CRASHING ON TAKEOFF

           In the autumn of 2015 in Lviv, I attended a four-day training course with business coach Alexander Friedman. I returned inspired and motivated to work on the company structure. By spring, I had formed a team of eight seniour managers and sent them, too, to study with Friedman. For two years, we were hard at implementing all kinds of changes. 

           Then I ended up firing five out of eight of these managers. On top of that, to support the new structure in anticipation of the ramp up in production we hired fifty-two people. 

           Two years later, on the eve of the crisis, we cut fifty! And.... Nothing had changed: neither the quantity nor the quality of the products, nor the delivery times...

           My sunk labor costs during this period amounted to about 24 million hryvnias. They were even higher if you add the cost of training, team building, and strategy sessions.

           “What went wrong?” I asked myself while calculating my losses. Why didn't this project take off, and why do good initiatives fail in general so often?

           Here are the reasons I came up with:

           Uncalled for "betterments".  I remember that during the training Friedman said that business is prone to two crises: crisis of growth and crisis of bureaucracy. If you see that one of them is approaching and you do nothing, the company is doomed. In 2015, PET Technologies had 270 employees, and the company was flexible and efficient. But, fearing a growth crisis, I decided to act proactively. As a result, we caught the bureaucracy crisis. When we created the "right" departments, there were so many managers that meetings lasted up to three hours, while their effectiveness approached zero. Not a private company, but a government agency!

           Changes at the owner's whim. Sometimes you read, hear, see something at your neighbor’s, get excited, and decide to implement that same thing right away. I am sure you are familiar with "agile”, "kaizen", “oaken”, "lean" and other initiatives that stalled on takeoff. Perhaps you know them from experience. When changes are viewed as “fun” instead of the pre-conditions of the company’s existence, the owner quickly cools off, loses interest, and delegates. A company that has been operating for 15-20 years is an established system that seeks stability. Seeing danger in everything new and rejecting changes is natural. If you initiated changes and assigned responsibilities but then “went fishing” for a couple of weeks, rest assured - everything will come to a grinding halt even before it begins.

           Internal destructors. Have you, as the founder of a company, ever heard the phrase "It won't work for us” from one of your subordinates? And you can't help but ask, "Excuse me, who is ‘us’?" In those moments, you feel like a guest in your own business. It turns out that there are those who know better what will work and what won’t. Often, these are the old-timers who were with you when you started your business. I call them the officer corps. These people can be both a reliable support and defense line for the owner, and the key destructive factor. These are informal leaders who feel the mood of the team and know how to give effective resistance to any changes. If the team, led by them, kills your initiative even one time, they become stronger. Next time they will have a strong reason to say, "We've been through this before."  Your leadership team tries to protect you from issues, but if they feel threatened by your initiatives, they will create work and throw several weeks’ worth of problems at you. That's how the system works. And the older and more cohesive the team is, the harder it is to push through changes.

           How to level off with these three reasons? One solution is to invite external consultants! No matter how brilliant the owner is, he cannot adequately assess the state of his company and see all its problems. A fresh look at your old kitchen is worth paying for. They will conduct a diagnostic and determine what changes, if any, the company needs. And if they are needed, which and to solve what problems? And then, once hired for the project, they will be able to competently structure it, impartially and painlessly eliminating toxic employees, including the old-timers that the owner would not dare to touch. 
           I experienced this myself. I invited consultants twice, in 2009 and in 2015. First time we wanted to create a proper structure for the business to contain early signs of internal chaos. This is a state that any growing business built from scratch goes through at a certain stage. Consultants immediately asked me for a list of 10 key employees of the company.

           They conducted two-hour conversations with each of them, asking questions that brought some veterans with "unshakable positions" to their wit's end.  From what I remember, the questions were “how and in what form do you report on the work done”? How do you control the transfer of tasks further along the chain in the business process? I did not ask my employees such questions, because I did not even know that they could be asked! After a series of interviews, they singled out two people they recommended I fire because of how toxic they were. I didn't do it and came to regret it later. Anyhow, they left the company a few years later.

           In 2015, we planned to double production, and to create an appropriate structure and increase staff for that task. The consultants did everything right, we hired 52 people, created eight departments, each with its own manager. However, the market situation at that time did not favor our growth plans. In addition, we got bogged down in bureaucracy.  Inefficient meetings, lengthy approvals for every little thing. And when I heard that my super diligent and responsible people did not do their job because it was not in the regulations, I realized - it wasn't flying.

           Hence rule number two: processes should flow. As soon as you feel that a process is starting to stall, discard it.  Bureaucratization of a growing company is a necessary step. But if it starts to hinder the work, you need to simplify it and partially (not completely) abandon it.  In our case, expectations were not met also for external reasons, the growth in production was not economically justified, so out of the 52 hired employees, we fired 50 after two years.  I disbanded the departments leaving only three directors, and for more than two years now, the company has been working perfectly. Issues are resolved quickly, and even our quarterly meetings do not last more than 45 minutes.  The consultants' contribution was very valuable because they helped us implement the structure, identify useless and toxic people, and taught us many tricks that are not taught in college or MBA programs.

           If you get an urge to change and improve, first honestly ask yourself a question: is it really necessary, or are you bored and looking for something to do? If it's the latter, don't mess with your or others’ brains. Do something useful to blow off steam.

           However, if changes are necessary and the benefits to the business are obvious, then act.  But go all out, control every step, create new rules, and make sure that everyone plays by them without exception. Without a compelling reason, external expertise, a big cleanup, and the unwavering will of the owner, nothing will work.

           I do not consider my own experiment with structuring the company a management mistake. This is a vaccination against future imbalances. Having paid a high price, I succeeded in optimizing and balancing the system. Most importantly, these moments reveal the most dedicated employees who will then become a reliable backbone of stable operations and for implementing future changes.