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.”

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.

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.

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.

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!

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).

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%

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).

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.