Richard Carrano knows all about stages — not the prosceniums on which actors ply their trade, but the phases through which companies evolve as they grow.
He also knows how hard it can be for a business to advance from one stage in its development to the next. The transitions seldom come easy.
Carrano has worked for Purchasing Power LLC, an Atlanta-based e-commerce company, since its inception in 2001, initially as chief financial officer and more recently as president and CEO. Purchasing Power, which offers a program that enables its clients’ employees to purchase expensive items like computers and home appliances via a payroll deduction plan, has grown swiftly through three developmental stages over the last decade.
Carrano says the key leadership challenge he has faced is helping Purchasing Power maneuver through the transitions from one stage to the next.
“That has been the toughest thing, managing the evolving leadership needs of a high-growth company as it transitions through different life-cycle stages,” Carrano says. “And those stages come much more rapidly with a company in our space and our size.”
Carrano identifies Purchasing Power’s first stage of development as the period from its inception until it reached about $50 million in annual revenue.
“That first stage took us from ’01 to ’06,” he says. “The leadership needs in a company in that stage focus on what we identify as heroes.”
Heroes, as Carrano describes them, are employees who are versatile and cool-headed in the heat of battle. However, some of the less exciting but still crucial developmental tasks like establishing routines, procedures and best practices are not among the heroes’ strengths.
“Heroes are generalists who are very comfortable wearing many hats,” Carrano says. “They’re great at putting out fires. But subconsciously, they’re not wired to put in process. So what happens is, because of that lack of process, they get to continue to play the hero role. They continuously ride in on the white horse and save the day.
“In an early-stage business environment, when you’re still not exactly sure if the model is going to pan out, and with the limited amount of investment that you’re able to make in head count, you need that generalist, someone that can do many different things.”
The second stage of Purchasing Power’s growth path took the company from $50 million in annual revenue to $100 million.
“Stage 2 for us was from ’07 to ’09,” Carrano says. “At that point, we started transitioning away from the heroes and started looking for what we identify as bricklayers.”
Bricklayers are people whose forte is establishing the framework for a company’s future — the processes, the routines, the procedures that govern how employees do their daily jobs.
“The bricklayers are individuals who have a focus on process and on building the foundation of stability,” Carrano says. “And in situations like this, the CEO is sometimes put in a position where they’ve got this liability of loyalty to all those heroes that have helped them get to that point in time. But unfortunately some of the heroes aren’t maturing their skill sets as quickly as the business’s needs are changing.
“That’s a slippery slope for the leadership of the organization,” he says. “You’ve got these heroes that their co-workers identify as very important, value-added people. And then the next thing you know, they’re starting to transition out, or maybe into different roles, at the same time that the bricklayers start coming in to build the process, the foundation, the infrastructure, so that the scale can be digested.”
The third stage of development, which Purchasing Power is currently undergoing, started when the company reached $100 million in annual revenue and will end at the $200 million level, in Carrano’s estimation.
“We’ve recently entered what we identify as Stage 3,” he says. “This third stage, for us, has been from 2010 through the present. This is where we’re starting to supplement our leadership with specialists.”
Specialists are people who have developed deep expertise in an area in which the company has a need to help it continue to develop and grow.
“The processes have been defined; we’ve got a good understanding of what we’re doing and how we’re doing it,” Carrano says. “So now we’re looking to bring in some specialists to focus and introduce best practices. These are individuals that have had successful careers in other environments that translate well into our environment. And these are the individuals who really help you begin to maximize productivity, production consistency, and predictability.
“In this stage, the way we identify it from an economic resource allocation point of view, you’ve gone from where you might have had one person straddling two different roles and maybe doing each of them at a mediocre level, and now you’re at a place where you’ve broken that down into two specific roles,” he says. “You’re hiring one person to perform each of them, and you’re expecting excellence in both.
“Being able to identify and recognize what stage you’re in as a business is critical at the leadership level, to make sure that you’ve got the right people leading the organization.”
Manage the transition
The most complicated part of leading a company through its growth stages, Carrano says, is recognizing when it’s time to start making a transition — and more to the point, recognizing when it’s time to start making the changes that will enable the company to successfully navigate the next stage.
“There are a couple different concepts I rely on to do this,” Carrano says. “One of them is something I categorize as awareness and emotional intelligence. This is something that we look for in every senior-level leader.
“When deadlines are slipping, the quality of the work might not be what it used to be, and you have that conversation with the individual, and they look at you like you’re crazy, like you have no idea what you’re talking about and everything is fine, that immediately suggests something isn’t right here,” he says. “The needs of the business have obviously outgrown the capabilities of the individual.”
Another signifier that Carrano says he looks for is a two-parter: effort and execution.
“Those are two factors that we look at in gauging the performance of people, especially those in leadership roles,” he says. “Obviously, effort is always first and foremost. If the effort is where it should be, then you can work on the execution. And the execution might be improved by way of additional coaching, training, systems, things like that. But if you don’t have the effort, then you can’t even get to the execution. It’s irrelevant at that point.
