The Entrepreneurial Mind

Rhonda Abrams believes that small businesses should keep trying to grow even though the economy is slowing. She says this is exactly what has happened in past recessions:

In previous recessions, one of the things I'd observe is that many small businesses actually can grow by taking advantage of opportunities, such as weakened competition and big company cutbacks.

Small business owners' attitudes seem to back this up. A new survey from Intuit, which she cites in her column, finds that growth is on the mind of most entrepreneurs. From the Intuit survey:

In a considerable showing of solidarity, nine out of 10 U.S. small business owners reported seeing opportunities for their businesses in the current recession, and more than 75 percent expect growth. To make this growth a reality, small business owners say they'll rely on their experience and passion; nearly two-thirds have survived previous downturns. And to recession-proof their businesses, respondents plan to put their customers first, with 63 percent naming customer retention as their top priority, followed by focusing on their finances.

Abrams offers several ideas to help small businesses grow during the current downturn. You can see them here.

I add to her suggestions my recipe for success in the face of bad economic times -- strengthen your cash flow.

- Reduce debt

- Bootstrap more than ever with a focus on becoming more efficient and productive -- squeeze more out of your current staff, equipment and space before investing in adding more resources

- Focus all of your marketing on growing high margin transactions and the most profitable parts of your business -- your focus should be on growing the bottom line, not on growing sales.

Posted by Jeff Cornwall at 07:12 AM | Permalink | Comments (1)

The curves we draw to represent the growth of a business are misleading -- in fact they are flat out wrong. They usually show smooth curves with revenues meeting expenses at break-even, then swooping us toward the heavens leaving ever growing profits in their wake.

The truth is that growth is a messy thing. It never follows a smooth path. The real curves that signify growth are jagged. Growth is lumpy, not smooth.

Growth requires us to make leaps of faith as we commit to significant new overhead, including more space, more equipment and more staff. With every new commitment to overhead, our break-even point increases accordingly. If we are growing fast in the early development of the business, this means that our point of break-even cash flow keeps getting pushed further into the future. Even if we have reached profitability, these new overhead commitments can quickly turn a business in the black to a business that is in the red.

Growth can stoke the flames of the burn rate that consumes our precious cash.

Growth in a business is good. It is a sign of that the market agrees with our dreams and our plans.

And in today's dynamic economy, a growing business is like the shark -- it has to keep moving forward, or it will drown.

The commitment to growth requires careful thought and careful planning. Never grow simply on faith and hope. Grow with a careful plan that tells you what challenges your decision to grow will create. Understand all of the chain reactions that growth creates for more space, more equipment, more parking, more computers, more people, more customers, and more cash.

Make your growth intentional. Some of our growth is, in fact, quite controllable. Never let your market completely dictate your growth. Sometimes pass up opportunity for the health of your business. Leave time for your business to adjust to its new level of operation -- allow time for your business to "digest" its latest growth. This gives time for your cash flow and your systems to catch up to the higher level of activity.

Growth can be the best thing that happens to a business or the worst thing that happens. The more you understand how growth will impact your business and the more you take control of that growth, the better chance you will to make it through the two stages of any period of growth. You must first survive each growth spurt before you can thrive on that growth.

Posted by Jeff Cornwall at 08:14 AM | Permalink

The Wall Street Journal sent along three articles (all in their free space for bloggers to use) that speak to team building in a growing company. For many high growth businesses it all comes down to creating the right culture and building critical systems.

The first article offers some useful ideas on how small businesses can help retain key employees by having a little fun.

Team-building exercises are used as way to get employees to stick around. Often, though, they consist of co-workers grudgingly playing group games. But the efforts may be a more natural fit at small companies than at larger ones, where they may feel forced.

The article offers three simple examples of fun stuff that entrepreneurs use to help in team building -- a treasure hunt, a derby-car race (think pine wood derby on steroids), and a after work parties.

There a lots of ways to let loose, have fun, and build camaraderie. Bowling outings, golf tournaments, softball teams, setting up a basketball hoop in the parking lot, talent contests, are just a few of the other activities that I have seem small business owners use effectively.

The second story also looks at the power of culture in entrepreneurial firms. It is about a small business owner who has be able to create remarkable employee retention in an industry notorious for high turnover.

Almost all of the telemarketing-services firm's 350 full-time employees earn an hourly wage. And the work, the president and chief executive admits, is often "repetitive and monotonous." Even so, turnover at the Atlanta-area company was 27% last year and is consistently under 30%, compared with an average of 43%....Mr. Wilson, 47, credits an emphasis on training, as well as efforts to foster a caring environment -- a sharp contrast to other call centers where employees are often treated as commodities, he says.

Building a good company culture is a powerful tool to retain employees. In spite of what we may think, it is not all about the money for employees. They also want a good place to work.

The final story looks at a high growth company where turnover was part of a system upgrade that many emerging companies need to address at some point along the way.

As recently as three years ago, 60% of the employees at technology company Protus IP Solutions Inc. quit annually.

Perhaps worse, Chief Executive Officer Joseph Nour wasn't sure why. Though employees usually completed exit interviews, notes from those conversations often were shoved into a drawer....

Step one in stemming the problem, says Mr. Nour, was hiring Janice Vanderburg as director of human resources from a bigger, more-established employer. Ms. Vanderburg says she walked into a company lacking in structure and processes. One example: Some employees were eligible for profit-sharing incentive pay and didn't know it. No one had explained it to them.

As a business grows, culture needs to be consciously managed, and critical systems need to be intentionally built. These are two of the reasons that seemingly successful growing companies fail.

Posted by Jeff Cornwall at 07:30 AM | Permalink

My column in this week's Tennessean examines the importance of advisory boards.

There was a time when outside members serving on the board of directors of small businesses was fairly common. The entrepreneur would invite people such as his banker, consultants, their attorney, their CPA, and other business owners from the community to serve on the board.

But with the advent of the limited-liability corporation and its more flexible structure, and with the general increase in litigation involving members of corporate boards, adding outside members on boards of directors has become less common.

However, outside advisers can bring important benefits to a small, growing company.

Posted by Jeff Cornwall at 07:43 AM | Permalink | Comments (1)

My column in today's Tennessean examines the transition that entrepreneurs eventually face when moving from bookkeeper to controller, and for some entrepreneurial firms that grow large enough, from controller to CFO.

Entrepreneurs who experience significant growth in their businesses may eventually hear this advice, be it from their CPA, their banker, or other entrepreneurs. Financial management in a growing business can become strained. Eventually, the time will come when the entrepreneur needs to upgrade the team. But, what exactly does a controller do in a business? And how do you know when you need one?

Posted by Jeff Cornwall at 08:18 AM | Permalink

There are two key steps to building a strong workforce. Get good people in the front door and make sure they don't just walk out the back door.

Several recent studies have highlighted the difficulty that small businesses are having in finding qualified workers. That is, they are having a tough time getting workers in through the front door.

A new survey suggests that many small business owners have done an effective job of keeping their workers from walking right out the back door to another employer. According to a National Federation of Independent Business Small-Business Poll released yesterday on unemployment compensation, nearly half of all small businesses, 49 percent, experienced no employee turnover during the past 12 months.

In a period of low unemployment that is remarkable. Creating a positive culture, offering good working conditions and good jobs, and fair compensation all play a roll in retaining workers. It seems that many small businesses must be getting this right.

Posted by Jeff Cornwall at 07:05 AM | Permalink | Comments (1)

When it comes to employee compensation and job tenure, size does matter, according to a study released today by the Office of Advocacy of the SBA. The study found that all other things being equal, employees of larger companies have longer job tenures than those working in smaller ones. Moreover, the study found that service and manufacturing occupations pay more in larger businesses.

The study determined that each additional year of tenure on a job reduces the probability of turnover by 81 percent. It also established that the offering of benefits reduces the probability of an employee leaving in a given year by slightly more than 26 percent.

Recent surveys by the NFIB have reported that finding qualified workers continues to be a challenge for most small businesses, although easing a bit due to the sluggish economy.

What this study tells us is that even though small firms may be able to offer creative and attractive non-financial benefits, such as more flexible work conditions, more interesting work, etc., in the end what matters most is the money.

Posted by Jeff Cornwall at 08:01 AM | Permalink

As a business grows, attracting key team members becomes critical to success. However, since you often can't compete with the salaries that key people may be able to get from larger companies, you have to find ways to create value for potential team members beyond their monthly paychecks.

