Growing Pains

Like the gangly teenager that transitions from childhood to adulthood, the growing Microsoft Dynamics Partner often faces difficult but necessary growing pains.

As partners approach 30 to 40 employees ($6.0m – $8.0m in revenues), there is a tendency for owners to add a layer of mid-level management to control functional groups like sales, marketing, delivery, lines of business or even separate offices.

Often these managers come up through the ranks or are part of the ownership team that are empowered to manage a small group to reduce the reporting impact on the President or CEO, as well as to provide focused leadership to improve performance.

While there are viable operational reasons behind this, caution must be taken to keep an eye on key profitability metrics to avoid costly mistakes during this time of transition.

Sustainable Profitability

To determine whether your growth spurt is on a profitable track, consider the following:

A. Look at your organization chart and identify how many managers are listed.  They may have different titles, but fundamentally they are responsible for a functional group.

B. Determine which of these managers have a personal revenue target included as part of their job function.  These targets typically take the form of sales quotas or chargeable hours.

If you have employees listed in A. and they do not have a measurable target in B. you may be setting yourself up for a costly transition.  The real signs of distress will start to show up in two key dials on your management dashboard:

1. Revenue per Employee – it declines significantly below the average of $200,000 to $220,000 (depending upon the current economy).

2. EBITDA – it will start falling; generally well below the 10% mark.

Managers vs. Team Leaders

The vast majority of Dynamics Partners aren’t large enough to absorb the amounts of overhead that non-chargeable, mid-level managers represent. So, how do you provide the leadership to a growing team, yet stay profitable through to your next growth hurdle?

Consider these steps:

1. Team Leaders
Your company employs team leaders not managers.  This sets a revenue generation tone for everyone and keeps the leadership team focused on productivity.

2. Define Their Roles
Be very prescriptive when it comes to defining what you expect your team leaders to do.  Left to their own devices they will chew up valuable time managing their teams with unnecessary initiatives, systems and meetings.

3. Set Targets
Team leaders should all have sales quotas or billable hour targets depending on their role.

4. Higher Rates
Chargeable team leaders should have significantly higher charge-out rates and should therefore be providing higher value services to clients. Their billable-mark-up-rates (BMUR) should be 1.0 or greater. When combined with realized billable hours, the resulting revenue drops directly to your bottom line.

5. Limit Office Expansion
Resist the temptation to open up a new geographic office until it can profitably sustain 10 employees or more on their own.

6. Performance Dashboards
All team leaders must have their own performance dashboard where their team’s success is constantly evaluated.  It may be as simple as billable hours or utilization percentage by team member.  Without the metrics it’s hard to adjust behaviors.

7. Leadership Training
Provide your team leaders with some form of leadership training.  Most good sales and consulting staff need this help has they grow.

Reaching the Next Level

If profitable growth is your end game, then transitioning your leadership team is a key piece of the puzzle.  Keep them chargeable, focused and motivated – then you’re on the way to the next level of performance.