Nearly every successful small business starts out the same way—with a hardworking business owner who has a dream that he or she believes in and the work ethic to make that dream become a reality. If everything goes according to plan, that owner founds a business, the business grows, and new employees are hired. Even as those first employees are hired, however, the owner is still the ultimate decision maker, the person who maintains power over the direction and strategy of the firm. During this period of expansion, however, an unhealthy dynamic can take root. "As the company grows, many [owners] are still leading their organizations alone and continue to take hands-on control of all areas of the operation, " observed Mike Knowlton and Alexis Candalino in Canadian Business Review. "This leads to a strangling effect on the development of the company." The savvy small business owner is the one who knows when to stop trying to do it all and when to expand his or her management team, either by promoting existing employees to new positions of authority and responsibility or by recruiting managers from outside the company.
In almost every growing business, the owner eventually reaches a point where he or she has to go outside the company to hire a new officer, a new part of the management team. This is an inevitable development once a business reaches a size in which responsibilities become fragmented and specialized. In the early days, it might have been easy for the owner and one or two other people to manage everything, from the hiring to marketing to inventory control. Business expansion, however, especially if it takes place at a pace that outstrips existing facilities and operational procedures, makes that "do it all" approach unworkable—handling hiring and firing on the fly might be manageable when there are six employees in the whole company, but not when there are 60.
Business experts cite several major advantages associated with the development and institution of effective management teams in enterprises that previously relied on a single individual for guidance. One of the most frequently mentioned benefits of promotion from within, for instance, is that it serves to increase motivation and improve morale throughout the workforce, which recognizes that hard work and contributions to the company's success will be rewarded in tangible fashion. But proponents of hiring management personnel from outside the organization contend that such practices help to provide diversity at the company's highest level. Laurence Weinzimmer contended in the Journal of Small Business Management that having a variety of voices from different professional backgrounds on the management team leads to an atmosphere that fosters constructive criticism and reduces complacency. According to this argument, the different perspectives foster company growth and "produce better decision making because whereas members with many years in a particular industry can offer insights based on rich experience, newcomers can provide fresh perspectives."
Different voices also create a system of checks and balances on the management team. A team comprised of long-time company insiders might suffer because the owner still views the company as being in the start-up phase and might be reluctant to delegate authority, which increases the likelihood that a single person will exert too much influence over the strategic direction of the entire company. Many business experts believe that outsiders, once they are acclimated to the company, are more likely to challenge the status quo and act as a balancing influence to the existing management team. In addition, outsiders are usually specialists in a certain area that they were hired to oversee. This knowledge base often means that their opinion carries more weight than that of a longtime employee who is not a specialist in that field.