In a new collection at eVenturing, the challenge of compensation for key employees is examined. Once again, the folks at Kauffman have put together a great set of articles, stories, and tools to help owners of growing companies.

Posted by Jeff Cornwall at 05:53 AM | Permalink

I will be leading an on-line chat today on growth with Charles Hagood, co-founder of The Access Group and Healthcare Performance Partners. It is being hosted by the Tennessean, but is open to anyone across the country and around the globe! Charles, an alum of our MBA program, has a fascinating story and can provide some useful insight into managing a growing business.

To join in the chat, just go to the Tennessean's website. There will be a link in the left column of the front page. The chat will start today at 1:00 p.m. CDT. Please join in the discussion!!

Posted by Jeff Cornwall at 09:32 AM | Permalink

Eric, a regular at this site, sent me this question via e-mail over the weekend:

I recently saw a presentation by Vinod Khosla who left an interesting quote of "other companies hired what they could easily and left every other thing as weak links..." (in reference to Sun's founding executive team). What "links" do you think a good company needs to fill?

This quote hits at one of the key aspects of sustaining growth -- building a strong team.

Who any given entrepreneur needs to add to their team depends on several issues:

- The entrepreneur should always build a team that complements his or her strengths. I was strong on the strategic aspects of marketing and in financial strategies, and my partners were strong in healthcare program development. That meant we needed to fill in the gaps in areas that we were weak as a founding team.

- The very next person you need to add to your team is always the area that is causing the most pain for your business as it grows. This can differ greatly from company to company. Rarely do you have the money to add everyone on the team at once. So be strategic. What is the area that is most critical to grow your business the next 10-20%? Or, what is the "link" that if you do not fill it, you may not survive the stresses and strains caused by your current growth? That is the position you need to fill first.

- Consideration must also be given to competitive criteria. For example, we sought to have our healthcare facilities accredited at the very highest level. We knew it would give us a huge competitive advantage. So we hired someone who could help us achieve that goal. We could not afford to pay him the actual salary that he was worth, so we crafted an equity and bonus package that made it possible.

- Different industries require different talent in teams. For some, IT is critical -- so that may be your key "link." For others it may be a controller that can keep costs in line and allow them to be more competitive on bidding.

Posted by Jeff Cornwall at 07:15 AM | Permalink | Comments (1)

Entrepreneurial success can be greatly enhanced through good research. Having strong data and other information is critical for sound business planning. Kauffman's eVenturing has just release their latest collection of articles, this one dealing with Market Research and Competitive Analysis.

However, good research should never stop with the business plan during start-up.

Entrepreneurs should keep up to date on industry trends. Most opportunities come from change. But the very change that got you into a market can just as easily make you obsolete if you do not keep up with the continuous change that seems to be the norm for most markets today (see this post for more on this topic).

You need to be aware of your competitors and how they are trying to get your customer's business. There is always competition (see earlier post on this here), and you need to assume they are trying to improve their business and take away your market share.

And the key to understanding trends in the industry and competitive environments comes from a clear and honest understanding about what customers want and how well you are meeting their needs. Listen to your market!

So think of the ideas and tools from this collection as not just for start-ups, but for any business in a dynamic and competitive business.

Posted by Jeff Cornwall at 12:17 PM | Permalink | Comments (1)

Getting mentioned in the Wall Street Journal is generally considered a good thing for a business. However, if you are not prepared for the surge in demand that such publicity can bring it can also spell disaster. (I had cautioned about this in my previous post below on the small putter manufacturer whose putter was used by Masters winner Zack Johnson).

The Tennessean offers the cautionary tale about Cyndi Collett and husband Chris Tait's new product -- a brand of environmentally friendly towels and blankets called Bamboo Comfort. A mention in the Wall Street Journal did not work out the way that they had at first hoped it would.

But sweet success has its dark side, as the couple quickly learned.

After The Journal article came out more than a year ago, orders flooded the Web site of their store, Mad Mod. Shortly thereafter, they had no Bamboo Comfortto sell, and it stayed that way for four months.

Posted by Jeff Cornwall at 08:47 AM | Permalink

Once in a while lightening strikes a small business. That may be the case for a small putter manufacturer located right here in Franklin, Tennessee. It seems that Zack Johnson, winner of the Masters on Sunday, used a putter made by SeeMore Putter Co.

From the Tennessean:

The four-person company based in Franklin received some major publicity thanks to Zach Johnson's winning the Masters golf championship on Sunday in Augusta, Ga.

Johnson used a SeeMore putter to stiff-arm Tiger Woods and win the green jacket. Television commentators Nick Faldo and Jim Nantz constantly referred to Johnson's superb putting, and CBS routinely showed close-ups of the putter.

"We probably got way more free publicity than we could ever pay in advertising," said Jim Grundberg, managing director of SeeMore.

Grundberg said he was jumping around his Brentwood home with family Sunday during the action. Johnson's playing partner and good friend, Vaughn Taylor, also was using a SeeMore putter, used by only a handful of PGA Tour players.

So an unlikely winner teams up with a small-time player in the golf equipment industry and both hit it big. Cool story!

SeeMore needs to carefully nurture this publicity. They need to leverage it to build momentum for their company. They cannot just rely on their fifteen minutes of fame. They have done a great first step at their website, which is already full of the big news for their little company.

On the flip side, they also need to be ready for a possible onslaught of demand. If they do not monitor and manage their growth carefully, their own success could sink them. They do not meet demand and have the systems in place to satisfy what can be a fickle market.

I hope Zack and SeeMore make the most of their success and that both are around for a long time!

Posted by Jeff Cornwall at 07:28 AM | Permalink

Several recent surveys of small business owners have found that finding qualified workers is one of the top challenges facing entrepreneurs. In times of growth, employee recruitment becomes even more of a concern. We are not just trying to fill new positions, but also replace openings created by employee turnover. Although it is usually easier and almost always less expensive to retain an existing employee rather than find a replacement, we often fail to take necessary steps to reduce employee turnover.

There are several steps that can be taken to do a better job of meeting employee needs and reducing employee turnover:

- Opportunity to advance as company grows. Growing companies can offer ample opportunities to promote existing employees. Make sure to not just offer the opportunity, but the training and development to make such advancement possible.

- Positive work environment. The positive culture of a small business is what draws many employees to work for you in the beginning. The stresses of growth can often change this part of the culture of a business. Take steps to maintain the culture you intended to create in the early days of the business.

- Achievement and personal satisfaction. Although these are intrinsic factors, they are related to how we design jobs. Keep these things in mind as jobs evolve as your business grows.

- Rewards. Although money is important, it is not the only reward we have to offer. Recognition, status, respect, inclusion, and so forth, are all important rewards to most employees.

- Community. Many small businesses have a sense of "family" about them. Don't underestimate the power of these bonds to retain employees.

- Clear vision that is openly shared. Keep employees informed of where you are headed, and remind them often. The chaos of growth can become overwhelming. Vision can help calm these feelings and help get everyone focused on the tasks at hand. I spent much of my time during our rapid growth traveling throughout our various locations communicating to our staff about our vision and why we needed to grow.

- Security of place in firm as it grows. Many employees leave because they are worried they will not fit in as the business expands. Provide career plans for each employee to help them understand their place in the firm.

- Opportunity for balance in their lives. Although growth may create the need for long hours from every employee from time to time, be sensitive to the strains this can create in employees home lives. Don't take advantage of employees' willingness to pitch in during busy times by making it a standard expectation of their jobs all the time.

Posted by Jeff Cornwall at 05:40 AM | Permalink

"Maybe it's time for you to get a Controller."

Entrepreneurs who experience significant growth in their business may eventually hear this advice. Financial management in a growing business can become strained, and eventually it can become time to upgrade your team. What exactly does a controller do in a business? And how much will one cost me?

The titles bookkeeper, controller and CFO can get tossed around rather loosely in small and growing ventures. But, these titles have specific meaning. And which type your business really needs can vary from situation to situation.

A bookkeeper performs basic financial record keeping and can create simple financial reports. A bookkeeper does the following basic tasks:

- Keeps accurate records of financial transactions and can create basic financial statements (Income Statement and Balance Sheet) using accounting software.

- Performs basic A/P management -- makes sure bills get paid and records these entries into the accounting system.

