Recently in Growth Category

I wrote a review on Erik Wesner's book, Success Made Simple, back in May.  After reading his book about the success of Amish business owners we decided to get him to our campus.

Wesner spoke to a group of students and people from the community this past week here at Belmont University.

Beyond the remarkable five year business survival rate of about 90%, Wesner offered some wonderful insights into the Amish culture and how it shapes their entrepreneurial nature.

Like many entrepreneurs, the Amish look at entrepreneurial success in ways that go well beyond financial success.  Owning a business allows the Amish to have more time with family, as most of the businesses employ family members.  Time with family is at the core of their culture, so using business ownership as a tool to maximize that time is paramount.

Success is also tied to legacy.  Amish entrepreneurs hope to be able to pass down their businesses to the next generation.

The ability to give back to their community through mentorships, supporting missions, and financial contribution to those in need is also at the core of how they view success.

It is clear that their culture is behind much of their ability to build sustainable businesses.  A strong work ethic is at the core of their culture.  And if a business falters, the community rallies to offer help with the struggling business, including acting as trustees if necessary.

Wesner offered three business lessons that he learned from the Amish that he believes are transferable to any entrepreneur:

1. Humble leadership -- never expect employees to do anything you won't do yourself.
2. Husbandry of resources -- there is very little waste in Amish businesses.  They find ways to use waste for new functions whenever possible.
3. Appreciation for small scale -- bigger is not better to the Amish.  Their schools are kept small, their churches are small, and they limit the growth of their businesses.  They believe that too much growth can lead to arrogance and pride.  Small scale also keeps time for family.  The virtue of temperance is definitely evident with the Amish.

Hearing Wesner speak about Amish entrepreneurs brings home the fundamental role of culture in shaping entrepreneurship in an economy.

Guardian Life has a new index that identifies the characteristics of small business owners who exhibit a strong success orientation.  Success orientation is defined by their desire to enjoy longevity in their businesses, expand revenues and grow the size of their companies.

The six dimensions as described by the Guardian Life Index:

Collaborative. Success-oriented small business owners learn how to delegate effectively to others within their business as well as build strong personal relationships with their management team, employees, consultants, vendors and customers. They are more committed "to creating opportunities for others."
 
Self-fulfilled. Success-oriented small business owners place a high value on the personal fulfillment and gratification that their companies provide them, relishing the self-determination and respect that come from being their own boss and being in control of their personal income and long-term net worth. They are more desirous of "doing something for a living that I love to do," "being able to decide how much money I make" and "being able to have the satisfaction of creating something of value."
 
Future-focused. Planning for both the short- and long-term future are key traits that characterize success-oriented small business owners. They are more focused on cash flow and more likely to have "a well thought out plan to run our business for years into the future" as well as "a well thought out plan to run our business day to day."
 
Curious. Success-oriented small business owners are more open to learning how others run their businesses. They actively seek best practice insights regarding management, business innovation, prospecting and finding / motivating / retaining employees. 
 
Tech-savvy. Technology is a key point of leverage for success-oriented small business owners. They more intensely value their company's website and are significantly more likely to "rely a great deal on technology to help make our business more effective and more efficient."
 
Action oriented. Success-oriented small business owners are more proactive in taking initiative to build their businesses.  They are more committed to "taking the business to the next level," "differentiating ourselves from our competitors" and "having something to sell when I'm ready to retire."  They also see adversity as "a kick in the rear to help move you forward." Not surprisingly, they are less concerned than other small business owners about the overall state of the economy.

A summary report of the index and be found here.

Jason Del Rey has a great interview with Josh James at Inc.com about his growth of Omniture and eventual sale to Adobe.  A very honest reflection -- well worth the read.

(Thanks to Belmont alum Bradley Martin for passing this along).

One of the greatest challenges faced by growing businesses is to avoid the pitfalls of culture drift. 

Most entrepreneurs launch their businesses with the intention of building a certain type of culture.  But, the demands of growth can take the entrepreneur's eye off creating an intentional culture.  And each new hire can bring in elements from the different cultures where they have worked.  The result is that over time the culture can look very different from what the entrepreneur had originally intended.

