Direct answer: Whether to hire or grow a manager depends on your exit timeline. Growing internally builds loyalty but takes 6 months to 2 years. Hiring externally gets you immediate speed but requires interviewing 5-6 candidates against real business scenarios you’ve documented.
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Two Paths To A Manager — And Why Owners Choose Wrong
If you are looking to grow your business or scale your business, there is a conversation that comes up about management and who should be in the management seat. You have two options: you grow somebody internally to become the manager, or you go to the open market and find somebody who already has the skills, talents, and capabilities to manage. The age old question in business, should you hire or grow a manager?
I see all too often business owners and entrepreneurs make a quick decision on this without real consideration. Then after the person is put in place, it becomes — wait a minute, there are some things we did not know. The stakes are too high for a quick decision. Whether to hire or grow a manager should be evaluated with the same rigor you apply to major capital purchases, because the wrong manager costs you more than the wrong equipment. This concept sits inside the Exit Ratio 360™ system as one of the highest-leverage team decisions.
Option 1 — Grow An Internal Employee Into The Role
You have an employee who is not quite ready but could grow into the position. Depending on their aptitude, this timeline ranges from 6 months to a couple of years. If you are saying “I really want to grow and scale right now” — the timeline is a challenge. If you are saying “I am cool with where I am, the numbers are okay, and I have made promises to this person” — you have your answer, and the timeline is fine.
The drawbacks with the grow-internal path:
- What do they know how to do at management level?
- They are going to be learning on your dime
- They will figure it out by taking classes or having a mentor
- Who pays for the mentor?
- Who pays for the classes?
- How long can the business afford their learning curve?
The Real Math On Growing A Manager
Let me use easy numbers to show the true cost of growing a manager internally. Say the potential new manager makes $80,000 a year in their new role. To grow them properly, you invest additional support:
| Investment Category | Cost |
|---|---|
| Base compensation for new manager role | $80,000 |
| Consulting help — top-tier mentor | $20,000 |
| Management classes and training | $10,000 |
| Total first-year cost | $110,000 |
That $110,000 is before you account for your own time as the owner coaching them through decisions they cannot yet make independently. It is also before you account for the revenue or profit lost while they are still learning at a level below what a seasoned manager would produce.
Option 2 — Hire An Experienced Manager From The Open Market
Option two: go to the open market and say — I want to bring in a manager who already has massive skills, talents, and capabilities. The industry average pays $100,000. But what could I get for $150,000?
Money buys you speed. This is one of my favorite sayings. I got it from a guy named Dave Lakhani. He passed away a few years ago. Dave Lakhani was a brilliant guy, and he would always talk about money buying you speed. Spending $150,000 for a seasoned manager who is producing at capacity from month two is often the better decision compared to $110,000 spent on somebody who will produce at capacity in year two.
When you start thinking in terms of — I want growth, I want scale, and I want to exit within 4, 3, or 2 years, and here is my Titan’s Thesis and these are the things I am planning — the $150,000 hire often becomes the obvious choice. Top talent should be acquired off the market as fast as possible. Lock up the person who has the skills, talents, and capabilities before your competition does. For related context on grabbing top talent when you see it, see should you hire top talent when you find it in the marketplace.
The Loyalty Versus Capability Trade-Off
On one hand, an internal hire brings loyalty. That is amazing. That is fantastic. You have somebody the employees may already like. That may be cool too — but it may also be a hindrance when the new manager has to make hard decisions.
On the other hand, an external hire brings immediate capability. They are typically given 3-6 months to make mistakes and learn the culture. They are new — they are not expected to be perfect. Somebody who has been with the company already has expectations from their peers that a new external hire does not carry.
Here is the specific problem with the loyalty side. When the internal-promoted manager has to make hard decisions — firing an underperforming friend, restructuring a role occupied by someone they trained beside for years, choosing efficiency over relationships — they have to choose between friendships. That choice is genuinely harder for someone who came up through the same team than for someone hired specifically to make it.