- Performs basic A/R management -- if the business has to send invoices to customers to get paid, sends out invoices usually once a month.

Moving up to a controller adds more power to your financial management. In fact, a good controller can often pay for herself in a growing company that needs more advanced systems by helping to keep costs under control and by helping to better manage cash flow. A controller does the following tasks:

- A controller will either perform all of the functions of a bookkeeper, or supervise the staff that does.

- They can create customized daily, weekly and monthly financial reports to meet the specific needs of your business.

- They have the knowledge to choose and maintain financial software.

- They can take over the basic cash flow management of the business. Major cash flow decisions will still be up to the entrepreneur, however.

Some businesses eventually need a Chief Financial Officer. But many very large organizations don't have one, so don't assume that your business will. We never had one in our business even though we got quite large and complex. A CFO does the following tasks:

- Performs all functions of a Controller.

- Is able to structure and negotiate complex financing, including debt and equity.

- Can create complex financial projections to aid in strategic decision making, and is an active player in the strategic management of the business.

- Manages banker and other financial relationships for the business.

A senior bookkeeper can cost between $30 - $50,000, depending on the local market and their work experience. A controller can cost at least twice that. And an experienced CFO can cost twice as much as a controller. Again, salaries can vary widely between various cities, and experience levels will also be a major contributor. So talk to other entrepreneurs in your area who have larger businesses than yours to get an idea of the local market salaries for these positions.

Use your CPA firm and your network of fellow entrepreneurs to find a pool of applicants. Placing a general ad should be your last resort, as it will be difficult for you to differentiate between the actual skills and competencies of the candidates.

Posted by Jeff Cornwall at 07:05 AM | Permalink | Comments (1)

During the growth of a business, you as the entrepreneur must face some basic questions about how to successfully build a team while at the same time redefining your role in the business. It is a transition from a business led by an entrepreneur to a business led by a professional team.

The first step in this process is to understand the difference between operational and strategic leadership. Many entrepreneurs start their businesses because they like the hands-on part of their business. Engineers like to engineer. Furniture makers like to build stuff. However, at some point in the growth of the business the entrepreneur begins to move away from the hands-on part of what they company does. This can be a painful and frustrating period. Keep this in mind when you decide how far you want to grow the business. It is alright to keep it at a size that allows you to stay involved in the hands-on. But if you intend to grow, be ready to move away from the operational part of the business and become a strategic leader. Lead and manage using your vision for the business, and create a team that can fulfill that vision at the operational level.

Just what this strategic role looks like will vary from company to company, and from entrepreneur to entrepreneur. For many entrepreneurs, this may be their first time as a CEO of a company of any size. That title means very little in the early days, but as the company grows it takes on more meaning. Defining your role and your style as the CEO of your company takes planning and specific effort on your part. It may even feel a bit awkward at some point, but you have to establish what your role will be as the CEO.

Carefully review your strengths and weaknesses vis-a-vis the needs of the growing business. Use your management team to bridge the gaps that are created by the role you define for yourself. Assess the potential of current employees to fill those gaps. But be ready to bring in outsiders, as it is rare that all the talent you will need is already on your staff. Create a plan to develop current staff and recruit new talent with clear priorities for their roles and objectives. Set specific milestones, most likely tied to sales growth, for when you will need to be ready to hire new members for the team.

With each person we hire, our culture can change just a little bit. And over time, this can lead to a business that does not look like we had intended or envisioned. One area that you must keep control of as a strategic leader is your culture. Your values shaped the culture of your business as it began, but to maintain that culture you must actively manage it during growth. You do this through who you hire, what you reward, what you celebrate, the structure you create for the business, and your communications to employees. Be deliberate about the culture you intend to build in the business and think about how each action you take over time can effect this culture.

Be ready to delegate key roles to your team. Letting go is tough for most of us. We have been with our business all the way through its growth -- through the good and the bad times. But at some point, if we want our business to grow successfully, we have to begin to delegate. At first it will seem that no one can do what you do as well as you can. But just like raising a teenager, at some point you have to begin to let go so they can learn and grow up. Your business will go through this same difficult transition. If you don't begin to let go your business may never successfully move into its next stage of development.

Finally, as you grow your business and your team remember that ultimately it is still your business. I remember how at some point in the growth of our business it seemed that I was chasing everyone else's goals. Our banker, our CPA, our attorney, fellow entrepreneurs, and our management team all seemed to have their own vision for what we could become and ideas for where we could take the business. While it is good to listen to such advice, the most fundamental aspect of becoming a strategic leader is to be ready to establish a clear and compelling vision and set a course to take the business toward that ultimate goal.

(Thanks to Eric Tam from McMaster University in Canada for suggesting this topic).

Posted by Jeff Cornwall at 02:46 PM | Permalink

Two young entrepreneurs came into our classes this week and talked about growth challenges they are currently facing in their businesses. Both focused quite a bit on the human resource challenges that come with growth.

Matthew Wilson and his father own Gateway Construction in Brentwood, TN. Gateway is a commercial real estate development company. They have seen significant growth in their business since they recovered from the huge hit that commercial real estate took after 9/11.

As they continue to grow, Matthew is finding the need to step back from the day-to-day aspects of construction management. That is, like many entrepreneurs he can no longer spend time "working in his business", but needs to shift to"working on his business." At the same time, his father is beginning to step away from the business -- not retire, but clearly backing off from his role in the day-to-day operations of the business. So Matthew has to take on more of a strategic leadership role in Gateway, while hiring people who can handle managing the operational level.

"People say real estate is location, location, location. At this point in our business growth, I would say that the key has become people, people, people," Matthew told our class.

They have tried to keep their overhead low -- a lesson learned over the years from riding out the ups and downs in their industry. And while their current growth creates the need for more people, they are trying to develop strategies that will keep all of the people they are adding busy and productive even when real estate takes its next downturn.

They are firm believers that the key is not just finding the best people, but finding the right people for the right job.

Matthew also is thinking about the need to some day expand his team to include more expertise in IT and financial management. They are not large enough now to support this this type of an addition to the team,, but may well get there some day soon.

Nicholas Holland, is Founder and CEO of a web design business in Nashville called CentreSource. Nicholas has also faced human resource challenges in his growth.

CentreSource has a business model that is driven primarily by billable hours. One challenge from the very beginning has been to have staff who have the skills to meet the latest technology need in the market. Finding the right people for his business can sometimes be a daunting task.

Nicholas said that managing key staff for a business like his when it grows can be difficult if it results in a power/dependency relationship. He recommends that all entrepreneurs have the mindset that no employee is irreplaceable, especially if you plan properly.

A challenge they faced as they grew was the expense hit that each of his early hires created had on the income statement. Expenses never grew in a straight line, but in significant steps as each new programmer was added. This created a major cash flow challenge. He met this by being very conservative in cash management. He never hired until he had the money already coming in to pay for the new employee. Also, he always keeps 90 days of cash reserves to cushion any unexpected downturn. During growth keeping this reserve took careful planning. Both of these tactics restricted his growth to some degree, but they also helped him to grow at a pace that he could afford to pay for.

Posted by Jeff Cornwall at 05:26 AM | Permalink

Eric from Canada e-mailed me the following question:

How exactly would you answer the question: "why should I work for your company when there is a bigger company offering me a great salary?"

I found that just listening to what the employee really wants and being flexible in how you structure the offer and the job can be very effective.

There was a manager I wanted to hire to run a new program we were starting, as he was one of the best in our industry. He worked for a large, national company. I knew I could not match his salary, but I did not give up.

I got to know him and found out what he was really looking for in his career and in a job. He wanted to have more control over his department. That was easy as we were small and our structure was quite decentralized. He could run the new program like it was his own business.

He wanted to have some real ownership in the business he worked in. We could do that, too, as we set up separate corporations for each new program we started and we had already planned to offer a small ownership stake for the right manager. Equity or equity-like incentives can be a way to defer compensation until you can afford it, and create an incentive that gets everyone pursuing the same goals.

There was one more thing he wanted, however, and it was clear it was a deal breaker for him. His current employer had very strict rules on vacations and holidays. He was a Viet Nam veteran and had wanted to go to Washington, DC each Veterans Day to remember his fallen comrades. His current employer's rules did not make it possible to guarantee that, and he had missed the last two Veterans Day observances. So, in my offer I promised him that he would be guaranteed Veterans Day and one work day on either side of it off each and every year (they were counted as vacation days). That was all it took to convince him that we were the best place for him to work. He came to work for us taking a significant cut in base salary from what he had been making before.

