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.
Author: Jeff Cornwall
Dr. Jeff Cornwall is the inaugural Jack C. Massey Chair in Entrepreneurship at Belmont University in Nashville, Tenn. Dr. Cornwall's current research and teaching interests include entrepreneurial finance and entrepreneurial ethics.
Venture Capital and Foreign Investments
Red Herring reports on a new study issued by Deloitte and Touche on foreign investments by VCs.
“The vast majority of U.S. venture capitalists plan to keep their investments inside the United States….Only 20 percent of VCs planned to increase investments outside the U.S. over the next five years.”
Actually, I was quite surprised to see that there are 20% of VCs who would consider overseas investments. The VCs that I know well tend to favor limiting as much extraneous risk as possible, as there is enough business risk in each deal. Therefore they tend to favor specific industries that they know well to minimize their industry risk. Many also limit the geographical reach of their investments, which allows them to keep closer watch over their stable of companies.
International investments add multiple layers of risk that most VCs just do not want to add to the mix. The fact that one in five would invest outside the US tells me that there really is a large overhang in many firms. That is, they have more cash than they can invest in their traditional profile. So we see more VCs chasing start-ups and now a significant number investing overseas.
VCs Venturing into New Territories
More venture capitalists are moving into new territories. The majority of VC firms still stick with established ventures looking for later stage funding, but some are starting to specialize in niche financing markets.
National Dialogue on Entrepreneurship points out that there is a shift to more VC funds going into start-ups. There are a significant number of start-up focused VCs listed in the Entrepreneur magazine Top 100 Venture Capital firms.
The challenge for start-ups getting VC money is that VCs are, by nature, very impatient. They want growth rather quickly and they expect you to hit your projections and hit them on time. If not, they will fire you and hire someone they believe can make your concept meet their expectations.
NDE also links to the web site of a VC firm that is focusing on funding businesses wanting to franchise a business model. From the web site:
“Franchising Ventures Group is comprised of a group of individuals who have extensive experience in business-building, franchising, marketing, and finance. In the course of investigating an array of possible business ventures and market opportunities, they became convinced that many companies had great potential for franchising but that most would never reach that potential.
“The reasons were twofold: one, these businesses lacked the capital to mount an effective franchise marketing campaign, and two, they did not have adequate management personnel to both manage the original business and develop, market and manage a franchise program.
“To us, the next step was obvious – form a venture to provide the capital and the skilled management needed to create, market and manage franchise programs in a joint effort with companies that had the potential for great success.”
Franchising a business concept is a risky endeavor, with litigation rates quite high even with successful franchises. Franchisees get restless and quickly believe the fees they pay are not worth what they get in return. So if you pursue VC funding for a franchise be ready to be stuck between a rock and a hard place as the VC expects quick growth and each of your growing number of franchisees expect you to treat them with specialized attention in return for the fees they pay you every month.
Carnvial of the Capitalists
COTC can be found at BusinessBlogCast this week.
Wasted Dreams
The Williamson County insert in the Sunday Tennessean ran a story about a group of young entrepreneurs gone bad.
They had started a business installing audiovisual systems in people’s homes in the Nashville suburb of Brentwood. As an entrepreneurship professor I love to hear about young folks exploring the world of entrepreneurship. I developed a couple of small businesses when I was young and I know that is part of the reason I caught my life-long passion for entrepreneurship.
However, it seems these young boys were after more than a little experience and spare cash. They got greedy. The profits they made from their work were not enough.
“The alleged robbery happened last week while the owner of a Belle Meade home where the company had done work in the past was out of town, according to Brentwood Police.
“The teens entered the client’s garage and stole a new Mercedes-Benz that was delivered while the homeowner was away. The suspects allegedly returned a second night, broke into the house and took more than $100,000 worth of property including jewelry, plasma televisions, computers and other personal items.”
While I encourage young entrepreneurs to dream about the financial gains they can make as entrepreneurs, it is critical to ground their ambitions, the skills they develop, and the lessons they learn in values.
Entrepreneurs have no corporate code of ethics or even basic rules to follow in their work unless they develop them on their own. That is why it is so very important to understand how to integrate a sense of right and wrong, fair and unfair, just and unjust into your business from the very beginning. You set the rules and you enforce them.
I try to help my students understand the importance of this and how it can be accomplished in every class I teach. Sadly, it seems clear that these kids never got this lesson.
Plants into Plastics
The 2005 Presidential Green Chemistry Challenge Award for small business was presented this week to Metabolix, Inc by the SBA’s Chief Counsel for Advocacy, Thomas M. Sullivan. Metabolix is a small business that is turning plant materials into usable plastics for a variety of applications.
The Metabolix web site describes their core technology as applying “the cutting edge tools of biotechnology to create a new generation of highly versatile, sustainable, biobased, biodegradable, natural plastics and chemicals.”
The Presidential Green Chemistry Challenge Awards provide national recognition of outstanding chemical technologies that incorporate the principles of green chemistry into chemical design, manufacture, and use, and that have been or can be utilized by industry in achieving their pollution prevention goals.
Hat’s off to Metabolix for being a pioneer in what may become a major new industry over the coming years. Could they have done it without this award? Certainly, since the company has been working on this technology since 1992 and has entered into strategic alliances with companies such as BP and ADM to apply their technology to different markets.
Seems like the EPA is simply after a little positive p.r. with this one. Maybe we should just keep the overhead that it takes to run an award program like this in the private sector.
Small Business Structure
StartupJournal has a story based on an NFIB survey showing that S-corp is still the most common form of small business organizational structure. Generally, it is still my choice of default, although there are situations where an LLC or C-corp makes more sense.
What is interesting from this study is that small businesses do not really use their legal boards as they are intended, to provide oversite, with 68% saying they have a board only because they have to under the law.
At first glance this may be alarming, but in reality most small corporations choose to include only shareholders as board members. However, given the legal liability that boards now face, this is probably a wise choice.
If the legal board of directors is only a nominal board and not really providing any oversite, it is critical for entrepreneurs to create an informal advisory board. Objective and honest outside viewpoints helps to keep our thinking clear and our assumptions well tested.
Write Your Own Plan
One consulting job I will never take, no matter what the fee, is writing a business plan for someone else. John at new dog old trick offers his take on outsourcing business plan writing.
“Even more importantly, the entrepreneur must own the process of planning. The plan document is an artifact – an output of the planning process. Nobody can own the content, the substance behind the planning process, except the entrepreneur. That’s where all the time and energy need to be focused. On the process of planning, not on the document itself. Yes, the document is important, but confusing the plan with the planning process is a triumph of form over substance that too many entrepreneurs fall victim to.”
Well said!
Coffee Shop Update
Jason is moving ahead with his coffee shop in Bozeman, MT. If you haven’t visited his blog site in a while make sure to stop by and see his progress.
Small Business Rocks On
Anita at Small Business Trends tells us that business start-up activity is alive and well in the US. While the numbers are somewhat below the peak of the dot.com days, they are still strong and reflect more true entrepreneurial activity. Most dot.com corporations generated very little revenue and even fewer had any profits. Most were simply financial gimmicks and in some cases financial scams.
“…18 million people in the United States are actively engaged in startups (versus 31 million engaged in startups and established small businesses.)”