My friend John Wark has passed along an interesting article from Inc.com about an entrepreneur named Nick Sarillo who founded Nick's Pizza and Pub.  Sarillo's story offers lessons on how to create an intentional culture during times of growth:

Sarillo has built his company's culture by using a form of management best characterized as "trust and track." It involves educating employees about what it takes for the company to be successful, then trusting them to act accordingly. The alternative is command and control, wherein success is the boss's responsibility and employees do what the boss says. Think of the Navy SEALs versus the National Guard. Both approaches can work, but they produce very different cultures. If done right, moreover, trust and track can allow a company to be nimble, flexible, and productive enough to perform at the highest level through good economies and bad.

There is another entrepreneurial myth that needs busting.  It is this one:

"Entrepreneurs are good at starting things, but cannot manage them once they begin to grow."

I have been arguing that the problem is that we don't consistently teach entrepreneurs how to manage growth.  My experience has been that once we do, their success improves considerably.  Most have never run a growing, successful business before.  They just need the knowledge and tools.  I have done this type of training with both our students and entrepreneurs in the community ever since I got back into teaching.

Now their is some empirical evidence that entrepreneurs ain't so shabby when it comes to managing larger, successful businesses.

New research from Babson College by Prof. Joel Shulman finds that publicly traded stocks led by entrepreneurs, consistently outperform non-entrepreneurs by a wide margin. Stocks of entrepreneur-led companies significantly outperform non entrepreneurs.

Shulman suggests that because entrepreneurs try to keep costs low while vigorously growing the business -- you just got to love that Bootstrapping spirit -- entrepreneurial companies are well positioned to perform better than ever in a sluggish, recovering economy.

Shulman's recent update on stocks for calendar 2009, show:

• Stocks of entrepreneur-led companies significantly outperform non entrepreneurs (YTD through 12/1/09,  650+ global entrepreneurs are up 93%).
• Stocks of "bureaucrat" companies underperform non-bureaucrats and entrepreneurs by a wide margin (these are stocks that individuals would sell or sell short).
• Stocks of Entrepreneur-led companies continue to outperform non-entrepreneurs even after adjusting by market cap size, sector, geography, or time period.

This past Friday I led a seminar for our local chapter of EO called "An Intentional Culture."

Whenever I talk about culture I always am reminded of a chocolate Labrador retriever we used to have named Jazzmyn.  While she was one of the sweetest dogs we have ever owned, anyone who has had a lab will tell you that they are a very high maintenance dog. 

Training is a life-long process with many labs.  If you ever let up, they will begin to go their own way -- labs have a strong will and a mind of their own!

That is why Labrador retrievers are the best metaphor I can think of for the culture within a business.  Culture also can seem like it has a mind of its own.  Your culture will be shaped by everyone you hire, your market, your customers, and even investors. 

If you don't continue to pay very close attention to your culture, it will begin to drift away from what you had intended.  Just like our old lab Jazzmyn, you can never take your eye off your culture.

Some entrepreneurs are driven by the desire to create a certain type of culture in the business.  For example, Nashville businesses like Emma (e-mail marketing) and redpepper (advertising and strategic marketing agency) consider building and sustaining their cultures to be one of their top priorities.  To make that happen, the founders and their team relentlessly work to build and sustain their cultures.

My column this week in the Tennessean explores how to build a bootstrap culture:

When starting a new business, most entrepreneurs have to bootstrap their business -- that is, find ways to get things done with limited resources.

But why do so many owners keep bootstrapping even when the cash starts flowing and they no longer have to bootstrap out of necessity?

Bootstrapping over the long term helps keep the business efficient, which reduces the need to secure external financing. This allows the entrepreneur to keep ownership of the business, reduces the need for taking on debt and helps strengthen the business during recession.

In addition, continuing to bootstrap helps build a stronger cash flow. And the stronger the cash flow, the higher the value of a private business. Bootstrapping, therefore, helps build wealth for the entrepreneur by increasing the value of the venture as it grows.