What Can Go Wrong Either Way
Both paths carry risks:
- External hire risks: wrong manager from outside the industry, culture clash, bad decisions from insufficient organizational context
- Internal promotion risks: loyalty overriding difficult calls, insufficient management skills, staying in the friend zone with former peers
This is why for a main decision-making role, you should absolutely interview 5 or 6 people. Give them scenarios. Ask what they would do. The interview process is where you separate candidates who can handle the actual role from candidates who talk well but cannot execute.
The Journal Tactic That Makes Interviews Diagnostic
Here is a tactic that transforms management interviews from generic Q&A into real diagnostic tools. Keep a journal of what has happened inside your business. Real situations. Real decisions. Real outcomes.
When you interview, you can pull from the journal:
- “You have an employee who has been coming in late for three months. What would you do in that situation?”
- “A key customer is threatening to leave over a pricing issue. Walk me through your approach.”
- “Two of your best people are in conflict and one has threatened to quit. How do you handle it?”
- “You catch an accounting error that costs the company $50,000. What are your next three moves?”
Then judge their responses. You may hear answers like:
- “I never would have considered it that way”
- “I never would have thought of that opportunity”
- “I would have never considered that as a reason they need to be fired”
Any of those responses tells you something important about the candidate — either they are seeing something you missed, or they are missing something you already see. Both are useful diagnostic information. The only way to get this depth is to take the time. Time is a strategy. Time can also be a hindrance if you hire too soon or wait too long. It is a double-edged sword.
The Exit Timeline Filter That Changes The Answer
Here is the framing that shifts the decision. If you are not planning to exit, an internal hire may be perfect. Take the time. Grow the person. Build the loyalty. The extended timeline works fine because you are not on a deadline.
If you are planning to exit and you want to scale then exit, it is really hard to look at the growth trajectory of an employee and say — we are going to get them there in time. Because here is what happens. Private equity is going to look at your management team and ask:
| PE Due Diligence Question | External Hire Answer | Grown Internal Answer |
|---|---|---|
| Tell me about your person | Confident, detailed profile | Confident but conditional |
| Do they have the chops? | Heck yeah | Maybe / probably / with more time |
| Do they have the skills? | Yes, from prior roles | Getting there |
| Do they have the talent? | Yes, demonstrated | Yes, developing |
| Can they execute without you being there? | Yes, fast answer | Yes, with some support |
Somebody who has been in that seat before produces easy, confident, fast answers. Somebody you are still growing produces “maybe” answers. The PE side hears “maybe” and responds: “We need you to stick around for 3-6 months after the sale.” That transition-services obligation costs you time, freedom, and sometimes deal value. For the full picture of what post-sale obligations look like, see the post-sale first 90 days.
The Interview Protocol — Never Just One
Whether you go internal or external, the interview protocol matters. Pros and cons of each option — put dollar figures to it. Put timelines to it. Then interview multiple qualified candidates.
The mistake is talking to just one person. “We found the perfect person on the first call.” That is not true. That may happen on a Wednesday on a full moon when you stub your toe getting out of bed. But the reality is you want to talk to a couple of qualified candidates and say — here are some things we are planning on doing, there are some dots on the horizon, we cannot give you all the specifics. Tell me what you might do in this given situation. Share with me what your thoughts are.
The comparative interview process reveals what a single interview cannot. You learn what a “good” answer looks like by hearing 5-6 answers to the same scenario. That comparison is impossible with one interview.
If you are looking to sell your business in the next zero to thirty-six months, doing at least $2 million a year in revenue with a ten percent profit margin, the deal hotline is 888-DEAL-919. One of the team members will get back to you. No deal is too big.
Related cluster reading: should you hire top talent when you find it in the marketplace, how to identify key personnel risk before selling your business, why the Foundational Four allows you to sell your business or take vacation.
Frequently Asked Questions
Should you hire or grow a manager for your business?
The answer depends on your exit timeline. If you are not planning to exit, growing internally works — you have the runway to develop loyalty and skills over 6 months to 2 years. If you are planning to exit within 4, 3, or 2 years, hiring an experienced manager externally is often the better decision because private equity buyers prefer confirmed management capability over developing potential.
What is the total cost of growing an internal manager?
