Many distributors have faced or are facing the challenge of deciding whether they want to transition from the classic lifestyle business management that evolved from the entrepreneurial roots of their companies to professional management.
How can you tell a lifestyle business from a professionally managed one?
Size is one factor, but it’s not the only one. Here are some of the other indicators:
- In a lifestyle business most decision-making is vertical. Choices move up the organization for a CEO decision. In a professionally managed firm, most decision-making is made horizontally by CEO direct reports.
- In a lifestyle business, the CEO is the final decision-maker. In a professionally managed firm, a board of directors has real responsibility and oversight, even if the firm is 100% owned by the CEO-entrepreneur.
- In a lifestyle business, the CEO does most of the worrying about risks, the future, and how to grow the business. In a professionally managed business, the load is spread across and carried by the CEO’s direct reports.
- In a lifestyle business, most growth is captured by reacting quickly and responsively to new opportunities. In a professionally managed business, most growth is intentional. It was researched, investments were made, and resources were applied to achieve the plan.
- In a lifestyle business, staff and other expenses are only added when they become critical and the business can’t move forward without them. In a professionally managed business, some expenses are made in advance to prepare the business for growth.
- In a lifestyle business there is a built-in bias to this is how we’ve always done it. In a professionally managed business, innovation and experimentation is budgeted, often by functional department rather than the CEO deciding.
Of course, these characteristics are gradations on a wide scale. Read more on Crossing the Chasm between lifestyle and professional management, as well as why it’s not always necessary, in this article from IRCG.