Ep04 – Why Formalize Organizational Structure?

Tara: [00:00:00] Hey there I’m Tara Landes. I’ve been working with small businesses for over 20 years, helping them implement the foundational business processes that get them to the next level. From DNA manufacturers to funeral homes. From web-based subscription services to third generation excavation contractors. Lots of business podcasts talk about the big companies. We’re digging into the secrets of the small companies. Want to make your business more fun, more profitable, and more self-reliant than ever before? Lots of people have done it. You can too, and you can start right now. This is the Small Business Foundations Podcast.

This episode explores the complexity of organizational structure in a small business and for kicks, we’re going to throw it and some family dynamics too. But more on that later.

For now, I know what you’re thinking. “Seriously Landes, how complex can organizational structure be in a small business? It’s small for goodness sakes. Surely everyone knows what they’re supposed to do. If you have a question, you go to the boss. But for the most part, the thing just runs, right?”

Anyone listening who has experience in a small family run business knows that’s just not the case. By virtue of their last name, some people’s opinions have more weight than others. Maybe deserved, maybe not.

Holding people accountable can be tough. After all we pride ourselves on our family feel, and you don’t fire family. Not to mention non-family members trying to figure out who they should go to for direction. Or do they need to ask permission? And for what things? Depending on who you ask, you may get different direction on how we do things around here.

In small business without a clearly defined organizational structure, 80% of the job gets done, but the 20% that’s left in confusion causes 60% of the headaches. Add a family member or two into the mix and you’ve just quadrupled the complexity. For these reasons and many others, structure is important in small business.

Hold up though. Before we go any further, I should tell you what I mean by the words “organizational structure”. I’ve learned that people use the same words to describe different things and I want to make sure you and I are on the same page. An organizational structure is a pictorial representation of accountability and authority in a company.

How’s that for a mouthful? Look, it’s just a chart with boxes, representing positions, not people, and a person can be in more than one box. For example, the person responsible for sales may also be the president of the company. One person, two boxes. Those boxes with titles like sales manager or president, they have duties in them, specific things the person staffing that position is supposed to do. The lines on the chart, represent reporting relationships. For example, the bookkeeper might report to the controller so they’d have a line between the two boxes. And the levels on the chart means something with regard to authority. Authorities are the things you’re allowed to do without asking permission first. Usually, they have to do with spending money, hiring, firing… that sort of thing. Formalizing the organizational structure creates clarity around expectations. It’s tough for people to do what you want them to do if you don’t tell them what you want. Everyone can see who does what. Enough theory though. Let’s meet Trevor Mann, the CEO of Don Mann Excavating.

Don Mann is a third-generation family business located in Victoria, Canada. Founded in 1947 by Trevor’s grandfather, Don Mann, the grandchildren continue to build on the foundation he laid three quarters of a century ago. In 1947, Don had one tractor. Today, the company owns more than a hundred pieces of iron.

They’ve got great branding too. If you’ve been to Vancouver Island, you’ve seen a Don Mann truck. The current owners, Trevor and his cousins Colin and Jordan are really great guys. Humble, hardworking, and people smart. The triumvirate of team player virtues. The other character in our story is Steve Mann. He’s Colin and Jordan’s father, he’s Trevor’s uncle, and most important to our story he’s the past president and former owner of Don Mann. He’s Don’s son.

When the sons and cousin bought Steve out, they seemed very well set up for success. They were pretty aligned from a values perspective, but had different ideas on where they wanted the company to go. Steve was clear on his role. He was happy to act as an advisor, but it was the boy’s company now. They were the deciders. But how were they to decide?

Today, I wanted to talk about organizational structure and clarifying roles.

Trevor: [00:04:48] Yeah, we definitely had a lack of clarity on who’s doing what, and I guess I can give you the background on that. Three years ago, Colin, Jordan and I became owners at Don Mann. And with that, we just kind of carried on doing our current roles and obviously with everyone else in the organization, they’re probably going like, “Who do I go to? Like all three of those guys are the owners. Do I talk to Jordan? Do I talk to Trevor? Do I talk to Colin?” And they talked to all of us and there’s a chance that one of us was giving a different opinion than the other. And it caused some confusion in the company and people didn’t know who to go to.

Tara: [00:05:29] Just for our listeners. What does Don Mann Excavating do?

