The Inc 500 list of fastest growing private companies is now available. While an interesting read, keep in mind that this list is made up of self-nominated companies. Most entrepreneurs I have worked with tend to shy away from this list unless they need it to help them with publicity for raising capital.

Just like that we have gone from the media worrying about jobless rates being high, to worrying about tightening job markets making it tougher for small businesses to compete for workers.
From Inc.com:

On Thursday, the Bureau of Labor Statistics reported that initial jobless claims fell by 4,000 the previous week, data that may indicate strong demand for labor, especially in the small business sector.
William Dunkelberg, an economist with the National Federation of Independent Business, said that small businesses have been having a harder time finding the employees they need to grow. Earlier this month, the NFIB found that 21% of businesses surveyed have job openings they cannot fill. Seventy percent have encountered difficulty finding qualified people.
Looking forward, the NFIB survey found that 20% of businesses plan to increase their workforce. “There’s no question that labor markets will stay tight,” said Dunkelberg.

Most of the current economic expansion is taking place due to small businesses. Many have started over the past couple of years and have not had experience in hiring in tighter job markets.
So here are a few things to keep in mind:
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. More managers and supervisors it should be based on the number of first line employees each can effectively supervise. And don’t forget the needs of support staff in areas like billing and sales. As labor markets tighten, you may need to move these triggers up earlier in time. It takes time to get employees up to speed. 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. If you could hire and train workers in 60 days a year or two ago, you may now need to plan on a lead time of 90 or even 120 days in a competitive job market.
3. Measure Your Employment Triggers. Work with your bookkeeper or controller to give you quantitative reports on your key employment milestone 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. Tighten job market will put some upward pressure on pay due to supply and demand. Stay competitive in your pay, and plan on pricing increases in advance to cover any 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.
6. 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. And staff shortages can be very costly in terms of lost revenues.
And to those who have made the sudden shift from worrying about no jobs in the economy to worrying about not enough workers? Lighten up! This is a good problem!

A new report by Joel Popkin and Company, Cost of Employee Benefits in Small and Large Businesses, has been released by the Office of Advocacy of the U.S. Small Business Administration (SBA). The report specifically looks at the cost of health insurance, retirement plans, paid vacation, and sick leave.
The report finds that the rate of offering various benefits and that their associated costs can vary dramatically with firm size. Here are some highlights from this study:
– Paid vacation: This is the most common benefit offered by businesses of all sizes. The study found similar rates of offering this benefit among small businesses with over 100 employees and large companies. 50% of the smallest companies (fewer than 10 employees) offer paid vacation
– Sick leave: Paid sick leave is offered by 81% of large companies and 65% of small businesses.
– Health care: The cost of offering health care per employee is highest for the smallest businesses (under 10 employees) and the largest companies (over 1000). Very small businesses do not have bargaining power in securing health insurance, while larger businesses are forced to offer richer benefits due in part to worker unionization. Increases in premiums have been much higher for smaller business over the past few years.
– Retirement plans: About 75 percent of larger firms have some type of retirement plan for employees, while about 35% of small business offer such plans.
As businesses grow, they must pay close attention to benefits offered by larger companies, as they often will have to compete with these businesses to attract key staff. When developing financial forecasts, it is important to factor in a higher cost of benefits as the business grows to reflect the challenge of attracting employees. This can create significant cash flow challenges for businesses that rely heavily on human capital for growth.
But, adding benefits should not just be looked at as a net cost. As seen in this classic article from Inc.com, some entrepreneurs believe that they cannot afford not to offer rich benefits.

“If you use benefits to build a cadre of talented people who stay with you for years, you’ll hold on to your power….Your company’s future will just get stronger and stronger.”

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.