Using easy numbers: $80,000 for the new manager role, $20,000 for a consulting mentor to help them, and $10,000 for management training and classes. Total first-year cost is roughly $110,000 — before accounting for owner time coaching them, and before accounting for revenue or profit lost while they operate below the level of an experienced manager.
Why does hiring externally cost more but often produce better results?
Money buys you speed. Dave Lakhani taught this. Spending $150,000 for a seasoned manager producing at full capacity from month two is often better than $110,000 spent on someone who reaches full capacity in year two. The revenue and profit gain from immediate execution capacity usually more than covers the compensation premium.
What is the loyalty vs capability trade-off in management hiring?
Internal hires bring loyalty but face difficulty making hard decisions about former peers. External hires bring immediate capability and are given 3-6 months to make mistakes as they learn culture. The internal path is easier on relationships and harder on execution. The external path is easier on execution and harder on culture integration.
How does your exit timeline affect the hire or grow decision?
Exit timelines under 2 years favor external hiring. Exit timelines over 5 years or no exit planned favor internal development. In the 2-4 year zone, the decision depends on the specific candidate available internally and how ready they are. When in doubt, model both paths with dollar figures and timelines before choosing.
Why should you keep a journal of business scenarios for management interviews?
Because generic interview questions produce generic answers. Real scenarios from your business history force candidates to reveal how they actually think about specific situations. You may hear “I never would have considered it that way” — which tells you either they see something you missed or they miss something you see. Both are diagnostic.
How many candidates should you interview for a management role?
Interview 5 or 6 people minimum for a main decision-making role. The comparative process reveals what single interviews cannot. You learn what a good answer looks like by hearing multiple answers to the same scenario. The mistake is talking to one person and deciding they are perfect. That happens rarely — on a Wednesday during a full moon while you stub your toe.
What questions will private equity ask about your management team?
Tell me about your person. Do they have the chops? Do they have the skills? Do they have the talent? Can they execute without you being there? Someone who has been in the manager seat before produces confident, fast answers to these questions. Someone still developing produces “maybe” answers, which triggers PE to require you to stay 3-6 months post-close.
What are the risks of hiring the wrong manager from outside the industry?
Wrong industry background can produce decisions that make sense elsewhere but fail in yours. Culture clash can damage team dynamics faster than the manager can rebuild them. Bad first-90-day decisions from insufficient organizational context can compound. This is why 5-6 interviews with scenario-based questions matter — you are screening for adaptation capability, not just resume signals.
When should you promote internally instead of hiring externally?
When you have a candidate with genuine potential, when your business is not on a tight exit timeline, when you can invest 6 months to 2 years in their development, when you have the mentorship or training resources to support their growth, and when the loyalty and cultural continuity are more valuable to your specific situation than immediate execution capability.
Full Transcript
If you are looking to grow your business or scale your business, there is a conversation that comes up about management and who should be in the management seat. It is either the side of you grow somebody to be the manager, or you go to the open market and find somebody who has got the skills, talents, and capabilities to be the manager. What are the pros and cons of each? Why does it matter? How can it help you on business growth, business strategies, and business exits? This is a fantastic question. I am Scott Sylvan Bell coming to you live from Consulting Secrets on a perfect day to talk about you building your business, scaling your business, exiting your business. I am coming to you live from Sacramento.
There are really two sides to this conversation. Do you grow a manager, or do you hire a manager? There might be a right time and place for each. What I would love for you to do is really think through this. I see all too often business owners and entrepreneurs make just a quick decision, with no real consideration put here. Then after the person is put in place, it is like — wait a minute, there are some things we did not know.
Let us go down the path. You have an employee who is not quite ready that they can grow into the position. Depending on their aptitude, it may take them 6 months to get to where they need to be, all the way to a couple of years. If you are in the position of saying — I really want to grow, I really want to scale, and it has got to be right now — you may have some challenges. If you are like — Scott, I am cool with where I am at, the numbers are okay, and I really like this person and I have made them promises — well, you have your answer.