Trevor: [00:05:32] We are a civil construction company. We have an hourly division and a contracts division. So in our hourly division, we’re supporting builders, we’re doing excavations, backfills, and that kind of stuff. In our contracts, we’re building roadways, we’re doing pipelines. We’ve even done bridges. So we do multiple things for the local community here in Victoria.

Tara: [00:05:55] And so your job originally was greaser and now you’re CEO?

Trevor: [00:06:00] Yes. I have been, I would say, lucky enough to be a part of every aspect of this business. And I think it’s given me a good understanding of how the company works and really how every individual feels in the company.

Tara: [00:06:20] One of the advantages of working in your family’s business is the holistic perspective you have on the overall operations. Company business was discussed at the dinner table and by osmosis, you picked things up. Often summer jobs gave kids a taste of what it was like to work there too. As time goes on the first, or in Don Mann’s case, the second generation gets ready to retire and pass on the torch. In some businesses they sell to an outside partner. In other cases, people working in the business want to buy it.

Sometimes they are family members. It gives them an opportunity to grow, provides an exit for the owner, and ensures continuity for the staff. Problems can ensue, however, if the past leader steps away without clarifying who will be taking on which of their leadership duties. The default decision is sometimes for all of the new shareholders to be “the leader”. Not only do they share the company, but they share all of the decision-making responsibility.

Look, there is no perfect structure, and I suspect there are examples where this has worked well. The downside though, is that the people at the top can end up doing a lot of redundant things. Also, if they aren’t completely 100% aligned in their thinking, they can give different direction causing confusion in the team. Don Mann experienced a bit of that when Steve transitioned out.

Trevor: [00:07:36] That’s correct. We kept kind of business as usual doing what we’re doing, which was working, but we kept kind of running into roadblocks. We had no clarification who was really running the company. Like who was the head of the company?

When we took over, I don’t even know if we decided on who was really what role at that point. Colin was listed as president. I was listed as vice president. I think Jordan was the secretary. And Steve was the treasurer. But there was no real thought behind it, I guess.

Tara: [00:08:06] There were no duties behind those titles?

Trevor: Yes. Correct.

Tara: There’s a difference between a corporate structure and an organizational structure. The corporate structure identifies who is responsible for what, from a legal perspective, but it doesn’t address the day to day of what people do. In this case, for example, Steve was the treasurer, but he was no longer operational in the day-to-day.

Trevor: [00:08:29] I think it was the lack of clarity around roles that caused issue and maybe a bit of conflict amongst the three of us, just because we never decided who was what. That’s why we asked yourself and your team to step in and help us out with that. That process was actually quite amazing.

Our first meeting where you guys sat us all down and we had a discussion. And you said, “You know, Jordan, what do you do at the company?” And Jordan explained what he did, and “Colin, what do you do in the company?” Those discussions are what actually made each of us understand what we do in the company. Like just that discussion and with a third party too. And not me saying, this is what I do or Jordan, or Colin.

That third party, asking the questions and talking it through with us. It brought that clarity. By the end of those two days, it was very clear and accepted by Jordan, Colin, and I, that Jordan is a COO. He’s in charge of operations. Colin’s CFO. He’s in charge of finances. And I’m CEO in charge of the company. It was clear after that weekend. Honestly, there is no hard feelings. It was like, this is the way it is. And it was complete support. It was amazing, actually.

Tara: [00:09:54] Why did that conversation not happen before?

Trevor: [00:09:57] I don’t actually know. It was something I would push and then it would kind of just go silent. You know, you get back into the day to day working and, gotta get this project, we got to pick up this project over here, this one to keep all the staff busy and, um, it would get dropped. And then three months later I’d be like, no, I bring that up again. It would come up again. I think those conversations are what eventually brought you guys in. It just took some.

Tara: [00:10:23] Hmm. What surprised you with this process of clarifying these roles?

I imagine that you thought you knew what each other did. You had been working together for a long time….

Trevor: [00:10:32] Well, jumping back to what I just said, I was surprised after we discussed what we do in the company, how it just fell into place. When we discussed what we did, it was just like, our eyes were opened and it’s like, oh yeah, this is what you are doing in the company.

Jordan, you are doing operations. That’s what you’re in charge of.

