The Case for Hiring an Outside Manager in Small Business

My previous post on the biggest mistake of hiring a manager from outside generated considerable interest and feedback. The feedback covered both pros and cons of hiring a manager from outside for small businesses. While many agreed with my assessment that hiring an outside manager is a big mistake, several others raised valid points on the flip side. Those points do have merit and worth mentioning here to be fair.
The drawbacks of hiring an internal candidate has mostly to do with the internal competition / conflict between the manager who gets promoted and others that are not, along with the fact that internal candidate is not likely to bring fresh perspective. In this post I will attempt to summarize the pitfalls that arise when your business does not bring an outsider for the manager job, but instead chooses to promote an internal candidate.

• Internal conflict – When you promote only one employee out of several it is bound to create internal competition and jealousy amongst the ones left out. This can lead to conflict, internal politics and jockeying for position that cannot be good for your business.
• Loss of Talent – The issue of internal conflict leads to the natural outcome when one of the employees gets promoted. The ones who are left out may decide to leave and pursue opportunities elsewhere. While some loss of talent and attrition is expected, you have to manage the situation carefully to ensure you don’t end up with empty house. Losing top talent can hurt your business in the short-term.
• Lack of fresh ideas – As mentioned in the previous post, the internal hiring will provide you with consistency and business continuity. The flip side of this benefit is that it will not bring fresh, new ideas to your business. When your employees have been with you for a long time they eventually tend to become comfortable and complacent, which cannot be good for any business. The outsider will look at the business with fresh perspective based on his experience at other places he has worked and provide important suggestions for business improvement.
• Management Ineffectiveness – Many times promoting an internal candidate leads to an awkward dynamics between the promoted manager and other employees. In the past they may be used to working with each other as peers, however this relationship needs adjustment in the new structure. If the promoted manager fails to adapt to the new environment he may not be able to manage effectively.

Now that you have heard both sides of the story, which one do you agree with? Are both types of recruiting necessary depending on the situation? Let me know in the comments.