But there is the drawback. What do they know how to do? They are going to be learning on your dime. They are going to be figuring out how to manage based on them either taking classes or having a mentor. Who is going to pay for the mentor? Who is going to pay for the classes?
Let me use some easy numbers. Say the potential new manager is making $80,000 a year and you have to put in a whole bunch of time, energy, and effort into them. How much is that worth, and what are the total losses? You hire somebody to do some consulting to help them out. Let us make it an easy $20,000 because you are going to want top people to come help. Then you are going to want them to take some classes. Let us say you offer to pay for it, and it is $10,000. So now you are at $110,000.
Option number two is to go to the open market and say — I want to bring in a manager who has got massive skills, talents, and capabilities. The industry average that we pay is $100,000. But what could I get for $150,000? Because money buys you speed. This is one of my favorite sayings. I got it from a guy named Dave Lakhani. He passed away a few years ago. Dave Lakhani was a brilliant guy, but he would always talk about money buying you speed.
When you start thinking in terms of — I want growth and I want scale and I want to be exiting soon, like within 4 years, 3 years, 2 years, and that is my exit plan, I have got a Titan’s Thesis, and these are the things I am planning on doing — what you may find is spending the $150,000 is the better thing to do. When you can find top talent, you want to acquire and get it off the market as fast as you can, and lock up that person because they have got the skills, talents, and capabilities.
On one hand, you have loyalty, which is cool. Do not get me wrong — that is amazing, that is fantastic. You have got somebody the employees like. That may be cool too, but it may also be a hindrance. On the other hand, you have got somebody who is going to be given probably 3 months to 6 months to make mistakes. They are new — they are not expected to be perfect. Somebody who has been with the company has expectations from them, and when they have to make hard decisions, they have to choose between friendships.
As you are going through this process — do I take a manager internal and grow them, or do I hire somebody that is going to get me to where I need to be? Can it go wrong either way? Absolutely. You can absolutely hire the wrong manager who is from outside the industry. You can hire the wrong manager who is a culture clash. You may hire the wrong manager who makes bad decisions. This is why if you are going to go for a main decision-making role, you want to absolutely interview 5 people, 6 people, and give them scenarios and say — in this scenario, what might you do?
You would come up with scenarios that have happened in the past inside your organization. This is why it is really good for you to keep a journal of what has happened inside the business, so that when you have an interview like this, you can go back and say — you have an employee, and you line out the situation, and you say what would you do in that given situation? Then you can judge their response, or you could take notes. You may hear — I never would have considered it that way. I never would have thought of that opportunity. I would have never considered that as a reason they need to be fired. The only way that you are going to get this is by taking some time. Time is a strategy. Time can also be a hindrance if you hire too soon. If you wait too long, it is a double-edged sword.
One of the things to remember is — if it is true that money buys you speed, we are going to go with that premise. What is the hired manager going to bring to the table that the grown manager does not know, cannot do? These are all things for you to weigh out.
If you are not planning on exit, then that internal hire may be perfect. If you are planning on exit and you are like — scale and then exit — it is really hard to look at the growth of an employee and say — we are going to get you there. Because here is what is going to happen. Private equity is going to say — tell me about your person. Do they have the chops? Do they have the skills? Do they have the talent? Do they have the capabilities to execute without you being there? Somebody who has been in that seat before, the answer is probably pretty easy. Yes, it is probably pretty fast. Heck yeah. If it is somebody you are going to have to grow, you are going to be a maybe. They might come back and go — we need you to stick around for 3 to 6 months after the sale is made.
At least if you are looking for a management position, go through the process of what are the pros and cons of me growing somebody within. Put dollar figures to it. Put timelines to it. What are the pros and cons of me hiring a manager who has got skills, talents, and capabilities. Put dollar signs to it. Do a bunch of interviews. The mistake is to do one — like we found the perfect person. That is not true. That may happen on a Wednesday on a full moon when you stub your toe getting out of bed. The reality is you want to talk to a couple of people and say — here are some things we are planning on doing. There are some dots on the horizon. We cannot give you all the specifics. Tell me what you might do in this given situation. I am going to give you a tough scenario. Tell me what you might do. Share with me what your thoughts are.
