Any successful entrepreneur will almost certainly need a Number Two once a business has reached a certain size. Flair and instinct are essential attributes in the early growth stage, but sooner or later they are no longer enough. The smooth running and continued expansion of an ambitious venture demands that you share the responsibility of running it with someone who has similar goals, complementary skills and technical attributes.
When one is not enough
Making the right choice at the right time can shift your business to a much higher league of competitiveness and growth. However, despite the prospect of such attractive progress, many owner-managers defer making this decision, or delay it too long. As Tim Anderson, a group chairman at the Academy for Chief Executives, puts it, ‘lots of company founders are too emotionally attached to their businesses to share responsibility.’
This is not as it should be. At best, a business which depends on one strong figure, not only for all key decisions, but also for day-to-day management, marketing and financial control, will find it hard to grow beyond a certain size.
Even worse, it looks unattractive to potential trade buyers if you decide to sell. And at worst, it could lead to corporate meltdown – many business horror stories have occurred at companies where one individual has tried or been forced to keep everything in his or her own hands.
Foresight is needed
Not everyone has the foresight and self-awareness of entrepreneur John Conlan, who recently decided it was time to split his role as executive chairman of Urbium, the nightclub operator he set up seven years ago and grew into a business with a £52 million AIM market value.
‘I had a hands-on management style for seven years,’ he explains, ‘but the time comes when you have to take a step back.’ Accordingly, he made it known that he had appointed headhunters to find a chief executive for the company, while retaining for himself primary responsibility for strategy, development and direction.
In the long run, he has hopes of grooming the new recruit as his successor, although this is obviously a decidedly separate issue. Meanwhile, ‘my role as chairman will be as a bit of a back-seat driver, not interfering too much operationally,’ Conlan predicts.
One plus one equals three
He must hope his choice of Number Two will fit the bill as comfortably as Phil McDonald, who was recently appointed managing director at MGM, an executive recruitment company founded and run by Mike Sheard. With previous experience on the boards of large retailing companies, Sheard had built up MGM into a prominent player in the North and South of England.
Now 64, it came to him that ‘the values I grew up with’ were not the same as those of the 28-32 year-olds he employed. Sheard decided to look for someone ‘with ambition and balls’ to run the business day-to-day.
The idea was to hire someone who could bridge the cultural gap which Sheard recognised had grown up between him and a younger generation. Sheard consulted the Academy for Chief Executives, set up seven years ago to advise on just such matters, which urged him not to look for a mirror image of himself. He met McDonald, 42, through another agency, took references and gave him a two-week consulting assignment.
McDonald worked his way into the business without ruffling people’s feathers in a way that impressed Sheard, who invited him and his wife to dinner with him and Mrs Sheard (‘woman often spot things men miss’). Sheard hired McDonald and, a few months later, now says ‘he could be better at this than I am.’
Sheard took his time and Conlan was prepared to do the same. Both recognise that, although having the right Number Two can be invaluable, finding, motivating and keeping such a person is a process full of potential pitfalls.
What a Number Two can really do
The balance between a company’s principal, whether founder or not, and its new Number Two can be delicate. This is especially likely if, as happens frequently, the appointment of the Number Two has come as a result of pressure from a company’s outside backers, private equity groups or institutions, convinced the time has come, rather than at the boss’ own instigation.
But this does not make the Number Two’s potential contribution any less valuable. Fletcher sees two principal contributions which a good Number Two can make to your business: energy and experience, though these are often alternatives and not always found in the same person.
Jamie Brooke of Quester, a leading venture capital group with the job of picking businesses to back and help with advice, strongly endorses the need for companies to have strong Number Twos. ‘We spend an enormous amount of time trying to ensure our companies are not a mere one-man band,’ he reflects.
In the high-tech sector for example, he says it is not uncommon for a company’s founder to vacate the top spot and become chief technical officer or director, after bringing in a chief executive officer or chief operating officer to run the business side. Elsewhere, he comments approvingly on OD2, a leading digital distributor of music, headed by chief executive officer Charles Grimsdale and started by John Grinham and software expert David Shepherd.
Grimsdale brought in two pivotal people, Ed Arvedick as sales director and Tiff Pike as chief financial officer. Pike did not confine her role to a CFO’s narrow focus but took on commercial contracts, payment plans and a range of activities.
Brooke argues this demonstrates once again that flexibility about roles is ‘crucial in a smaller company’. And such was the success with which this team developed the business that OD2 exited earlier this year via a lucrative takeover.
Flexibility is a must
Venture capitalist and public company boss Sir Aubrey Brocklebank, formerly of the Guinness Mahon merchant bank, echoes the need for flexibility about the roles of Number One and Number Two. He recalls ANC, a delivery business started by two entrepreneurs Vic Barnes and Tony Capper, an ex-policeman.
Brocklebank, whose venture capital group is called Reinventure, originally helped them in the early development of the business, in the absence of support from most other venture capitalists. Some years later, they realised they would need to change their ways to take the business securely to a higher plane and exchanged jobs, Barnes becoming chief executive and Capper non-executive chairman — a move later rewarded with a multi-million pound trade sale.
