How to identify growth-savvy leaders, managers

Robert Sher

Successful restaurateurs often seek to multiply their success with expansion into new locations. And while this is a sound growth strategy, a new leadership approach is required in order to sustain the growth, bolster revenue and increase employee retention.

Consider the case of Hurricane Grill & Wings, started in 1995 by Chris Russo. Over the course of 13 years, Russo grew Hurricane Grill & Wings to 20 locations, all in Florida, with a great menu and a founder's instincts. However, by the end of 2008, as the downturn set in, Russo knew he needed a new level of leadership to increase performance and growth. He sold to veteran franchisee John Metz, who decided to make Hurricane a national player with hundreds of locations. Metz hired Martin O'Dowd, a veteran restaurant operator (c.e.o. of 170-unit Famous Dave's of America; president and c.o.o. of Rainforest Cafe), who assembled an all-star leadership team capable of running a 200-unit franchise. The team included Mark Snyder, the c.o.o. who had helped build T.G.I. Friday's for 27 years; Derek Kirk, a c.m.o. with 15 years' experience at Chevy's and Darden; and a v.p. of training with 21 years' experience at Applebee's.

With the right leadership team in place, O'Dowd grew Hurricane from 15 stores in 2008 to 74 units in 14 states by the end of this year. Further, the average unit's size has more than doubled, evolving from 1,700-square-foot stores to 5,000-square-foot units with full bars.

Assembling an all-star team doesn't happen on its own. It requires planning, honest assessment and hard decisions. Here are six factors to take into consideration:

1. Plan ahead.

Start by envisioning the organizational structure you will need three years from now. Focus in on the c.e.o. and the top two to five positions beneath the owner/c.e.o. Sketch out the experience you would want and the key responsibilities for each. This is your dream team.

Next, look at your current team, and identify how many already qualify to be in the organizational chart of the future. The rest are gaps that should be filled over the next 18 months.

2. Consider your own mentoring abilities.

Many owners like to mentor young leaders from within their company, and often talk about starting with a clean slate. While there can be advantages, such owners must look critically at their own abilities. Do they know how to run a larger business? Do they have prior medium or big company experience? Are they active learners? Do they have the time and patience to train? A "blind leading the blind" strategy typically has a poor outcome.

3. Be loyal—to the restaurant.

Many owners tolerate poor leaders on their team. The most common cause is misplaced loyalty, where owners are more loyal to a person (usually one who performed well in the past or has long tenure with the restaurant) than they are to their restaurant's success. Yet the right place for loyalty is between the restaurant on the one hand and each member of the team on the other. As humans, we often define loyalty as being between a boss and an employee, but this can be distracting and problematic over time.

A leader who is acting with loyalty to the restaurant does things that help the restaurant achieve success. In return, a restaurant that is acting loyally to its team members does things to help team members achieve their personal goals.

4. If needed, hire from outside.

There are also many owners who are amazingly creative, hardworking and entrepreneurial, but who are not committed or confident enough to develop their own leadership team, or who can't afford to wait the year or so that it takes to see a new leader become effective. These owners should hire leaders from the outside.

Take Hurricane's owner, Metz, who is a successful midsized business leader and a Denny's franchisee with 40 units. He could have justified leading the charge personally, but he instead found a leader with more experience who had already proven himself capable of handling the challenge ahead: being a franchisor with 200 units. The success of the business was more important to Metz than being the day-to-day leader of the business.

The search for these team members should be thorough and well-executed, finding multiple quality candidates and choosing the best fit. Hire for experience in doing the job at hand for a company two to three times your revenues. These larger firms tend to have the systems, processes, and management needed to develop and fuel growth. Selecting a new leader from such a firm makes it likely that their experience is most relevant.

Bringing in outside leadership can seem unfair to loyal employees who desire those positions, but if they are not qualified, they need mentoring to develop. That's exactly what reporting to a top-notch, experienced leader will do. They will learn best practices and quickly develop a solid foundation for their management career.

Overcoming obstacles to change

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5. Outline expectations.

As you build the top team, roles should be written and clear; expectations must be measurable so that leaders are accountable. The c.e.o. must change his or her approach to working with such a top team. Leading executives is different than leading managers. Operational planning and structure is crucial to allow these executives latitude to do their job and bring their expertise to bear, but keeps them focused on the company's strategy and agreed-upon performance targets.

6. Be prepared to overcome obstacles to leadership change.

While this shift in leadership approach is critical to the success of a multiunit operation, it's not without barriers.

The first is money. Many owners can't bring themselves to pay market salaries and incentives for executives. Yet without them, the business underperforms and growth stagnates. Great leadership is the foundation of success for a midsized operation. Cut or postpone other projects or expenses, or take a cut on owner's pay to afford one incremental executive. Within six months, that person should have created enough value to cover the added costs or more. Then bring in the next one.

In the case of Hurricane, the investor group that Metz led had committed to ongoing financial support so long as top-line growth was forthcoming. The high-growth plan called for negative cash flow for more than two years. The investors made additional cash infusions for more than two years to support top-quality leadership and other growth needs. They were rewarded with 32 percent growth year over year, and positive cash flow arrived on schedule. In the end, the investors put in two to three times their purchase price to fund the growth.

The second barrier is a flawed business model. Some franchises are best suited for an owner-operator structure in which the owner must work in the business to earn a fair return. In these cases, becoming a successful multiunit owner may be impossible. Efficiency (and thus margins) must increase enough to cover higher management overhead as a franchisee's operation grows. If that doesn't happen, then the only path to success may be to exit the concept and find another.

As many restaurants grow into midsized organizations with multiple locations and tens of millions in revenue, owners who want growth will invest in training a strong leadership team or will hire executives with deep, relevant experience. Make a great executive team your top priority.

Robert Sher, founder of CEO to CEO and author of Mighty Midsized Companies: How Leaders Overcome 7 Silent Growth Killers, is a regular columnist on Forbes.com. Sher has worked with executive teams at more than 70 midsized organizations to improve leadership infrastructure.