I also find that being able to work in an entrepreneurial company with a team that is excited and committed to what they are doing attracts many managers to smaller companies. So when you interview prospective management candidates make sure to use your team as not just part of the interview process, but to sell the prospective employee on the benefits of working in your company.

Finding management talent in the first place can be a daunting challenge. For example, where should you look to find a Controller, a Marketing Director, or a Human Resource Manager for your company? I recommend using your network. Talk to your CPAs and your attorneys. Talk to your advisory board. Talk to other entrepreneurs that you know. Talk to people you trust in your industry. That is usually the best way for entrepreneurs to get a good pool of candidates for their growing businesses.

To attract them to your business you need to listen to what they want beyond the salary, and find creative ways to put it all together. Once you know who you want, get into the selling mode and use all of the important attributes you know are important to them in your pitch.

Posted by Jeff Cornwall at 06:32 AM | Permalink

StartupNation recommends ten steps to help grow beyond the start-up mode:

1. Measure and Analyze Current Status
2. Get Efficient through Technology
3. Enhance Your Customer Experience
4. Cozy Up with Vendors
5. Maximize Your Niche, Expand to a New One
6. Develop New Channels
7. Acquire Growth Capital
8. Create a Culture
9. Ramp Up Awareness and Demand
10. Improve Sales Techniques

For each step they offer short articles and other resources to help apply these steps to a business.

Remember, however, that starting the growth process is only the first part of the process of moving your business ahead. Growth will create a new set of challenges:

1. Beware of the Growth Myth. Focus on growing profits, not sales! Too many entrepreneurs assume that profits always follow sales. This is not always the case. And even when profits do begin to follow sales, cash flow can lag even farther behind.

2. Vision Drift. Don't lose your way. Stay focused on your core business. It may need to adapt and change, but these must be deliberate and planned choices.

3. Cultural drift. Managing the culture of your business is your job! If you don't manage it, your culture will take on a life of its own, which is almost never a good thing.

4. Resource crises. Securing the fuel to support growth can be a constant strain...cash, staff, space, equipment, etc., etc.

5. Systems crises. The mundane and the complex all need development. From accounts payable to planning, all systems must be updated, enhanced, and made ready for growth.

6. Muddled structure. Make sure your structure makes sense for your strategy and your culture. We make small decisions on how to organize our employees that may make sense as we make them, but they may create an overall structure that can choke future growth and profits.

7. Disjointed strategies. Your business and your strategy need to be in harmony. All aspects of your business must be consistent and geared toward meeting customer needs and expectations.

Once the business begins to grow, both the entrepreneur and his business need to begin a transformation. If not properly managed, the entrepreneur can grow himself right out of business.

(Here is a link to a summary of all of the posts I have made about the challenges of growth).

Posted by Jeff Cornwall at 05:52 AM | Permalink | Comments (1)

We are introducing a new seminar for entrepreneurs of growing companies. Over eight evenings, the course explores the challenges faced entrepreneurs who own growing ventures. I developed this class as a result of my own experiences in managing growth, and look forward to working with entrepreneurs who now face the same issues in their businesses.

There is a challenging point in any business' development when its owners must further develop the skills necessary to successfully grow the business to the next level. This transition includes improving systems, bringing in new talent, and enhancing the infrastructure of the company. The owner also begins a transition into very different roles. This seminar gives you the tools to enhance your skills and make growth transitions more effective.

If you are an owner of a growing company in Middle Tennessee please visit this web site for more information.

Posted by Jeff Cornwall at 05:59 AM | Permalink | Comments (1)

Planning for space can be a major challenge for growing businesses. The bootstrapping in all of us tries to avoid taking on too much space which inflates overhead costs. The swashbuckling entrepreneur in all of us wants to take on lots of extra space to accommodate all of the growth that we know is in our futures. My partners and I wrestled with this several times. In our first few moves we thought we had plenty of room for growth, only to find that by the time we moved in, we had almost outgrown the space. In a couple of later moves and market expansions, we over-estimated the growth potential and had to eat the added overhead our higher rents created.

An issue that often gets lost in this internal debate is the cost and hassle of simply moving a business. The move can be disruptive to business operations and can hurt worker productivity. Depending on the type of business and the nature of the move, the logistics can become a nightmare. What is interesting, is that the same disruptions can occur even when a business rearranges the space they already have.

StartupJournal offers some advice on how to make a move as painless as possible -- not pain free, but maybe not as bad as it could be for all concerned.

Office relocation -- even a move to a different desk -- can stir up a mix of emotions. The key to successfully moving a business, or within a business, is in how the move is presented to employees, experts say.

This is good advice. Employees need to have "ownership" over the move as much as possible. If they do, they will go a long way to making the move smooth, quick, and relatively easy.

Posted by Jeff Cornwall at 12:50 PM | Permalink

A pilot will tell you that there are two critical times for a safe airline flight: the take-off and the landing. These are the two time where there is the most strain on the aircraft and when the most things can go wrong.

Entrepreneurial ventures have two similar critical points for success. The first is aligning your business to the market properly before you even open the doors. This is the process of opportunity assessment. The second critical point is when the business hits its growth phase. StartupJournal has a good case study of the challenges entrepreneurs face when they try to prepare a business for successful growth.

During growth, both the business and the entrepreneur have to go through transitions. For the business, the entrepreneur has to build systems and processes that can handle processes that the entrepreneur managed himself when the business was smaller. And that leads to the second transition. As the entrepreneur builds more and more of the day-to-day details into systems and delegates responsibility to the expanding team, his job must change. As seen in the case at StartupJournal, the transition from being mostly a "doer" into becoming a "real CEO" can be one of the biggest challenges an entrepreneur can face.

Posted by Jeff Cornwall at 06:50 AM | Permalink | Comments (1)

When it is time to grow your management team it can be a frightening experience. How do we know if this person will fit in? How do we know if this person will help build the kind of culture we want to create?

There are a few tricks of the trade that have proven to be effective. You just need to create situations where people show their true character.

A common technique that I have found to be effective is the "waiter test." You can learn a lot about how a person really treats other people by taking them out to eat and observing how he treats the waiter or waitress. USA Today credits the first official documentation of this technique to Raytheon CEO Bill Swanson in his book Swanson's Unwritten Rules of Management.

Among those 33 rules is only one that Swanson says never fails: "A person who is nice to you but rude to the waiter, or to others, is not a nice person."

I had an entrepreneur in a growth management seminar I teach offer his "bowling test" as an example of how to judge character. He and his partners in their engineering firm wanted to create a culture that was not too stuffy. They did not want a firm that was populated by engineers who were "full of themselves." So part of the interviewing process was to take prospective engineers bowling. If they had a good time and enjoyed themselves, they passed the first screen. If they seemed uncomfortable or even embarrassed, they probably would not fit in.

A local coffee shop owner has applicants fill out an application that includes two questions:

If you could have a 1-hour conversation with anyone living or dead, who would it be and what would you talk about?

If you were to write an autobiography, what would the title be? Explain.

He understands that his coffee shop is as much about the atmosphere as it is the coffee. So he wants to fill his stores with interesting people. I doubt Starbucks pays that close attention to its hourly employees.

We had our "receptionist test." I gave our receptionist veto power over all major hires who came in for an interview. If they were rude or condescending toward her, they never came back for another visit. If she gave the thumbs up, we would invite them back for the "real interview." We wanted staff who could work in a flat structure where all employees play a key role. (The receptionist was considered part of our marketing team due to her close interaction with customers day-to-day).

Know what is key to your culture and find ways to assess all hires that come into your business to assure that they will fit in. (And by the way...yes, it is legal to screen for fit with culture as long as you do not use it to discriminate against a protected class of people).

Posted by Jeff Cornwall at 05:00 AM | Permalink

As I mentioned in a post yesterday morning, we had Eric Flamholtz, author of Growing Pains, on campus for a lecture. His book is at the top of my "must read" list for all entrepreneurs.

Here are some highlights from his lecture here at Belmont:

- "What you can't measure, you can't manage."

Developing systems that allow you to collect and track key data that helps you see where your business has been and where it is going is critical to the success of a growing business.