So that surprised me. Because I don’t often get that nervous, but going into that first strategic planning session, I was like, “Oh man. I’m like, what’s going to happen in there? Is it just going to be in-fighting?” But it wasn’t at all. And not that I expected that from Jordan or Colint just bit, a bit, maybe a headlock, but, uh, no, I was surprised how easily it went.

Tara: [00:11:14] So this might seem like a silly question coming from me, but why does a company need a leader?

Trevor: [00:11:19] Really, you need one throat to choke. I mean, I guess that would be the answer, right? Someone has to be responsible. You need someone making that final decision. If you have three people, plus you also have like a management team involved as well, if you just don’t have that one person that I’ll make a final decision, you know, people that disagree with that disagree and commit with that person, it makes it hard to run a business.

Tara: [00:11:43] Disagree and commit is a powerful decision-making framework. In strategic meetings, everyone needs to be heard. They may not always get their way, but they are given the opportunity to express their opinions and persuade others. At the same time, everyone understands that if they make no decision, they are actually making a decision. A decision toward inaction.

Disagree and commit allows people to disagree, but by the end of the discussion, they must commit to going forward with the agreed upon action. Even if they didn’t agree in the beginning. They can’t leave the discussion continuing to campaign for a different course of action. That’s the commitment part. The management team presents a unified front to the rest of the organization.

We focused a lot on the leadership positions in the organization. But what about that management team? When you started pulling apart the org chart, did you find you were missing any positions?

Trevor: [00:12:36] Absolutely. Yeah. We realized really quickly we needed to have an HR manager in place assisting us because everyone knows the employees are your biggest asset and they need to be managed right. And we really realized we had a hole there in our company.

Tara: [00:12:52] And how was that manifesting?

Trevor: [00:12:54] What we found is we had people wearing too many hats. Like we’d have someone taking care of safety, HR, uh, you know, equipment management. And they were doing so many tasks that they couldn’t really focus on their actual job. We went through your hiring process, which was amazing. And we had great candidates. And I am so happy with the person that we hired.

Tara: [00:13:20] Fantastic. In general, we find small businesses are kind of reluctant to hire what they call overhead hires. They don’t want to add overhead like HR or a controller or somebody who just manages people. Was that the case at Don Mann?

Trevor: [00:13:34] Yes, I think that was the case at Don Mann. I think our culture is shifting slowly. No, I wouldn’t say slowly. It’s probably happening pretty quick in the last year. Yeah, we were, we’ve always had a bit of a concern about hiring overhead and every time we hire a new person, that’s straight overhead business just seems to grow more.

It seems to run more smoothly. We’re a better operation. Since putting this HR manager in place our operation is just running so much smoother and just way more professionally. And the employees are loving it as well. There was almost concerned too, with the employees. Are they going to go to this person? Are they going to speak with this person?

And they love it. It’s been a real blessing for us. We’ve also added an office manager. We have a safety coordinator also. We’ve also hired a sales team. So we hired three people there as well.

Tara: [00:14:24] Small business mentality is frugal. If I can do it myself, why pay for it? As a company grows though, the manager’s capacity gets stretched. It’s helpful to have an organizational structure that’s built looking about three years out. Identifying all of the positions that would need to be filled someday shines a light on the activities that are getting short shrift today.

Remember, a person can be in more than one box on the org chart. As the company grows, the company doesn’t have to hire another Joe who was acting as the HR manager, the safety manager, the equipment manager. After all, that would be tough to replace. Instead, the company can focus on hiring for the specific job that will provide the most value. As that position begins to pay for itself, they can then move on to fill the next.

So it was a lot of hard work. There was some nervousness around your partners and how everyone would take it. How is the trust now?

Trevor: [00:15:20] The trust is at an all time high. I support my partners and my partners completely support me. We communicate a lot too. There’s no silent moments. There’s no going, “I wonder why he hasn’t dropped in to see me or talk to me?” All that is gone.

Tara: [00:15:38] If you could sit down with yourself five years ago, any advice you’d give yourself?

Trevor: [00:15:43] If I could go back five years, I would have implemented what we’ve done over this past year, five years ago. And that is exactly why I’m starting it in one of my other companies. Exactly why. Because even if that we could have gone back 10 years and we could have implemented this here at Don Mann, then I would have done that. It’s really changed our company. We’re a healthier company today.

What I find like we’re starting this process out there was some pushback. Someone might say, “why don’t we just buy a machine? You know that’ll create more revenue. Why do we want to go this route?”

