6 Keys To Avoiding Leadership Breakdown In A Small Business:
My longtime accounting office imploded this month. It was an awesome office and I had been using them for over four years. They weren’t perfect, but they were pretty darn good at what they did. They were very well known in our area and had thousands of clients and employed 20+ people.
So what happened?
One of the two partners (I’ll call him the Keyman) had a heart attack and ended up in the hospital for a few weeks. Stuff like this happens all the time (not to sound callous) and companies don’t fail, so why was this different.
It was different because the Keyman really was the Keyman of the business.
He knew everything and kept everything locked in his head. He was a brilliant man. I could call him about financial issues from 3 years prior and he would remember all the details and answer my questions without doing any research.
I had to research just to ask my questions.
He knew tax and accounting laws inside and out and was literally the ultimate resource at their office. He knew all the clients and dealt with each of them personally.
I don’t know the inner-workings of what happened within the company and anything I say would be speculation, but what I learned was the importance of the old adage, “don’t keep all your eggs in one basket”. Or in this case, don’t keep all your knowledge in one person’s head.
Again, I don’t know all the details, but from the outside looking in, without their Keyman people started getting nervous. I’m assuming a few clients jumped ship, which scared employees. I know that collections dropped and they had to let a few employees go. At this point, I’m assuming more clients left and then the employees got scared and started job hunting.
I’m sure there was stuff going on behind the scenes that I’m unaware of, but what really matters is that in the space of 8 weeks my accounting office imploded. And now I’m stuck looking for another firm.
More importantly, though, I’m also analyzing what happened and trying to make sure my company doesn’t make the same mistakes.
Small business are notorious for having one or two key employees who know everything. It is the nature of leadership in business organizations. In certain situations, you don’t have the option of not having a keyman. However, what you can do is prevent similar situations by being prepared.
This is one of the reasons that leadership style in business is so important. Effective leaders have learned to share knowledge and skills so that all systems are covered in the case of an emergency.
How to avoid key personnel failure:
1. Don’t have a Keyman
Make sure multiple people know your product, client base, suppliers and other key resources for your business. This is a huge leadership challenge in business, particularly for small business owners who have built their company from the ground up. It is really hard to let go of control when you have spent years building up the good name of your company.
As hard as it is to let go, in the long run, it will make your life and the lives of your employees and customers easier if there are multiple connection points within a company.
My boss is very similar to the Keyman, he literally knows everything. However, he isn’t a micro-manager. He provides direction and then leaves us to find the best course of action. This means that multiple people are involved in various parts of the business. No one understands our company like he does, but if something happened we would be able to work through the vast majority of the issues.
He has been smart enough to put a team in place that he trusts enough to allow to make management decisions.
2. Share Knowledge
Don’t fall into the trap of thinking you’re invaluable by holding key pieces of information. Yes in the short term it may provide job security, but ultimately it hurts the company and in the long run, anything that hurts the company will hurt you.
I broke my leg about seven years ago and was unable to drive for 2 weeks. I learned very quickly that I wanted multiple people able to do my job. Trying to coordinate everything from home (this was before the home office) was a nightmare.
On a side note, everyone is replaceable. If you consider yourself irreplaceable you are going to get complacent and before long you really will be replaceable.
3. Have financial reserves
I’m a huge Dave Ramsey fan and can’t stress enough how much peace I have in my personal life as a result of my 3-6 month emergency fund. It takes a lot of time and dedication to save money, but when disaster strikes having a rainy day fund really can keep you afloat.
There is nothing worse than realizing you don’t have money for payroll. During the early years of my employment with my boss, I watched him use his personal funds multiple times to make payroll. We weren’t able to have the business reserves needed, but he was able to have it in his personal accounts.
His personal savings kept the company afloat long enough for it to become a very successful company. It always pays to have an emergency fund in your business and personal life.
4. Have goals that work towards your vision
Without the Keyman’s leadership, everything came to a grinding halt. I know that he had vision and goals, but there wasn’t enough buy-in from the team to keep everything together.
Articulate your vision and make sure that the goals you set to achieve this vision are shared throughout the whole organization. The goals should be meaningful and achievable. They also need to be goals that everyone within the organization is working towards.
If everyone is working towards a common goal then when a leadership breakdown occurs everyone will continue working towards the vision articulated by the strongest leader.
5. Hire good employees and give them a reason to be loyal
It became very obvious to me which of the Keyman’s employees were loyal to him and which were loyal to their paycheck. Again, this is from an outsiders perspective, but I believe that if the employees had waited even one extra week to jump ship the Keyman would have had time to pull everything together.
I don’t mean to knock the employees who left. They have their own families to support.
What I’m trying to articulate is that loyal good employees will often give you the benefit of the doubt and give you time to work through leadership breakdowns.
6. Perception is everything
When the Keyman’s castle started to crumple his business partner should have taken up the reigns. I don’t know what happened with the Keyman’s partner, but based on my observation he wasn’t there to lead. This perception of inactivity scared the employees and the clients.
It is easy to armchair QB, but there was no information control. We were hearing rumors and receiving poor customer service and no answers. If the partner had just stepped up and explained their plan of attack I believe most of the problems would have blown over.
I personally trusted the Keyman and even I was starting to get pretty skittish about the whole situation. When there is no one directing the outgoing message then people are left to assume the worst.
There is never one reason for the failure of a business. Death by a thousand cuts is often the true cause of failure. However, there are very few companies that will survive a leadership breakdown. Leadership breakdown is the quickest failure point for any business.
The ultimate lesson for me is that this particular failure was preventable. I firmly believe that even if they had done 3 of the 6 things listed above they would have survived. In this case, it literally was the perfect storm.
On a positive note, my Keyman is out of the hospital and will be reforming his company on a smaller scale starting with the one employee who was completely loyal to him throughout this whole mess. I don’t know what will happen to them, but really hope they are able to make it work.
PS. If you want to read more about how not to fail at business, check out – 10 Steps for Starting A Small Business. In this post, I share how a poor business decision cost my husband and me $55,000. Learn from my mistakes!
Join the Intentional Living Revolution
I love to help my readers transform their lives.
Join for weekly updates on Personal Finance, Parenting & The Fun Things in Life.