savvy and humility to know when you should call for an expert opinion (from the outside.)

Morris: Of all the great leaders throughout history, with which one would you most want to share an evening of conversation if it were possible? Why?

Sher: Nelson Mandela. This guy was jailed for 27 years, and still came out positive and a great leader. Many leaders (including business leaders) fall apart when the going gets rough. He’s a model of never losing hope.

Morris: If you were asked to speak at an [begin italics] elementary school graduation ceremony [end italics] and explain why innovative thinking is important to personal growth as well as one’s career (no matter what it turns out to be), that would be your key points?

Sher: I would define innovation as solving problems in new ways. That the first place to start is to listen to the people with the problem, and to ask many, many questions. Then let the new ideas flow, ideally with a group of fellow innovators. New solutions are of great value to the world, and if you can find a process by which you come up with good ones, you’ll have a great career that will be fun and fresh.

Morris: In your opinion, what specifically can new parents do to encourage and nourish a child’s imagination during the pre-K years?

Sher: Expose them to as many new and different environments as you can afford. Appreciating and seeing the richness/diversity of the world is an essential starting point.

Morris: Long ago, Thomas Edison observed, “Vision without execution is hallucination.” Your response?

Sher: I couldn’t have said it better myself. I’m a pragmatist, so without results, thoughts are just dreams. We need dreams to be turned into results.

Morris: Let’s say that a CEO has read and then (hopefully) re-read Mighty Midsized Companies and is now determined to establish or strengthen a workplace culture within which personal growth and professional development are most likely to thrive. Where to begin?

Sher: Begin with a solid strategic and operational plan. This is a roadmap for the business. We can focus everyone on accomplishing this plan, and to do so, it will be more clear about where each of us need to grow and develop.

Morris: For more than 25 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in Mighty Midsized Companies, which do you think will be of greatest value to leaders in small companies? Please explain.

Sher: The notion that leadership is an “organism” in and of itself; that is deserving of study and then construction. Leadership infrastructure requires time, thought, resources and hard work, and if we focus on it, that leadership infrastructure will allow us to have sustainable, long term growth.

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To read Part 1, please click here.

Rob cordially invites you to check out the resources at these websites:

All about Mighty Midsized Companies link

Free assessments and other tools link

Rob’s consulting firm, CEO to CEO, website link

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