- Set a specific quantitative goal for your business and develop a plan to get there.

Having a clear goal will allow you to understand the infrastructure you will need to develop to reach your goal. It will help you develop specific plans that map the developmental steps your business will need to take as it grows.

- Niches are not always small -- they are defensible positions within a market.

Entrepreneurs often equate a market niche with a small business. Actually, many large companies have well developed and well defended large market niches.

- A mission should have a qualitative and a quantitative component.

Flamholtz offered the example of Starbucks' mission statement from 1994:

To establish Starbucks as the leading retailer and brand of coffee in North America by the year 2000, by creating distinctive daily coffee experiences for our customers wherever they live, work or play.

2 Billion + 2000 Stores = 2000

- Companies compete not just with products and within markets, but through their operating systems, management systems, and culture.

Wal-Mart offers the same basic products in the same markets as K-Mart. Any questions?

- "You make your own luck by being prepared."

Posted by Jeff Cornwall at 05:04 AM | Permalink

I wrote a post a few weeks ago about the pros and cons of choosing to buy a franchise as a way to start a business. A new study from Cornell Hotel and Restaurant Administration Quarterly linked by Docuticker looks at franchising from the other side of the relationship: the franchisor. It found that two types of restaurant chains benefited from using a franchising model to grow.

The use of franchising by the manager-scarce and money-scarce franchisors supports the concept that youthful companies take up franchising to gain access to resources in an economical fashion.

Using a franchise model helps push the cost of development onto the franchisees allowing more rapid growth.

Businesses that had more experience and more resources tended to favor, and performed better, by growing their businesses through company owned stores. Given the headaches that can come with franchisee relations, it is probably wise to only use a franchise model when resource scarcity offers no other alternative.

Posted by Jeff Cornwall at 06:22 AM | Permalink

The challenge of hiring key members of the team can lead to many a sleepless night for entrepreneurs. Each hire is important not only for what they will or will not contribute to the business, but also in regards to how they will fit in the emerging culture.

Kauffman's eVenturing has a great new collection of materials on hiring key team members including examples, how-to's and tools.

Posted by Jeff Cornwall at 02:47 PM | Permalink

My entry yesterday about growth prompted Credo Advisors to reflect on the ethical challenges that growth can bring.

While it may seem obvious that ethical issues might start to crop up (or increase in frequency) with growth, I'm often surprised by how many businesses get caught off guard anyway. I've personally fallen victim in the past, having been blindsided by issues regarding key personnel that I missed during the initial vetting process. In my case, I tend to be a very idealistic and trusting person and typically think that anyone who wants to work with me has the same motives.

Quite true. Every person you hire can contribute in some way to the evolution of your culture. Pick the wrong people, and their contributions can take your culture in the wrong direction.

Posted by Jeff Cornwall at 08:14 AM | Permalink

Growth puts strains on all aspects of an entrepreneurial business. Hiring more staff, expanding the resources necessary to support new customers, managing cash flow, building new systems to support your business, and so forth all take time and attention. If you do not get these issues taken care of properly, your business can suffer or even fail.

But, growth also creates personal challenges for the entrepreneur. Here are some of the more common issues that entrepreneurs wrestle with as their business grows:

- Delegation: Your "baby" is now a "teenager" ready for more independence

Letting go is tough for most of us. We have been with our business all the way through its growth, through the good and the bad times. But at some point, if we want our business to grow successfully, we have to begin to delegate. At first it will seem that no one can do what you do as well as you can. But just like raising a teenager, at some point you have to begin to let go so they can learn and grow up. Your business will go through this same difficult transition. If you don't begin to let go, you business may never successfully move into its next stage of development.

- "My company just isn't the same as it used to be"

With each person we hire, our culture can change just a little bit. And over time, this can lead to a business that does not look like we had intended or envisioned. One area that you must keep control of is your culture. Your values shaped the culture of your business as it began, but to maintain that culture you must actively manage it. You do this by who you hire, what you reward, what you celebrate, the structure you create for the business, your communication, etc., etc. Be deliberate about the culture you intend and think about how each action you take over time can effect this culture.

- "So just what is a CEO supposed to do, anyway?"

For many entrepreneurs, this may be their first time as a CEO. That title means very little in the early days, but as the company grows it takes on more meaning. Defining your role and your style as the CEO of your company takes planning and specific effort on your part. It may even feel a bit awkward at some point, but you have to establish what your role will be as the CEO. Play to your strengths.

- The Fear of the Unknown: Moving from hands-on to strategic

Many entrepreneurs start their businesses because they like the hands-on part of their business. Engineers like to engineer. Furniture makers like to build stuff. As some point in the growth of the business, the entrepreneur begins to move away from the hands-on part of what they company does. This can be a painful and frustrating period. Keep this in mind when you decide how far you want to grow the business. It is OK to keep it at a size that allows you to stay in the hands-on part of what you do.

- "How come everyone keeps forgetting this is still my company (sometimes, including me)?"

I remember how at some point it seemed that I was chasing everyone else's goals for our business. Our banker, our CPA, our attorney, fellow entrepreneurs, our managers all seemed to have their own vision for what we could become and ideas for where we could take the business. Some of these folks wanted us to take our business public. That is not where I wanted to go, but I felt the pressure to look seriously in that direction. Even though it possibly cost me some money, I am so glad that I ultimately listened to my own aspirations. I would have been very unhappy running a public company. Remember: it is your business!

Posted by Jeff Cornwall at 05:41 AM | Permalink | TrackBacks (2)

The conventional wisdom has been that small businesses just cannot compete with large corporations for the best management talent. However, there seems to be trends that are leveling the playing field among employers of all sizes as they compete for talent.

From the Herman Group:

Attitudes toward human capital are understandably different in smaller organizations. That attitude, and the opportunity to play a more significant role, appeals to people who want to be involved, who seek meaningful work, who want to make a difference. Mix in today's emerging values centered on life-work balance, personal engagement with work, and being able to choose where you work, and smaller employers become very attractive. Result: those companies will be able to employ high-caliber talent that was not as available in the past. Superstars who sought glamorous jobs in major corporations will show a preference for smaller companies instead.

Recent studies also show that the pay gap between small and large employers is narrowing, with small companies paying about 90% of the wages paid by large employers.

(Thanks to Patricia Jacobs for passing this along).

Posted by Jeff Cornwall at 05:48 AM | Permalink

Entrepreneur magazine and PricewaterhouseCoopers released their 2006 "Entrepreneurial Challenges Survey" Here are what they found to be the biggest challenges for entrepreneurs with growing companies in 2006:

Retention of key workers--73%

Developing new products and services--38%

Expansion to markets inside the U.S.--36%

Increased productivity--35%

Upgrading technology--28%

Creating business alliances--23%

Better management of cash flow--21%

Expansion to markets outside the U.S.--14%

Improving risk management--13%

Finding new financing--11%

Buying another company or launching a spinoff--11%

Preparing company for sale--7%

Going public--2%

Posted by Jeff Cornwall at 07:18 AM | Permalink | TrackBacks (2)

Inc.com reports that staffing is becoming a growing concern among entrepreneurs now that the economy is heating up.

One of the ways that smaller companies can compete for staff is to make them convenient and flexible places to work by offering perks that employees want. StartupJournal has a good overview of the types of conveniences that many growing companies offer.

There are other ways to attract good talent. I found that just listening to what the employee really wants and being flexible in how you structure the offer and the job can be very effective. Here is a story from our business that I told in a post from last year.

There was a manager I wanted to hire to run a new program we were starting, as he was one of the best in our industry. He worked for a large, national company. I knew I could not match his salary, but I did not give up.

I got to know him and found out what he was really looking for in his career and in a job. He wanted to have more control over his department. That was easy as we were small and our structure was quite decentralized. He wanted to have some real ownership in the business he worked in. We could do that, too, as we set up separate corporations for each new program we started and we had already planned to offer a small ownership stake for the right manager.

There was one more thing he wanted, however, and it was clear it was a deal breaker for him. His current employer had very strict rules on vacations and holidays. He was a Viet Nam veteran and had wanted to go to Washington, DC each Veterans Day to remember his fallen comrades. His current employer's rules did not make it possible to guarantee that, and he had missed the last two Veterans Day observances. So, in my offer I promised him that he would be guaranteed Veterans Day and one work day on either side of it off each and every year (they were counted as vacation days). That was all it took to convince him that we were the best place for him to work. He came to work for us taking a significant cut in base salary from what he had been making before.

