The start-up years

The start-up years are the period when survival motivates your thoughts and actions. Everything that happens within the business is dominated by you; words such as delegation, team, and consensus generally aren’t yet part of the business’s vocabulary. These are the hands-on years. For some owners, they’re the most enjoyable years of the business; for all owners, they’re an integral part of the learning process.

The work during this time is hard — often the physically and emotionally draining kind of hard. The hours are long and sometimes tedious, but by the end of the day, you can hopefully see, touch, and feel at least some of the progress you’ve made. The gratification is instantaneous.

The duration of this first stage varies greatly from business to business. Some fly through the start-up stage in less than a year, but most spend anywhere from one to three years growing out of this stage. Others — often those in the more competitive niches — can spend as many as five or more years in the start-up stage.

You know you’ve graduated from the start-up stage when profitability and orderliness become a dependable part of your business. The hectic days of worrying about survival are replaced by the logical and orderly days of planning for success.

The growth years

The growth years are the years when your business achieves some sense of order, stability, and profitability. Your evolving business has survived the mistakes, confusion, and chaos of the start-up years, and now optimism, camaraderie, and cooperation should play an important role in the organization. Key employees surface, efficient administrative systems and controls become part of the business’s daily operating procedures, and the need to depend on you for everything that happens diminishes.

The business of doing business remains fun for most small-business owners in this stage, because increasing sales translate into increasing profits — every small-business owner’s dream. The balance sheet puts some flesh on its scraggly bones as you generate cash as a result of profitability. You figure out how to delegate many of those unpleasant tasks that you performed in the past. And survival is no longer your primary motivator. At last, the daily choices you make can be dictated by strategic goals rather than day-to-day survival.

Here is some more good news: This stage can last a long time if the growth remains under control and if you manage the business and its expanding population of employees properly. (For information on out-of-control growth, see the nearby sidebar “Is your business growth healthy?”) More than likely, however, this stage will last anywhere from a few years to six or seven years or so before the next stage raises its ugly head.

The transition stage

The third stage, the transition period, can also be called the restructuring stage or the diversification stage. By the time this stage begins, something basic to the success of the growth years has changed or gone wrong. As a result, in order for the business to survive, a strategic change in direction is required. (See the later section “Redefining Your Role in an Evolving Business” for more on this topic.)

Many factors can bring about this transition stage, including the following:

• Relentless growth: Relentless sales growth requires relentless improvement in the business’s employees, systems, procedures, and infrastructure, and many businesses simply can’t keep up with such pressures.
• Shrinkage of sales and the disappearance of profits, or even prolonged periods of stagnation: This is the opposite of growth. The causes for this shrinkage or stagnation can come from anywhere and everywhere, and they often include such uncontrollable factors as new competitors, a changing economy, new technology, and changes in consumer demand.

The solution to transition-stage problems lies in making a strategic change — a transition — in the fundamentals of the company. This transition often involves a change in top management. It isn’t unusual for a rapidly growing company to outgrow its founding entrepreneur (that’s you!). Additionally, the transition may involve the introduction of new products or services, the establishment of new distribution systems, the adoption of new technology, or the paring of the underperforming assets of the business.

The good news to a displaced founding entrepreneur: If yours was a profitable company and you can sell it on the way out, you can then afford to go back to what you do well and what you enjoy. You can go back to the life of an entrepreneur and start all over again. Or, if you’re financially able, you can move on to other pursuits.

Identifying important HR concerns

Consider, if you will, a partial list of HR issues, the mere mention of which can make a government inspector’s (and attorney’s) mouth water:

• Sexual harassment
• Discrimination
• Wrongful discharge
• Hiring violations
• Workplace safety violations
• Working conditions violations
• Wage and hour violations

Unfortunately, much of the concern for the employee’s welfare that you hear about today is well founded and necessary, because of a minority of greedy and uncaring business owners over the years who have created the need for such scrutiny. This means that law-abiding and people-caring small-business owners like you must pay the price in the form of red tape and regulations. And the more your company grows, the larger that total price generally becomes.

Dealing with HR issues in three stages

How do you deal with such a wide spectrum of HR issues? The answer depends on which of the three stages of HR development your company happens to be in.