Bizjournals.com tells the story of the Westbrook family artisanal masonry business called QuarryHouse. A lesson to learn from this business is how they have approached growth. They have taken it slowly and conservatively, and it has paid off.
“Westbrook discovered that unexpected business issues cropped up after his company broke the million-dollar revenue benchmark. Westbrook had to relinquish the role of field supervisor and take a strong lead in business roles. Even more pressing issues came in the form of cash flow and payroll, as the company found itself paying employees without having been paid for the jobs they did.”
This transition takes place for almost every growing business, and it usually happens around $1-2 million in sales. Things start to happen that are symptomatic of growing pains that, without attention, can doom a business to failure. Bankers will tell you that this growth period is probably the most dangerous period for the survival of a small business.
“Today, Westbrook sounds like a seasoned financial manger: ‘Learn to grow and survive on the profits you earn. You can’t get into too much trouble if you stick with that.'”
Indeed, and growth should be focused on those profits, not on sales. Growing sales is irrelevant if they don’t also grow your profits.
“His three-prong approach to meeting a goal of $15 million to $20 million in revenue in five years includes continuing to emphasize training and continuing to reinvest in the company….QuarryHouse has had never had outside investment, but as it approaches revenue of $6.5 million, Westbrook is in talks with banks about adding outside capital to the mix. Said Westbrook, ‘They’ve done all the numbers and I don’t believe we’re done growing. There is a lot of work yet for us to look at.'”
No outside money until they hit $6.5 million in sales? Now that is prudent growth.

I write and speak often about how to manage growth successfully. It comes from my own experience of dealing with run-away growth in our business. But growth requires planning and momentum. Entrepreneur.com has a good overview of traditional means to stimulate growth in a small business.
Here is a summary of their list of strategies:
1. Introduce a New Product
2. Take Your Product to a New Market
3. License Your Product
4. Start a Chain
5. Turn Your Business into a Franchise
6. Join Forces
7. Go Global
Since symmetry is always a good thing, keep in mind my 7 Challenges to Effective Growth to go along with these 7 strategies to create growth.
1. Beware of the Growth Myth. Focus on growing profits, not sales!
2. Vision Drift. Don’t lose your way.
3. Cultural drift. Managing the culture of your business is your job! If you don’t manage it, your culture will take on a life of its own.
4. Resource crises. Securing the fuel to support growth can be a constant strain…cash, staff, space, equipment, etc., etc.
5. Systems crises. The mundane and the complex all need development. From accounts payable to planning, all systems must be put in place are made ready for growth.
6. Muddled structure. Make sure your structure makes sense for your strategy and your culture.
7. Disjointed strategies. Your business and your strategy need to be consistent. All aspects of your business must be consistent and geared toward meeting customer needs and expectations.

“You never know what…the gods will throw your way. A war? A recession? Technology evolving and obsolescing before your eyes? Excessive growth? There’s no end to the obstacles your business may encounter.” This sobering set of scenarios is posed in a recent article from StartupJournal passed along to me by Mary Beth Groce.
Their recommendations are good advice for any growing business. A clear strategy, flexibility, realism, ethics and a strong network are some of the qualities that they found in companies that weathered such challenges.

I visited an interesting blog site today called Reflections of a Business-Driven Life. It is written by a technology entrepreneur from the Philippines. His post from January 4th on growth was particularly insightful. A great new site for me to visit in the New Year.

The Young Entrepreneurs Organization (YEO) is a group of “business professionals, all of whom are under 40 years of age and are the owners, founders, co-founders, or controlling shareholders of a company with annual sales of million or more.” In many cities, this group represents the leading edge of high growth entrepreneurs. This group is clearly an economic bell-weather.
In a recent poll of their membership, they found that 84 percent were planning on hiring in the next few months, and 11 percent indicated that they plan to hire at least 10 employees this year. Even more see growth in their companies over the next year, with 92 percent expecting sales to grow this year compared to last year.
“Mark Comiso, owner of Sunnyvale, California-based Liquid Digital and president of the YEO Silicon Valley-Bay Area Chapter, is one that fits this trend. ‘I’ve sold one company, started a new one, bought capital equipment, and plan to hire at least two or three more people this year,’ explains Comiso. ‘Overall, these statistics are a very good quantification of the increased chatter I’ve heard from the business owners that I know.’ Comiso adds, ‘I was personally surprised to see that many are hiring — the number was almost unanimous — but it is representative of what is going on in our space.'”
This study was reported in the National Dialogue on Entrepreneurship.

Jay Ebben offers some excellent thoughts over at Inc.com on how to properly plan for growth.
“My advice before you consider growth is to consider your business model and how it lends itself to growth. Three areas you especially want to concentrate on are your revenue model, your operational model, and your cash flow model.”
If you are planning to ramp up for the expanding economy I strongly suggest you read Jay’s advice in full.