Forbes America's Most Promising Companies: August 2009 Archives

This week's question for Forbes magazine's America's Most Promising Companies initiative comes from Brett Nelson, Entrepreneurs Editor at Forbes:

The fear of Big Government is in the air. What are some of the most deleterious regulations hampering small business today? What would be a better approach?

I offer a modest and simple proposal to this question -- repeal a single act passed almost one hundred years ago.  It reads as follows:

ARTICLE XVI. The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

If we did away with the federal income tax by repealing the 16th amendment to the constitution, we would do away with the Internal Revenue Code as we now know it -- all 70,000 pages of it.  No set of regulations hampers small business more than the red tape, cost, and complexity created by our income tax system.

How to replace it?  I still favor some form of consumption tax.

This week's question for Forbes magazine's America's Most Promising Companies initiative once again comes from Brett Nelson, Entrepreneurs Editor at Forbes:

Like it or not, leading the troops means keeping them happy and motivated. How do you do that while cutting their salaries and benefits to stay alive?

We know that there are two reference points that employees use to determine if their pay and benefits are fair.  First there is the internal equity of the compensation -- how it compares to people around them at work.  If everyone is feeling the pain, they may not like it, but it tends to not effect motivation as much as if the cut-backs are selective.  If the employees see that everyone -- hourly workers, managers, and owners -- are taking their share of the cut, the impact on morale and performance can often be minimized.

The other reference is people with similar jobs in other companies. Is their pay equitable when looking at other people in the community or in other companies in their industry?  Since times are tough all over, there may be a sense that they are just happy to have a job.

Remember that both of these references -- internal and external to where they work -- will be used by employees to determine relative fairness of their current compensation.

Small businesses have always had other means of non-salary rewards and compensation that are not always used in larger businesses.  More than ever, these can be used to help increase the morale and motivation. 

Small businesses have more flexibility in how they structure compensation.  To leverage this entrepreneurs should listen to what the employee really wants.  There may be opportunity to meet their needs in ways that do not cost money.

An example comes to mind from my days as an entrepreneur in the healthcare industry.  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.

This week's question for Forbes magazine's America's Most Promising Companies initiative comes from Brett Nelson, Entrepreneurs Editor at Forbes:

Small companies must get creative to survive the recession---even going so far as to branch into new lines of business (assuming they have the cash to do it). But mission creep comes with serious risk. What are some tangible do's and don'ts about expanding your product line?

Why should a small company change their product line?  For only one compelling reason -- the market is taking them there. 

Entrepreneurs typically rely heavily on their business plans when the time comes to launch their new venture. It is a plan that they may have agonized over for weeks, months or years. They have done their research, creating a carefully thought-out business that justifies their financial forecasts. But then a funny thing happens. They assumed in their business plan that the market wanted "A." But if they listen carefully to the customer, they often find out that the customer really wants "B."

I call this learning to "dance with the market." And you should be ready to let your customers lead in this dance.

The need to listen to the market never really ends. Markets are dynamic, so you need to be ready to follow where they lead, particularly during times of rapid change and turmoil in the market as we are experiencing with the recession.

What should you be cautious about when it comes to adjusting your mission?

Don't move so far off of what you are known for that you lose your customer base.  There may be opportunity beyond the boundaries defined by your mission, but these opportunities may end up redefining your business so much that you confuse the market.