I look at investing in yourself or investing in a business, no different than purchasing a machine. It’s going to create revenue as well. Right? You put a machine out or you invest in your organization, the health of your organization, the structure. And that’s going to bring revenue back in as well. And that’s exactly what this is doing.

Tara: [00:16:40] This comes up so much. It’s hard to quantify the value that strategic planning, developing organizational structure, putting in the foundational systems of a business has. It’s easy to quantify the value of another piece of equipment.

I remember one client saying to his partners, “instead of doing a two day offsite to talk about our goals, let’s just buy a Honda civic and drive around together for two days. At the end, at least we’ll have a civic.”

But clarity on where the company is headed and who does what and what we’re going to do if things don’t go as expected, especially if it is then communicated to the entire organization, this can’t be underestimated. If you have a goal in your head and you don’t tell anyone, it doesn’t mean you won’t hit it, but it reduces the odds. And if everyone at the top has a slightly different goal, but don’t know it…well, you can imagine how many different directions people will start to run in.

So, you spent two days, you figured out the org structure and then everything was perfect.

Trevor: [00:17:41] No, absolutely not. (laughing) No, I can tell you the process and I’m going to say it’s the one-year process that we’ve gone through has been extremely challenging and you and your team warned me that it was going to be challenging and I’m like, ah, yeah, of course it is, you know. But it was.

In a good way, though? Not in the way that it was so challenging I didn’t want to be doing it. It was challenging. And it was awesome to see how the company was developing. But it, you know, it put a stress on lots of individuals in the company because they’re carrying the current roles as well as all the development of all our process flow and procedures and just company structure changes and performance reviews and job descriptions and everything that we’ve implemented.

Yeah, it was, it was hard on people, but it’s made everyone better.

Tara: [00:18:37] Okay. Your company has been around for how many years now?

Trevor: [00:18:41] 74 years?

Tara: [00:18:42] 74 years. Even if people didn’t have job descriptions, surely they knew what their job was?

Trevor: [00:18:50] They knew a piece of their job. Say a pipe layer. They knew that they put the pipe in the ground. But they didn’t realize what else was required of them in the company. With the job descriptions, you know, we added a lot more than just pipe laying. Our core values are in there. What’s expected of them day-to-day.

Tara: [00:19:14] Right. I guess that’s true of the more senior positions as well.

Trevor: [00:19:17] Yes. Oh yeah. Yeah. The senior positions too. Mine doesn’t just say head of the company. Run the company. There’s a lot of metrics in there they’re responsible for and accountable for.

Tara: [00:19:28] Is there anything else you want to let me know about organizational structure or job descriptions, role clarity?

Trevor: [00:19:34] I would say for any company that is wrestling with their company structure, get an org chart in place.

It makes a big difference when you start mapping out who in your company is doing what. And you’ll also find some gaps that you need to fill most likely. I guess I would say start early. Some people are like, oh, I don’t need one of those until I have a hundred people. I would be looking at that with 20 people or less.

We waited far too long to get our company structure in place. It was a fun and hard process all at the same time.

Tara: [00:20:12] So what’s next for Don Mann?

Trevor: [00:20:14] Plans are continue to grow our business. We are looking at acquisitions. We’re looking at different equipment for our company to help service our customers better.

I’m excited about the future.

Tara: [00:20:41] There is a proverbial saying about family business. Shirtsleeves to shirtsleeves in three generations; implying that the founder’s heirs are lazier than their predecessors and are destined to squander the wealth of the founder. That couldn’t be further from the truth at Don Mann. I think what helped sustain this business is the strong work ethic that was clearly instilled in all of Don’s grandchildren.

They remind me of farmers. Maybe because many of them are? Up at the crack of dawn work hard all day and family is always their priority. The cousins all live down the road from one another and their bonds are close. For Don Mann, a little bit of role clarity went a long way to shoring up what was already a very strong foundation.

I never met Don, but I think he’d be proud of the guys. After seeing the way they worked together to develop a foundation to take their business forward, I know I am. As Trevor mentioned, the process of bringing the organizational structure to life took about a year at Don Mann. It was hard work. But don’t let that stop you.

If it feels like too much work, don’t worry. You can learn this stuff. Subscribe to this podcast, subscribe to our newsletter, give us a call. That’s why we’re here on the Small Business Foundations Podcast.