Management by objective

An old-timer for sure, the basic components of management by objective (MBO) — setting and reaching goals — have endured and are still used by many successful businesses. The process of goal-setting is discussed at length in Chapter 2 of Book 4. Most successful businesses — small and large — use goal-setting in one form or another; so should yours.

Participatory management

The primary characteristic of participatory management is that all employees take part in determining the direction and policies of the company. Great in theory, this approach can work wonders when organized carefully and phased in over long periods of time. The participatory tools inherent in such a system work for two reasons:

• Given a voice in the decision-making process, employees are much more likely to make a personal commitment to the decisions reached.
• Given the fact that employees see the business through different eyes and often more frequent experiences with customers than the owners, their input enhances the quality of the decisions made.

But don’t give away the keys to your business too soon. Figuring out how to grow a small business takes years of training and preparation. Besides, not all employees want the responsibility that goes with management positions. Employee participation takes time and patience, neither of which is a common trait of most entrepreneurs.

Employee ownership

There is motivation inherent in offering employees the opportunity to own a piece of the company (in other words, employee ownership), but sharing the pie isn’t always as easy as it sounds. Sometimes you don’t have enough pie to go around; sometimes the pie isn’t divided the way everyone would like it to be; and sometimes some of your employees would rather bet their futures on T-bills rather than on small-business pie. Besides, minority shareholders can be a pain in the rear.

But for many people, ownership is one of the best motivators available. That’s why, despite the problems that come with sharing the pie, more and more pie-sharing is going on today than ever before. Even the federal government recognizes this fact, which is why it offers a number of incentives to companies who want to establish such employee-empowering tools as Employee Stock Ownership Plans (ESOPs).

Quality circles

Quality circles are ad hoc groups or temporary teams (also known as ad hoc committees) of employees assembled to solve specific problems. Most successful businesses use forms of this team approach to problem solve. In many cases, businesses assemble specially formed teams to solve a problem and then quickly disband the team after the issue has been resolved.

The appeal of the problem solving tool inherent in quality circles is the age-old theory that two heads are better than one. This is especially true when those two (or more) heads are focused on solving a specific problem and when those heads bring differing perspectives to the problem solving table.

Open-book management

Open-book management dictates that informed employees can make key decisions usually reserved for management — within, that is, their areas of expertise. An informed employee is one who’s privy to nearly everything that goes on within the company, including a variety of tools usually reserved for management, such as using and understanding financial statements.

Similar to any other management system, the open-book management system has an upside and a downside:

• The downside is that your employees may discover things you’d prefer they didn’t know, like how much you spend on travel and entertainment in a year and how much your new sports car costs the company.

• The upside is that informed employees tend to make better day-to-day decisions than uninformed ones. Informed employees are also more likely to be committed to the cause — in this case, to increasing the profitability of the company.

Filling out a troubleshooting checklist

Most consultants use checklists to help them determine the seriousness of a business’s problems. Here’s a checklist used by one particular troubleshooting consultant.

• Rank each of the following categories from 1 to 10:
• ______________ Quality of cash-management procedures (cash flow reporting and forecasting) (1 = poor, 10 = excellent)
• ______________ Quality of financial reporting (profit and loss statement and balance sheet) (1 = poor, 10 = excellent)
• ______________ Quality of financial forecasting (budgets) (1 = poor, 10 = excellent)
• ______________ Dependence on borrowed funds (1 = heavy, 10 = none)
• ______________ Late with payroll tax deposits (1 = often, 10 = never)
• ______________ Lag between sales growth and profit growth (1 = substantial, 10 = none)
• ______________ Employee turnover (1 = heavy, 10 = nonexistent)
• ______________ Quality and frequency of strategic planning (1 = never, 10 = regular and dependable)
• ______________ Owner has more work to do than time to do it (1 = too much work, 10 = balances time efficiently)
• ______________ Owner’s feelings about the business (1 = hates it, 10 = loves it)

If you were your own troubleshooting consultant, how would you rate your business overall? What areas would you target for improvement? Use this checklist to determine how your business checks out. How many items would receive close to a 10? How many areas would receive something less than a 5?