An entrepreneur has to get everyone in the organization to become a bootstrapper. This requires the creation of a bootstrapping culture throughout the company. Entrepreneurs should communicate a consistent message about bootstrapping. Highlight its importance in every form of communication, ranging from informal conversations with employees to formal communications such as newsletters, annual reports and policy manuals.

A consistent message reinforces the importance of bootstrapping behavior.

For example, include a feature in every company newsletter about an employee who was the "bootstrapper of the month," offering a story of how he or she accomplished a task with minimal resources. Remember, storytelling is a fundamental part of building a culture in a business.

However, remember that your actions need to reinforce your message about bootstrapping. The leaders of a business should bootstrap at every opportunity to serve as a role model and demonstrate their commitment to bootstrapping.

Building a bootstrapping culture also requires careful recruiting of new employees. When bringing new people into the business, look beyond their technical skills and experience to fill the position. So, if you want a bootstrapping culture to flourish, find out if prospective employees fit into a bootstrapping way of doing business.

Ask the right questions

One approach to evaluating the fit of prospective employees is to develop open-ended interview questions that assess their bootstrapping temperament. For example, you can ask all the applicants the following: "Tell me about a time when you had to accomplish a task when limited resources were available."

If the interviewee answers by saying that she always had more than enough budgetary support in her old job, it might be difficult for her to adapt to a bootstrapping environment. Or, if she answers by complaining about the lack of resources in her old job, or about how her old boss was always a cheapskate, it's a sure sign that this person will not have bootstrapping in her blood.

On the other hand, if she speaks with enthusiasm and pride about how she got the job done within the limited resources available, the candidate is a perfect fit.

To keep bootstrapping alive as a company grows, entrepreneurs must create a culture in which bootstrapping is simply "how we do business around here."

Thanks to all of you who e-mailed me about my post yesterday on focus versus diversification.  Several folks asked me when diversification does make sense for smaller businesses.

If the core business you have going is stable and mature, it can be a time to consider spreading your wings into new deals.  It is not always a wise thing to do, but this is the point when shifting your attention to something new makes the most sense.

If you do branch out into new deals, the best approach is to think incremental.  Choose deals that build off of what you know and what you are already doing.

However, remember that your ability to spot a good deal and even to execute the start-up has very little to do with your ability to manage an increasingly complex set of operations.  That is what too many people fail to realize.

Starting yet another deal is like getting a new puppy when you already have a dog.  (I am sitting on the back porch this morning with our two dogs AND our daughter and son-in-law's two dogs, one of which is a lab puppy -- so I guess we know where this metaphor is coming from). 

Your old dog has kind of gotten on cruise control in the family.  He is just kind of there -- a great pal, but not much fun and excitement any more.

The thought of a new puppy is exciting.  After all, it will good for your older dog to get a playmate.  And what fun a new puppy is to have around the house.  We do like to rationalize, now don't we?

So you buy that new puppy.  Now you have to deal with all of the challenges of a puppy in the house that you kind of glossed over or shoved into the back of your mind when considering this decision -- the messes, the chewed up shoes and furniture, the middle of night trips into the yard.

On top of that, now your older dog is getting kind of put out.  He needs more attention than he did when he had the house to himself.  He starts to act up -- maybe forgets his house breaking manners or starts to misbehave in other ways just like that new puppy.  So now you are dealing with the demands of the puppy and the renewed demands your older dog has now created for you!

I have to be honest with you at this point.  We have gotten that second dog several times in our lives.  And I have started that next deal several times.  But, every time it has ended up being more work and more stress than I had planned for.

I don't tell you all of this to say never start a second or third or fourth deal while still operating your first deal. 

I say this to make sure that you remember that just because you can start another business does not always mean you should.

This week's topic for the America's Most Promising Companies project from Forbes was submitted by one of my fellow AMPC bloggers.

How do I balance a need for strategic focus versus diversification and expansion of my products/services?

This question gets at the heart of a classic entrepreneurial challenge. 