Many from the Entrepreneurial Generation (those born between 1977 and 2002) are actively seeking out smaller entrepreneurial firms to work in. Work with your local universities to let their graduates and recent alumni know about your company and the opportunities you can offer. The best contact point would be the career services office in the college of business. Don't be afraid to hire a new graduate. If your business is small, they should be able to handle scope of what you need right now and can continue to develop their skills as your company grows.

I wrote a post last summer with my list of specific suggestions on how to manage your staffing effectively as your business grows (click here to see that post).

Posted by Jeff Cornwall at 06:56 AM | Permalink | TrackBacks (1)

When a company upgrades their lead financial executive from a Controller to a CFO, one of the major benefits that they hope to gain from the higher salary is help in managing growth and assisting in raising financing. A new study reported today by Red Herring seems to show another unintended consequence of Sarbanes-Oxley. CFOs are spending much more of their time engaging in compliance related activities rather than helping their employers expand the business.

Posted by Jeff Cornwall at 10:21 AM | Permalink

Small Business Trends has predictions of more competition for entrepreneurs looking to hire new employees.

Here are my suggestions on preparing for this tightening hiring market:

1. Keep Staffing Forecasts Current. Even if you are a small business, you need to think down the road for the next two or three years to anticipate what your hiring needs may be. Forecasts should be updated every few months to adjust for changing conditions and the changing state of your business. Keep your eye on long term trends within the labor market segments you will need to be hiring from. Some types of employees will be particularly hard to find, so extra effort will be required.

2. Base Staffing Plans on Milestones, not on Time. Never tie your staffing plans to the calendar. The passing of six months is not what will require you to hire new employees. Know what the triggers are in your business that will necessitate more employees. For example, it could be things like a certain number of clients, sales levels, or production levels for employees. And don't forget your need for supervisors and support staff. Know how long it will take to recruit, hire, and train new employees for each position you are planning to hire so they can be ready to work when you really need them. Hiring will take longer in a tighter market.

3. Measure Your Employment Triggers. Work with your bookkeeper or controller to give you quantitative reports on your hiring triggers, and insist that you get these reports regularly. You need to have the timing of the hiring process accurate, so the chances of not having staff to support growing demand are minimized.

4. Never Just Hire Warm Bodies. Hiring someone just for the sake of hiring rarely works. Mediocre hires make mediocre employees. This will only postpone hiring the right people and force you to get rid of the dead wood you just hired before you can hire the people you really need. This will actually hinder your ability to grow.

5. Keep Current on Wages and Salaries. The tight job market will put some upward pressure on pay due to supply and demand. Stay competitive in your pay.

6. Keep Pricing Current with Increases in Labor Costs. Increase prices to cover increases in labor costs. Don't let your pricing lag too much or cash flow will become a major issue as you grow due to shrinking profit margins.

7. Don't Forget to "Close the Bank Door". The single best staffing tool you have is retaining the good employees you have right now. Create a culture that makes good employees want to stay with you. You may have to pay a little more that you'd like to, but it is much more cost effective that constant hiring and training.

Posted by Jeff Cornwall at 07:11 AM | Permalink | TrackBacks (1)

Bill Hobbs passed along this great site that provides links to 117 blogs by industry analysts. It tends to be more tech-oriented, but offers a very rich source of information from a variety of sources. The search engine at this site is also useful.

Not only is industry data like this is critical for effective start-up planning, but also for managing the growth of a business. Business planning should be a process, not an event.

Too often entrepreneurs believe that the business plan that they developed prior to opening should be treated like a detailed blue print. It should be followed step-by-step. Once completed, the business will be like a well built house that will last for decades.

The problem is that the market you are entering is probably under going dynamic change. This change is what in most cases creates the opportunity you are pursuing. You are entering what Peter Vaill calls permanent white water.

Your plan is full of assumptions, not just facts. Assumptions need to be tested and refined. Sometimes they need to be abandoned if proven wrong. The plan is more like a general map of a river. It shows where you will be headed, but the key to your success in navigating this river is in your ability to adjust to all of the things that you could never have planned for. The large rocks in your way that do not show up on any map. The sudden rising of the water due to an unexpected deluge of rain. A tree that has fallen across the river.

All of these require dynamic, real-time adjustments in your planning. Managing with assumptions means knowing those things that you are unsure of, and knowing those things you don't really know, none of which you can absolutely plan for. It is also knowing those things that will likely be changing, and keeping a watchful eye each step of the way.

Your industry is likely to be a volatile and sometimes unfriendly place to operate within. You best tool for this is to keep informed about what is happening so you can integrate these changes into your ongoing business planning.

Posted by Jeff Cornwall at 06:18 AM | Permalink | TrackBacks (1)

The Inc 500 list of fastest growing private companies is now available. While an interesting read, keep in mind that this list is made up of self-nominated companies. Most entrepreneurs I have worked with tend to shy away from this list unless they need it to help them with publicity for raising capital.

Posted by Jeff Cornwall at 06:14 AM | Permalink

Just like that we have gone from the media worrying about jobless rates being high, to worrying about tightening job markets making it tougher for small businesses to compete for workers.

From Inc.com:

On Thursday, the Bureau of Labor Statistics reported that initial jobless claims fell by 4,000 the previous week, data that may indicate strong demand for labor, especially in the small business sector.

William Dunkelberg, an economist with the National Federation of Independent Business, said that small businesses have been having a harder time finding the employees they need to grow. Earlier this month, the NFIB found that 21% of businesses surveyed have job openings they cannot fill. Seventy percent have encountered difficulty finding qualified people.

Looking forward, the NFIB survey found that 20% of businesses plan to increase their workforce. "There's no question that labor markets will stay tight," said Dunkelberg.

Most of the current economic expansion is taking place due to small businesses. Many have started over the past couple of years and have not had experience in hiring in tighter job markets.

So here are a few things to keep in mind:

1. Keep Staffing Forecasts Current. Even if you are a small business, you need to think down the road for the next two or three years to anticipate what your hiring needs may be. Forecasts should be updated every few months to adjust for changing conditions and the changing state of your business. Keep your eye on long term trends within the labor market segments you will need to be hiring from. Some types of employees will be particularly hard to find, so extra effort will be required.

2. Base Staffing Plans on Milestones, not on Time. Never tie your staffing plans to the calendar. The passing of six months is not what will require you to hire new employees. Know what the triggers are in your business that will necessitate more employees. For example, it could be things like a certain number of clients, sales levels, or production levels for employees. More managers and supervisors it should be based on the number of first line employees each can effectively supervise. And don't forget the needs of support staff in areas like billing and sales. As labor markets tighten, you may need to move these triggers up earlier in time. It takes time to get employees up to speed. Know how long it will take to recruit, hire, and train new employees for each position you are planning to hire so they can be ready to work when you really need them. If you could hire and train workers in 60 days a year or two ago, you may now need to plan on a lead time of 90 or even 120 days in a competitive job market.

3. Measure Your Employment Triggers. Work with your bookkeeper or controller to give you quantitative reports on your key employment milestone triggers, and insist that you get these reports regularly. You need to have the timing of the hiring process accurate, so the chances of not having staff to support growing demand are minimized.

4. Never Just Hire Warm Bodies. Hiring someone just for the sake of hiring rarely works. Mediocre hires make mediocre employees. This will only postpone hiring the right people and force you to get rid of the dead wood you just hired before you can hire the people you really need. This will actually hinder your ability to grow.

5. Keep Current on Wages and Salaries. Tighten job market will put some upward pressure on pay due to supply and demand. Stay competitive in your pay, and plan on pricing increases in advance to cover any increases in labor costs. Don't let your pricing lag too much or cash flow will become a major issue as you grow due to shrinking profit margins.

6. Don't Forget to "Close the Bank Door". The single best staffing tool you have is retaining the good employees you have right now. Create a culture that makes good employees want to stay with you. You may have to pay a little more that you'd like to, but it is much more cost effective that constant hiring and training. And staff shortages can be very costly in terms of lost revenues.

And to those who have made the sudden shift from worrying about no jobs in the economy to worrying about not enough workers? Lighten up! This is a good problem!