Although there’s no overall key to grading your answers, consider giving immediate attention to working on any answer that received a 5 or below. For the 6s and 7s, put the issue on your long-range to-do list. For the 8s and above, pat yourself on the back and make sure that the employees responsible for the rating are publicly recognized and, where possible, rewarded.

Taking the five-minute appearance test

Your business’s appearance is important, especially to your customers. With this in mind, check out the following appearance test. Five minutes are all you need to take it.

Start with a business other than your own. For instance, you can offer to give a friend’s business the following five-minute appearance test. Or use the test on a business you frequent, such as your dry cleaner. Simply drive into the parking lot, walk into the customer service or office area, peek into a few doors here and there, step into the restroom for a quick look around, and then check out the areas around the coffeemaker and copy machines before you go.

Note the following as you go, ranking your observations from 1 (poor) to 5 (excellent):

• THE EXTERIOR
• ______________ Parking lot: Well cared for and clean
• ______________ Grounds and exterior: Well maintained, trimmed, and inviting
• ______________ Windows: Clean, unsmeared, and uncluttered when viewed from the outside
• ______________ Signage: Well maintained, readable, and understandable

• THE INTERIOR
• ______________ General neatness: Desks and working areas neat and uncluttered
• ______________ Restrooms: Neat and clean
• ______________ Expense awareness: Unnecessary lights and unused equipment turned off, no original van Goghs in the lobby
• ______________ Time-management: Employees appear focused and busy, no gossipy gatherings around the coffeemaker or copy machines
• ______________ Employee attitudes: Polite, alert, attentive, and focused
• ______________ Employee appearance: Neat, clean, and dressed appropriately
• ______________ Sense of urgency: Employees going about their business at a pace that indicates they don’t have time to waste

• THE BEST AND THE WORST
• The one thing I saw that impressed me the most:
• ______________________________________________________________________________________
• The one thing I saw that bothered me the most:
• ______________________________________________________________________________________

Then give the questionnaire to the owner and ask her to repay you the favor. Your business could use the five-minute appearance test, too.

Making the transition to manager

Here’s a popular entrepreneurial axiom: “The day you hire your first employee is the same day you begin making the transition to manager.” This transition isn’t an easy one to make because many of the personal traits of the typical small-business owner run counter to those of a successful manager.

Consider the following required traits and job descriptions of the successful manager — traits that aren’t always near the top of the typical entrepreneur’s list of skills:

• Focus: The successful manager focuses on the project at hand, no matter what else is going on around him. The typical entrepreneur stops in the middle of the task to respond to the latest opportunity or crisis.
• Attention to detail: The successful manager devoutly dots her i’s and crosses her t’s. The typical entrepreneur is often too busy or simply isn’t the type that enjoys dealing with details.
• Follow-up: The successful manager understands that employees need to know that their work will be evaluated. The typical entrepreneur doesn’t think that employees’ work should have to be followed up; he believes that the employees should do it right the first time.
• Conflict resolution: The successful manager views resolving conflict as an important part of her job description. The typical entrepreneur sees it as an intrusion on her time.
• Training: The successful manager views training as an investment. The typical entrepreneur sees it as an expense.

Of course, not all small-business owners fit this entrepreneur’s profile. You can make changes in some, if not all, of the managerial traits that you lack. However, the transition to manager isn’t an easy one, and it involves some basic — and often wrenching — changes in the entrepreneur who originally founded the business.

Implementing strategic changes

The Peter Principle, which says that managers rise to their level of incompetence, constantly creeps up on all small-business owners as their companies grow. For one entrepreneur, it may arrive when his company has only one employee; for others, it may creep up when their companies reach 1,000 employees. But everyone has limitations — managerial and otherwise. Having limitations doesn’t make you a bad person; it only means that, where the management of your business is concerned, there may come a time when you should either move over or move on.

Once you notice that the Peter Principle is hanging over your management skills and you’re having a difficult time making the transition from entrepreneur to manager (you’ll know it’s happening when your business isn’t fun anymore), take some time to consider the four alternatives in the following sections.