The Transition from Entrepreneur to Team

During the growth of a business, you as the entrepreneur must face some basic questions about how to successfully build a team while at the same time redefining your role in the business. It is a transition from a business led by an entrepreneur to a business led by a professional team.
The first step in this process is to understand the difference between operational and strategic leadership. 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. However, at 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 alright to keep it at a size that allows you to stay involved in the hands-on. But if you intend to grow, be ready to move away from the operational part of the business and become a strategic leader. Lead and manage using your vision for the business, and create a team that can fulfill that vision at the operational level.
Just what this strategic role looks like will vary from company to company, and from entrepreneur to entrepreneur. For many entrepreneurs, this may be their first time as a CEO of a company of any size. 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.
Carefully review your strengths and weaknesses vis-a-vis the needs of the growing business. Use your management team to bridge the gaps that are created by the role you define for yourself. Assess the potential of current employees to fill those gaps. But be ready to bring in outsiders, as it is rare that all the talent you will need is already on your staff. Create a plan to develop current staff and recruit new talent with clear priorities for their roles and objectives. Set specific milestones, most likely tied to sales growth, for when you will need to be ready to hire new members for the team.
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 as a strategic leader is your culture. Your values shaped the culture of your business as it began, but to maintain that culture you must actively manage it during growth. You do this through who you hire, what you reward, what you celebrate, the structure you create for the business, and your communications to employees. Be deliberate about the culture you intend to build in the business and think about how each action you take over time can effect this culture.
Be ready to delegate key roles to your team. 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 your business may never successfully move into its next stage of development.
Finally, as you grow your business and your team remember that ultimately it is still your business. I remember how at some point in the growth of our business it seemed that I was chasing everyone else’s goals. Our banker, our CPA, our attorney, fellow entrepreneurs, and our management team all seemed to have their own vision for what we could become and ideas for where we could take the business. While it is good to listen to such advice, the most fundamental aspect of becoming a strategic leader is to be ready to establish a clear and compelling vision and set a course to take the business toward that ultimate goal.
(Thanks to Eric Tam from McMaster University in Canada for suggesting this topic).

Education Does Matter

A common debate that keeps popping up around entrepreneurship is the question of whether education really matters. I know, I know….I have a slight vested interest in this whole debate. But, a new study written by Zoltan Acs (a leading researcher in the field) reports that populations with higher education levels have more start-ups and more successful start-ups. (See p. 28 of this study).

Human Resource Planning a Part of Early Growth Challenges

Two young entrepreneurs came into our classes this week and talked about growth challenges they are currently facing in their businesses. Both focused quite a bit on the human resource challenges that come with growth.
Matthew Wilson and his father own Gateway Construction in Brentwood, TN. Gateway is a commercial real estate development company. They have seen significant growth in their business since they recovered from the huge hit that commercial real estate took after 9/11.
As they continue to grow, Matthew is finding the need to step back from the day-to-day aspects of construction management. That is, like many entrepreneurs he can no longer spend time “working in his business”, but needs to shift to”working on his business.” At the same time, his father is beginning to step away from the business — not retire, but clearly backing off from his role in the day-to-day operations of the business. So Matthew has to take on more of a strategic leadership role in Gateway, while hiring people who can handle managing the operational level.
“People say real estate is location, location, location. At this point in our business growth, I would say that the key has become people, people, people,” Matthew told our class.
They have tried to keep their overhead low — a lesson learned over the years from riding out the ups and downs in their industry. And while their current growth creates the need for more people, they are trying to develop strategies that will keep all of the people they are adding busy and productive even when real estate takes its next downturn.
They are firm believers that the key is not just finding the best people, but finding the right people for the right job.
Matthew also is thinking about the need to some day expand his team to include more expertise in IT and financial management. They are not large enough now to support this this type of an addition to the team,, but may well get there some day soon.
Nicholas Holland, is Founder and CEO of a web design business in Nashville called CentreSource. Nicholas has also faced human resource challenges in his growth.
CentreSource has a business model that is driven primarily by billable hours. One challenge from the very beginning has been to have staff who have the skills to meet the latest technology need in the market. Finding the right people for his business can sometimes be a daunting task.
Nicholas said that managing key staff for a business like his when it grows can be difficult if it results in a power/dependency relationship. He recommends that all entrepreneurs have the mindset that no employee is irreplaceable, especially if you plan properly.
A challenge they faced as they grew was the expense hit that each of his early hires created had on the income statement. Expenses never grew in a straight line, but in significant steps as each new programmer was added. This created a major cash flow challenge. He met this by being very conservative in cash management. He never hired until he had the money already coming in to pay for the new employee. Also, he always keeps 90 days of cash reserves to cushion any unexpected downturn. During growth keeping this reserve took careful planning. Both of these tactics restricted his growth to some degree, but they also helped him to grow at a pace that he could afford to pay for.