Posted by Jeff Cornwall at 07:48 AM | Permalink

A new report by Joel Popkin and Company, Cost of Employee Benefits in Small and Large Businesses, has been released by the Office of Advocacy of the U.S. Small Business Administration (SBA). The report specifically looks at the cost of health insurance, retirement plans, paid vacation, and sick leave.

The report finds that the rate of offering various benefits and that their associated costs can vary dramatically with firm size. Here are some highlights from this study:

- Paid vacation: This is the most common benefit offered by businesses of all sizes. The study found similar rates of offering this benefit among small businesses with over 100 employees and large companies. 50% of the smallest companies (fewer than 10 employees) offer paid vacation

- Sick leave: Paid sick leave is offered by 81% of large companies and 65% of small businesses.

- Health care: The cost of offering health care per employee is highest for the smallest businesses (under 10 employees) and the largest companies (over 1000). Very small businesses do not have bargaining power in securing health insurance, while larger businesses are forced to offer richer benefits due in part to worker unionization. Increases in premiums have been much higher for smaller business over the past few years.

- Retirement plans: About 75 percent of larger firms have some type of retirement plan for employees, while about 35% of small business offer such plans.

As businesses grow, they must pay close attention to benefits offered by larger companies, as they often will have to compete with these businesses to attract key staff. When developing financial forecasts, it is important to factor in a higher cost of benefits as the business grows to reflect the challenge of attracting employees. This can create significant cash flow challenges for businesses that rely heavily on human capital for growth.

But, adding benefits should not just be looked at as a net cost. As seen in this classic article from Inc.com, some entrepreneurs believe that they cannot afford not to offer rich benefits.

"If you use benefits to build a cadre of talented people who stay with you for years, you'll hold on to your power....Your company's future will just get stronger and stronger."

Posted by Jeff Cornwall at 06:08 AM | Permalink

Growing companies find the need to add key managers, but often find it hard to offer competitive salaries. Does that mean they cannot compete? Not necessarily.

One of the ways that smaller companies can compete for staff is to make them convenient and flexible places to work by offering perks that employees want. StartupJournal has a good overview of the types of conveniences that many growing companies offer, including on-site laundries, haircuts or car services. Many of these the employer simply has to make them available, as the employees pay for the actual services provided, so the cost is minimal.

There are other ways to attract good talent. I found that just listening to what the employee really wants and being flexible in how you structure the offer and the job can be very effective.

There was a manager I wanted to hire to run a new program we were starting, as he was one of the best in our industry. He worked for a large, national company. I knew I could not match his salary, but I did not give up.

I got to know him and found out what he was really looking for in his career and in a job. He wanted to have more control over his department. That was easy as we were small and our structure was quite decentralized. He wanted to have some real ownership in the business he worked in. We could do that, too, as we set up separate corporations for each new program we started and we had already planned to offer a small ownership stake for the right manager.

There was one more thing he wanted, however, and it was clear it was a deal breaker for him. His current employer had very strict rules on vacations and holidays. He was a Viet Nam veteran and had wanted to go to Washington, DC each Veterans Day to remember his fallen comrades. His current employer's rules did not make it possible to guarantee that, and he had missed the last two Veterans Day observances. So, in my offer I promised him that he would be guaranteed Veterans Day and one work day on either side of it off each and every year (they were counted as vacation days). That was all it took to convince him that we were the best place for him to work. He came to work for us taking a significant cut in base salary from what he had been making before.

I also find that being able to work in an entrepreneurial company with a team that is excited and committed to what they are doing attracts many managers to smaller companies. So when you interview prospective management candidates make sure to use your team as not just part of the interview process, but to sell the prospective employee on the benefits of working in your company.

Finding management talent in the first place can be a daunting challenge. For example, where should you look to find a Controller, a Marketing Director, or a Human Resource Manager for your company? I recommend using your network. Talk to your CPAs and your attorneys. Talk to your advisory board. Talk to other entrepreneurs that you know. Talk to people you trust in your industry. That is usually the best way for entrepreneurs to get a good pool of candidates for their growing businesses.

Posted by Jeff Cornwall at 06:24 AM | Permalink | TrackBacks (1)

Bizjournals.com tells the story of the Westbrook family artisanal masonry business called QuarryHouse. A lesson to learn from this business is how they have approached growth. They have taken it slowly and conservatively, and it has paid off.

"Westbrook discovered that unexpected business issues cropped up after his company broke the million-dollar revenue benchmark. Westbrook had to relinquish the role of field supervisor and take a strong lead in business roles. Even more pressing issues came in the form of cash flow and payroll, as the company found itself paying employees without having been paid for the jobs they did."

This transition takes place for almost every growing business, and it usually happens around $1-2 million in sales. Things start to happen that are symptomatic of growing pains that, without attention, can doom a business to failure. Bankers will tell you that this growth period is probably the most dangerous period for the survival of a small business.

"Today, Westbrook sounds like a seasoned financial manger: 'Learn to grow and survive on the profits you earn. You can't get into too much trouble if you stick with that.'"

Indeed, and growth should be focused on those profits, not on sales. Growing sales is irrelevant if they don't also grow your profits.

"His three-prong approach to meeting a goal of $15 million to $20 million in revenue in five years includes continuing to emphasize training and continuing to reinvest in the company....QuarryHouse has had never had outside investment, but as it approaches revenue of $6.5 million, Westbrook is in talks with banks about adding outside capital to the mix. Said Westbrook, 'They've done all the numbers and I don't believe we're done growing. There is a lot of work yet for us to look at.'"

No outside money until they hit $6.5 million in sales? Now that is prudent growth.

Posted by Jeff Cornwall at 06:54 AM | Permalink

I write and speak often about how to manage growth successfully. It comes from my own experience of dealing with run-away growth in our business. But growth requires planning and momentum. Entrepreneur.com has a good overview of traditional means to stimulate growth in a small business.

Here is a summary of their list of strategies:

1. Introduce a New Product

2. Take Your Product to a New Market

3. License Your Product

4. Start a Chain

5. Turn Your Business into a Franchise

6. Join Forces

7. Go Global

Since symmetry is always a good thing, keep in mind my 7 Challenges to Effective Growth to go along with these 7 strategies to create growth.

1. Beware of the Growth Myth. Focus on growing profits, not sales!

2. Vision Drift. Don't lose your way.

3. Cultural drift. Managing the culture of your business is your job! If you don't manage it, your culture will take on a life of its own.

4. Resource crises. Securing the fuel to support growth can be a constant strain...cash, staff, space, equipment, etc., etc.

5. Systems crises. The mundane and the complex all need development. From accounts payable to planning, all systems must be put in place are made ready for growth.

6. Muddled structure. Make sure your structure makes sense for your strategy and your culture.

7. Disjointed strategies. Your business and your strategy need to be consistent. All aspects of your business must be consistent and geared toward meeting customer needs and expectations.

Posted by Jeff Cornwall at 05:58 AM | Permalink | TrackBacks (1)

"You never know what...the gods will throw your way. A war? A recession? Technology evolving and obsolescing before your eyes? Excessive growth? There's no end to the obstacles your business may encounter." This sobering set of scenarios is posed in a recent article from StartupJournal passed along to me by Mary Beth Groce.

Their recommendations are good advice for any growing business. A clear strategy, flexibility, realism, ethics and a strong network are some of the qualities that they found in companies that weathered such challenges.

Posted by Jeff Cornwall at 05:25 AM | Permalink

I visited an interesting blog site today called Reflections of a Business-Driven Life. It is written by a technology entrepreneur from the Philippines. His post from January 4th on growth was particularly insightful. A great new site for me to visit in the New Year.

Posted by Jeff Cornwall at 06:31 AM | Permalink | TrackBacks (1)

The Young Entrepreneurs Organization (YEO) is a group of "business professionals, all of whom are under 40 years of age and are the owners, founders, co-founders, or controlling shareholders of a company with annual sales of $1 million or more." In many cities, this group represents the leading edge of high growth entrepreneurs. This group is clearly an economic bell-weather.

In a recent poll of their membership, they found that 84 percent were planning on hiring in the next few months, and 11 percent indicated that they plan to hire at least 10 employees this year. Even more see growth in their companies over the next year, with 92 percent expecting sales to grow this year compared to last year.