“When we’re looking at the organization and the need to make a transition, we’re looking at the people that we have in leadership roles,” Carrano says. “If the effort’s there, we’ll work with them. If the effort isn’t there, we can pretty much recognize that we’re never going to get there, so we know we need to start making changes.”
Loyalty and accountability
Managing a company’s transition from one developmental stage to the next requires a keen understanding of loyalty — and of which constituencies the CEO needs to be most loyal to.
“Again, it’s that liability-of-loyalty concept,” Carrano says. “We’ve all heard the phrase,‘What got you here isn’t going to get you there.’ I think for the senior-level leader to recognize that they’ve got a fiduciary responsibility to not only their investors, but equally to the current employee base, they really need to be responsible for making sure that the building blocks for the future are the right ones. Just because you’ve relied on certain skill sets to get you to a certain point, that doesn’t mean those skill sets are the ones that are going to get you to the next level.”
Times of transition are always stressful, and the CEO often needs to make difficult decisions, and to do so quickly.
“I always put it in the context of: I don’t want to get to a certain level and look back and feel like I short-sold the opportunity by not making the decision that was the right one,” Carrano says. “While those may be tough decisions, that’s the CEO’s job. They have to make the tough decisions. They need to recognize when those changes need to be made, and ultimately they need to be accountable for making them.”
Conversely, when it comes to timing, a transition from one phase to the next shouldn’t be shoved along too quickly. The CEO has to allow for some overlap of the people being brought in versus those being moved out, as well as the incumbents being converted to new roles.
“There are a couple of pitfalls you have to watch out for,” Carrano says. “The first is not having a contingency plan, or not having some redundancy built into your overall plan. Even though you’ve brought in your bricklayer or your specialist, if they’re not up to speed, or if your processes aren’t up to speed, and your firefighter is gone, then you might find yourself in a situation where you’re in a tight spot and you don’t have anyone there to step in and save the day — and you might still need that.
“So the urge to rush through these transitions is something you have to avoid,” he says. “To just knee-jerk and start making changes without laying out a prudent timeline could put you in a position where you’re left without the process that you need in place, and you’re without the individual that can help you get through it in the interim.”
Another key pitfall to avoid is not adequately explaining to employees the context and the need for the changes being made.
“You really need to communicate well with the folks that will be left after such a transition,” Carrano says. “You have to be able to reach out to them and articulate the vision and help them see the future. If you don’t, the grapevine might take over and paint a picture of what’s going on that isn’t reality. It’s critical to control the message so you can bring those individuals to the point of clearly understanding what you’re doing and why you’re doing it.”
Lastly, Carrano says it’s crucial to understand that some people have key assets that need to be retained, and some will surprise you with their capacity to handle change and convert their skills to a new role.
“If you’ve got a good understanding of what’s going on in the business and the people who are involved in it, there might be circumstances that you can tailor one way or the other,” Carrano says. “That hero might be able to transition into a different role that is equally beneficial. And a lot of those heroes have incredible amounts of historical knowledge, and you always need that.
“So when you’re having the conversation with the individual, those are the situations where you perhaps need to act differently,” he says. “If they understand the future vision of the company and the need for change, and they recognize that they might not be the right person for a given role, then the ability to continue to get value out of them in other roles and retain that historical knowledge is something that you should absolutely be willing and able to find a way to do.” <<
HOW TO REACH: Purchasing Power LLC, (888) 923-6236, www.purchasingpower.com
THE CARRANO FILE
Name: Richard Carrano
Title: President and CEO
Company: Purchasing Power LLC
Born: Wilmington, Del.
Education: Bachelor’s degree in accounting, University of Richmond; MBA, Emory University
What was your first job, and what business lesson did you learn from it that you carry with you today?
I worked as a stock clerk in a convenience store, and it was really about hard work — breaking down boxes, stacking stuff in a freezer that was 35 degrees. It wasn’t fun; it wasn’t glorious. But that’s what work is about sometimes: grinding it out and getting the job done.
Do you have an overriding business philosophy that you use to guide you?
On the theme we’ve been talking about — hiring senior-level leaders — the goal should always be to get one step closer to engineering yourself out of a job by only hiring great people that are capable and motivated to take your job. If you’re doing that, then you’re only building strength in the organization, which will clearly leave the organization in a better place.
What trait do you think is most important for a CEO to have in order to be a successful leader?
Obviously they need to have the passion and the intimate knowledge of the business. And they need to be a person that’s willing to make everyone else uncomfortable by asking the questions that nobody wants to answer.
How do you define success in business?
The way we communicate it here with our employees is what we call, simply, happiness. When you do something and you know it was the right thing to do and it makes you feel good, in most cases, that’s going to lead you down a path to success.
What’s the best advice anyone ever gave you?
My first job after college was in accounting with Deloitte & Touche. When I was working there, my uncle, who was in sales, said to me, “Whatever you do, don’t cook the books.” When you think about it, you can apply that to almost anything.