Is leadership different in a small business?

Strong leadership is critical to the success of any business but its form depends on a business’s stage of growth. In a start-up what is required is hands on, sleeves rolled up management, while large companies have managers who are less involved in the day to day managing. Their position is much more of a leadership role, establishing goals and determining strategy. SMEs occupy a middle position, where leaders need to manage actively and set directions.

As a business grows, does it need to change leadership?

As businesses evolve, they require different management teams and leadership capabilities. Entrepreneurial individuals who start companies have unique skills and traits that often do not make them good leaders of larger organisations.

One of the secrets to Sir Richard Branson’s success is that having started a business, he has always known when to bring in a professional management team to run it. Typically, a start-up business will see a change of management once it reaches about 200 employees, as the infrastructure required has to become more sophisticated.

Who is responsible got recognising such needs?

It depends on the ownership structure of the organisation. For a PLC or even a private equity organisation there is a corporate governance structure and non-executive board members that oversee the appointment of the executive team. For a family run organisation it is a much more opaque process and depends on complex relationships between family members, management and advisers. We normally see leadership changes in family run businesses as a result of organisational necessity, for example after an acquisition, a change in capital structure or simply growth.

How does recruiting leaders differ for a smaller business?

Recruiting for a SME is arguably harder for a head-hunter than for a larger company, although the recruitment fee is much less. FTSE 100 searches are typically geared to mitigating company and board reputational issues and managed in conjunction with the nominations committee. For an SME, it is the personal fit with the chief executive or owner that is critical. The cost of making the wrong hire can be devastating for an SME.

How does an SME leader move to lead in the FTSE?

The route for executive directors is to move gradually to companies with ever increasing market capitalisation. It is rare to see a small cap plc director move to a large group in one leap. However, the skills required in a smaller company are not too different from those required in a division of a larger group. The group skills gained in the SME, while not required in a divisional role, often prove useful for when that candidate makes a move from that divisional role into leading a large company.

How should the founder of a small business choose their successor?

For a family run business, you would normally expect to remain in family hands. However, for the entrepreneur with no skilled or willing family members, it can be complex and emotional to identify successors. One way of managing succession planning (ignoring ownership structure) is to have a deputy ‘learning the ropes’ until the time is right to hand over.