"Mark Comiso, owner of Sunnyvale, California-based Liquid Digital and president of the YEO Silicon Valley-Bay Area Chapter, is one that fits this trend. 'I've sold one company, started a new one, bought capital equipment, and plan to hire at least two or three more people this year,' explains Comiso. 'Overall, these statistics are a very good quantification of the increased chatter I've heard from the business owners that I know.' Comiso adds, 'I was personally surprised to see that many are hiring -- the number was almost unanimous -- but it is representative of what is going on in our space.'"

This study was reported in the National Dialogue on Entrepreneurship.

Posted by Jeff Cornwall at 01:55 PM | Permalink | TrackBacks (2)

Jay Ebben offers some excellent thoughts over at Inc.com on how to properly plan for growth.

"My advice before you consider growth is to consider your business model and how it lends itself to growth. Three areas you especially want to concentrate on are your revenue model, your operational model, and your cash flow model."

If you are planning to ramp up for the expanding economy I strongly suggest you read Jay's advice in full.

Posted by Jeff Cornwall at 07:50 AM | Permalink

One of the most difficult moments for entrepreneurs can be the point when they realize that they can no longer effectively manage the companies they created. This is not an unusual event, but it is most often met with complete denial.

The StartupJournal has an article that shows the struggles that one entrepreneur faced when he owned up to his limitations related to his growing company.

"Mr. Reeve wants to remove himself from all aspects of management and become the company's chief designer and inventor. This transition is proving easier said than done. The company needs to find a strong manufacturing manager with the ability to satisfy the founder, maintain quality and build profitability. Two managers who were hired in the past three years weren't up to the task.

Both Mr. Reeve and his wife, Anne, who co-founded and helps run the company, agree something needs to happen quickly. Mr. Reeve is burned out from doing work he doesn't enjoy."

There are the lessons that the author of this article, Perri Capell, arrived at from interviewing this entrepreneur:

-Entrepreneurs can be a mismatch for a mature business.

-Management skill cannot always be learned.

-Hiring a successor can be a very difficult task.

Although all of these can be true in many cases, my experience is that if dealt with early enough, many of these challenges can be avoided. I have seen many entrepreneurs make such a transition successfully. It is not easy and the entrepreneur will need to commit to a long term plan not only for the business, but for him or herself. I stress to entrepreneurs that they need to understand that it is not just their businesses in transition, but they need to transition, as well.

One of the best books I have even read on this topic is Growing Pains. It was my Bible during this transition period in our business. The good news for young entrepreneurs is that many are learning about managing growth in their formal education on entrepreneurship. The rest of us old dogs will need to try to learn this on the fly.

Posted by Jeff Cornwall at 06:17 AM | Permalink

The economy is growing and employment is up all across the country. Good news, indeed.

But, what this means for small business folks is that it is time to start engaging in more deliberate and longer-term staffing planning. During the last big economic boom, the single biggest impediment keeping the entrepreneurs I was working with from growing was staffing problems. They could not hire the right people when they needed them to take advantage of a growing market.

So here are a few things to keep in mind:

1. Keep Staffing Forecasts Current. Even if you are a small business, you need to think down the road for the next two or three years to anticipate what your hiring needs may be. Forecasts should be updated every few months to adjust for changing conditions and the changing state of your business.

2. Base Staffing Plans on Milestones, not on Time. Never tie your staffing plans to the calendar. The passing of six months is not what will require you to hire new employees. Know what the triggers are in your business that will necessitate more employees. For example, it could be things like a certain number of clients, sales levels, or production levels for employees. More managers and supervisors it should be based on the number of first line employees each can effectively supervise. And don't forget the needs of support staff in areas like billing and sales.

3. Measure Your Employment Triggers. Work with your bookkeeper or controller to give you quantitative reports on your key employment milestone triggers, and insist that you get these reports regularly.

4. Never Just Hire Warm Bodies. Hiring someone just for the sake of hiring rarely works. Mediocre hires make mediocre employees. This will only postpone hiring the right people and force you to get rid of the dead wood you just hired first.

5. Know Your Hiring Lead Times. It takes time to get employees up to speed. Know how long it will take to recruit, hire, and train new employees for each position you are planning to hire so they can be ready to work when you really need them.

6. Don't Forget to "Close the Bank Door". The single best staffing tool you have is retaining the good employees you have right now. Create a culture that makes good employees want to stay with you. You may have to pay a little more that you'd like to, but it is much more cost effective that constant hiring and training. And staff shortages can be very costly in terms of lost revenues.

Posted by Jeff Cornwall at 10:31 AM | Permalink | TrackBacks (1)

A great example of in importance of keeping focused and grounded during growth can be found in this article in the StartupJournal. During growth entrepreneurs face a multiple of decisions, each of which has the potential to make or break the business. Also, the entrepreneur must struggle to build a company that has the systems and infrastucture to support growth without at the same time eating up all of its scarce cash.

When facing growth, remember that ultimately there is only one type of growth that matters: profits. Never just chase sales for the sake of more sales. Only grow your sales if they also grow your profits. Profits will not "just happen" as you get bigger and sell more. They must be planned for and engineered into your business.

Posted by Jeff Cornwall at 12:25 PM | Permalink

Rob over at BusinessPundit recommends a book that I am definintely going to buy: Ram Charan's Profitable Growth. Go for batting average, not for homeruns. Focus on growing profits, not just growing revenues. Some of the best words of wisdom we can off any entrepreneur!

Posted by Jeff Cornwall at 01:35 PM | Permalink

The Small Business Blog has a link to an excellent article at WSJ.com on the perils that small businesses must plan for when they face explosive and sudden growth.

Stories like this remind me of one of my favorite business parables: There once were two old dogs on a farm that spent their days chasing every car that passed by. Day after day, week after week, month after month, year after year, they chased cars all day long. Then one day they actually caught one. At that moment one of these old dogs turned to the other and said, ?Hey, we finally caught one of these things!! But what the heck do we do now????!!!?

Posted by Jeff Cornwall at 12:55 PM | Permalink

Here is a quote that Dr. Susan Williams of Belmont University passed along to me. It describes so well the experience that many of us have gone through as our businesses go through periods of rapid growth and change. For me it describes both what I experienced and what our business experienced.

"Everything alive is surprisingly alive-- and on a twitchy, searching, self-aware, self-organizing upward journey. Such living systems periodically break into severe twitchiness and appear to fall apart. They do not. It is actually at such vibrating times that living systems are shaking themselves to higher ground. Transition to a higher order is universally accompanied by turbulence. The disorder and disharmony is a necessary activation of growth to a higher level. The greater the turbulence, the more often it will go into apparent disharmony in order to re-jiggle itself to a higher level." Ilya Prigogine, Nobel physicist.

Posted by Jeff Cornwall at 12:48 PM | Permalink

I have been getting more and more calls from folks thinking about opening up a retail business. This is typical as an economy begins to recover. Probably the single biggest risk, especially in the days of big box stores like Best Buy and Wal-Mart, is poorly manged inventory and pricing. We offer this classic article from the archives of INC magazine to any of you who are thinking about or acting on a plan to go into retail or are expanding your current retail operation.

Posted by Jeff Cornwall at 01:46 PM | Permalink

The economy is clearly moving into a recovery, as can be seen by confidence of CEO's and small business owners.

Continue reading "Time to Start Planning for Growth" »

Posted by Jeff Cornwall at 02:38 PM | Permalink

Good article on need for a network of support for growing companies.

Posted by Jeff Cornwall at 03:46 PM | Permalink | Comments (3)

I bought my first copy of this book when our business was going through our insane period of growth. It was called something on the order of Making Transitioning from an Entrepreneurship to a Professionally Managed Firm in its first edition. Thank goodness the marketing folks helped rename it Growing Pains in later editions. My copy became quite "dog-eared", and I ran into more than one other entrepreneur carrying this book along on a flight to somewhere. It is a must read and a great reference book for any growing company!

Posted by Jeff Cornwall at 07:08 PM | Permalink

All signs point to renewed growth among small businesses, according to a new report issued by the National Federation of Independent Businesses. Our last period of small business expansion illustrated to many entrepreneurs the double edged sword of growth. Although growth is generally considered a good thing for any business, entrepreneurs are often ill-prepared for the challenges that growth brings. Most business failures occur during periods of rapid growth.

Continue reading "Economic Recovery: Proceed with Care!" »

Posted by Jeff Cornwall at 09:03 PM | Permalink