On one hand, it is essential to adjust the business to meet the changing needs of the market.  This may take the form of expanding or altering the positioning of the business to meet these changes in the market.  This may require expanding or even fundamentally changing what we offer to our customer base.  It may also lead us to change how we define who are customers need to be going forward.  Certainly, entrepreneurs should never allow themselves to become paralyzed within their original business model if the market is telling them that they need to evolve their concept to fit the reality of a dynamic market.

On the other hand, I see many entrepreneurs who suffer from what I call Entrepreneurial A.D.D.  For these entrepreneurs I find myself saying one word over and over:  Focus! 

So why do entrepreneurs lose their focus?  It has to do with opportunity.  While opportunity in the market is what launches entrepreneurs into business, it can just as quickly become their undoing.

What happens is this -- once the entrepreneur enters the market they start to observe many other opportunities that exist in the marketplace.   Entrepreneurs, especially less experienced ones, start to see new business opportunities everywhere.  They feel compelled to pursue those opportunities even if it is not wise to do so.  They feel a desire, even a compulsion, to start additional new businesses even while their first one is still in the start-up phase.

Sometimes the opportunity relates to expanding into new markets.  The entrepreneur sees opportunities to move into additional markets that are not part of their current business operations.  The problem arises when the business and/or the entrepreneur are not yet prepared for this expansion.

For example, a former student of mine had started a franchised business that provides in-home care for the elderly.  During his first year in business, and even before his business had positive cash flow, he was approached about buying a distressed franchise operation of the same business in a nearby town.  When he asked my opinion, I urged him keep his attention focused on the first business he had started - he did not need two businesses that were operating at a loss!

But, he could not resist what he perceived as an opportunity worth a risk and bought the second franchise.  About a year later he called and admitted that it was a huge mistake.  He managed to get both businesses on the road to profitability, but was working 80-100 hour weeks and going much further into debt than he had ever intended.

Even more disruptive is when entrepreneurs pursue opportunities in entirely new businesses before their initial start-up venture is profitable.  I recently met with one entrepreneur who had five distinct businesses operating.  But, not a single one of them had reached profitability.  Luckily, we were able to develop a plan to shut down most of them so he could focus his efforts on his initial start-up business and build it to the point of positive cash flow.

The best way to avoid pursuing too many opportunities too quickly is to write down a clear mission statement and always remember one word:  focus.  If truth be told I believe that mission statements are most important as a tool to keep the entrepreneur on track than as a means to communicate to our team and to the outside world about what we offer. 

Given a choice between strategic focus and diversification for small and medium ventures, I will choose to push for more focus almost every time.

This week's topic for the Forbes America's Most Promising Companies:

 

How can I prevent my business from being too dependent on one or two key personalities (e.g., founders) so it can continue to grow after their departure?

The biggest roadblock to building a team that sustain a business even after the departure of the founders is their hesitancy to delegate. 

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.

Out of the challenge of delegation comes a second issue -- "What exactly is the job description for a CEO, any way?"

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.

This is often due to the fact that 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.

When building the management team that will take over much of the running of the business, the most common mistake is to hire solely based on people's skills and experience.  The technical ability of the person to perform the job should be the minimum criteria that get them to the first interview.  After that, pay most of your attention to their fit with your culture and their ability to continue it into the future.

This requires that you have a clear and concrete understanding of what makes up your culture.  Then use this to develop several open ended interview questions that can give you insight into how well they fit with your culture.  Don't asking questions that lead them to answers.  Make them vague enough so they have to use their own values to build their response.

For example, assume that bootstrapping is a key part of the culture of your business that you want to ensure will continue into the future.  You might ask them the following: "Tell me about a time when you had to accomplish a task when limited resources were available."  If the interviewee answers the question by saying that she always had more than enough budgetary support in her old job, it might be difficult for her to adapt to a bootstrapping environment not having worked that way in the past.  Or, if she answers by complains about the availability of resources in her old job, or about how her old boss was always cheap, that is a good signal that the employee is not have bootstrapping as a part of her work ethic.  On the other hand, if she speaks with enthusiasm and pride about how she got the job done within the limited resource available, she would more likely fit into the bootstrap culture.