‘The clever entrepreneur knows what his level is,’ maintains Brocklebank. Either he or she will stay there or seek an appropriate Number Two to help cope with life at a higher level.
At Urbium, Conlan was looking for someone who could take over the running of the business, but also shape up as a potential successor at the helm. But some others seek a Number Two who can act as a mentor, perhaps older than the boss who hires him or her, with experience of larger companies and parts of business life as yet unfamiliar to the young company.
‘Some people who have had a big job and become Number Two in younger, smaller companies can be seen as survivors,’ argues Fletcher, who says outside investors will often push for such an appointment. ‘Senior people from large companies who are victims of takeover bids, for example, can often adapt to the Number Two role — as long as their egos are not too big.
‘If they are in their mid-50s, they may find this satisfying. And they are more likely to stay the course, while a younger person in his or her mid-30s will see it as a stepping stone.’
Picking a Number Two
Recognising the need for a Number Two is one step. But, as any company boss who has tried to do it will tell you, finding and recruiting one can be much harder than you might expect.
‘Getting a Number Two is almost impossible,’ warns Brocklebank. ‘And for a small company affording the post can be a problem anyway.’
Assuming you are in a position to employ a second-in-command, you must decide what you want from him or her and whether to promote someone from within your business or recruit from outside. Whether you as founder have instigated the search or outside investors have set it in motion, there can be potential for conflict and the process can be uncomfortably political.
Fletcher says it is best to be methodical. ‘Start with a brief. Why is the appointment needed? What are the internal and external issues involved?
‘Is there someone inside the business who is a potential candidate and does that person have expectations of getting the job? Even if they are not appointed, if they are made to feel they are being taken seriously, that is good for the future.’
Remember that the right person is unlikely to come cheap. ‘You get what you pay for,’ says Brocklebank.
Cast your net wide
At the Academy for Chief Executives, Anderson says it is important to establish whether or not a potential candidate for the second position wants to do the job for its own sake. ‘To define the job, it can help to work out exactly how the present Number Two fills his or her time and someone needs to ask that question.’
From Urbium, Conlan says it is essential to use all routes. ‘To get the best possible shortlist, it was clear we had to go to headhunters and tell the market we had done so to stimulate wider interest.
‘I and my non-executive directors also used all the informal mechanisms we know. We were not secretive and it was all out in the open.’
Conlan argues it can take three to six months to obtain the right person, largely because ‘the best candidates are usually employed elsewhere. It was open to all and sundry, including internal candidates.’
Any appointment involves risk. And you cannot expect to eliminate that, however you go about it. ‘When someone is given a step up’, warns Conlan, ‘you never know how it is going to work.’
‘But,’ he insists, ‘you must give them their head,’ to see what they can achieve. A second-in-command who is promoted to that role rather than recruited from an equivalent post elsewhere will have to deal with new challenges, such as boards of directors, chairmen, auditors and outside investors.
‘Better people pick it up quickly,’ reflects Conlan, who insists it is vital not to rush the selection process. ‘I am going to take my time. I have been there many times myself. It is a game of cat and mouse.’
Even when considering an internal candidate, he maintains, ‘you must suspend judgement and look at each person afresh, with no preconceptions about people or their backgrounds and no favourites.
‘Once or twice I’ve taken on people whose professional backgrounds seemed inappropriate, but it has worked.’ The chairman should have more experience and be able to advise if delicate internal situations arise.
Beware of the risks
Avoiding risks is very difficult in this game, but you can reduce them significantly. Richard Fletcher of Edinburgh headhunting group Fletcher Jones advises that it is crucial to identify and spell out clearly what you expect from your second-in-command. For example, ambition is commendable, but someone who wants your job can prove less than satisfactory at his or her own.
Brocklebank is blunt: ‘in several businesses, I have had to fire Number Twos who have aspired to be Number One and as a result have not done the jobs they were paid to do.’
If the second-in-command is a foil to the boss, complementing salesmanship with accountancy skills, all may be well. But, ‘if you work with another entrepreneur, he will want to be Number One himself.’
Anderson echoes this point. ‘Accepting the Number Two job can suggest you won’t get to Number One. Often people come in focused on getting the next job and have not focused on doing the Number Two job properly.’
Internal or external
The choice of appointing internally or going outside can have its own pitfalls. Tony Bond of Results Business Consulting says ‘developing your own staff is good in theory, but it can be very difficult.’
He recalls seeing a client, who was a strong charismatic boss of a company he had founded, who introduced him to candidates for the second position. ‘They all filed in like schoolchildren, stood to attention and looked to the chairman for a nod before speaking.’
On the other hand, he argues that, in Results’ experience, bringing in someone from outside can be ‘immensely risky and difficult’, with a high rate of failure. ‘Private entrepreneurial companies have their own culture and people brought in from larger groups which are process-driven can find themselves with no process and no support.’