Remarks at Forbes Enterprise Awards

I have had some requests for a copy of my speech at the Forbes Enterprise Awards this past Monday in New York. Here is the text of my remarks:
We are here today to honor a group of entrepreneurial small business owners for their individual successes. I am here to talk briefly about the economic revolution that they, and those who will be following them, are leading in the American economy. We are in the early stages of an entrepreneurially-based transformation of our economy the likes of which we have not seen in this country in over 100 years.
The American economy today is being driven by entrepreneurs. Small businesses now create 50% of the US Gross Domestic Product and 50% of all employment in this country. There are two groups, more than any other segment of our population, who are leading the Entrepreneurial Economic Revolution.
One group with high rates of entrepreneurial activity is my generation — the Baby Boomers. These Entre-boomers, as they are sometimes called, are certainly important for our economy. But they are not the group who will be leading this Entrepreneurial Economic Revolution. The true foot soldiers who will lead us to economic victory in this Economic Revolution are those in the Entrepreneurial Generation.
So who is this Entrepreneurial Generation?
– They are those born between 1977 and 2002 — they range from the young people who are just now graduating from college, to those who are just entering primary education.
– Studies show that about 50% of today’s college students have business ownership as a primary career goal.
– They are more financially savvy — 37% of today’s college students already thinking and planning for retirement.
– They are independent thinkers
– They embrace change — and they view entrepreneurship as a career path that will allow them to use the changes that are occurring in our current world to their advantage.
What does the Entrepreneurial Generation think about work?
– Work is important
– They seek high levels of achievement — many university Entrepreneurship programs like ours at Belmont now see 40-50% of our students arriving as freshman with profitable businesses already operating.
– They want their work to make a difference and have meaning.
– But, they do not want it to become all consuming — They see entrepreneurship as a career path that will give them more control in their lives and the ability to create balance.
One of my students put this way in a comment she placed on my blog site:

My generation is really focused on keeping family first, even before career. Some say that this is because we watched so many baby boomers screw this whole family thing up. My take on it is that because the baby boomers sometimes grew up wanting, they determined in their minds that their families would want for nothing. Unfortunately, my generation has all they want, but grew up with workaholic parents who were absent in their lives. I believe we’re searching to find that balance between family and career.

And how does the Entrepreneurial Generation view the World they will soon be leading?
– They do not trust large institutions — be it corporate or government institutions
– They are politically independent, but leaning toward a more libertarian philosophy
– They are concerned about our culture, our society and our economy — and they view entrepreneurship as a way to make things better.
I received an e-mail from a student recently after a recent talk I gave on our campus at Belmont University. She was reacting to my comments on how the Entrepreneurial Generation wants to use entrepreneurship as a vehicle not only for economic gain, but for making a positive social and cultural change in America:

You described the desire I’ve felt so accurately; “to make a difference in terms of our culture.” I have never heard a professor speak about the HEART of my generation. I want to thank-you for renewing my hope and giving me the “nod of approval” to really dig in and change the world. I will hold on to your words as I try to make connections and find other compassionate, like-minded “movers and shakers.”

The foot soldiers who will lead the current Economic Revolution are those in the Entrepreneurial Generation. And I believe we are in good hands.
Thank you.

Voices of the Entrepreneurial Generation

The Tennessean (our local Nashville paper) ran a story today about our Entrepreneurship program here at Belmont. They included a side-bar with some quotes from student entrepreneurs. I thought I’d share these quotes so you can see why I enjoy my job!

Why own your own business?
“I have nothing against working for someone else. I just find the idea of owning a business exciting as well as challenging. I would get to know and be involved in all the different elements on the business. I also think it would give me more freedom and allow me to be more creative in my career.”
Sally Munns, manager of Reverb Media
“Having my own business is more fulfilling and meaningful to me. I want to be able to call the shots. Even though it’s tedious, I want to be involved in every aspect of the business.”
Emily Swinson, co-manager of Feedback Clothing Company
What’s the biggest lesson this program has taught you about business?
“I would say that this program has taught me the importance of self-confidence. Entrepreneurs are salespeople, we not only sell our ideas and products, but we sell ourselves. If people do not believe me, they will not believe in my product.”
Michelle Wilkerson, co-manager of Feedback Clothing Company
“Risk cannot always be eliminated, though it can be reduced and prevented. We pay close attention to where and how others have failed so that we don’t follow their footsteps. We are dissecting case studies and looking at current events and trends. I’m working with cash flow in the classroom, and in practice for my business. My experience has allowed me to gain knowledge in the classroom, and feed that growth to my business, on a day-to-day basis. All of this while learning about the entire growth process, starting with exit planning. I recently heard an entrepreneur state that you cannot be largely successful in business life and in family life. What I’ve learned is that you can, if you plan for it.”
Andy Tabar, sophomore, his business is Nashville Creative

Are Those Vultures I See Circling Over the Economy?

From the National Dialogue on Entrepreneurship:

Two new polls from the American Bankruptcy Institute (ABI) may portend bad news for American consumers and small business owners. ABI regularly posts on-line polls that ask its members and others to offer their views on future trends in the field. Recent polls asked respondents to comment on trends in consumer bankruptcies and bankruptcies among middle-market companies (i.e. family-owned firms, private companies and smaller publicly-traded firms). Sixty-one percent of respondents expected consumer bankruptcies to grow by at least 20% in 2007. Meanwhile, 71% expected middle-market bankruptcies to “substantially increase” in 2007. Both of these predictions run contrary to 2006’s pattern when bankruptcy filings in both categories were at extremely low levels. Industry observers expect an increase in bankruptcies will result from tighter credit and an expected “shake-out” in key sectors such as real estate.

There is a lesson for all in these studies. While high use of debt may sound like an easy way to grow a business in booming times, it makes a business vulnerable when markets soften — and they always will at some point. When making decisions to take on more debt, think about where it will leave your business if things get tough. Run some scenarios in your spreadsheets on what happens if your sales fall with a higher debt load before you make the decision to borrow more money. You may decide to grow a little more slowly with a lot less debt.
Remember, pigs get fat and hogs get slaughtered! Don’t get greedy….

Internet Tools for New Ventures

There are a variety of tools readily available on the Internet that aspiring entrepreneurs can use in developing new business ideas. Here are a couple of ideas:
Want to find some cool technology gathering dust on a shelf at a university somewhere? Try out the iBridge site developed by the Kauffman Foundation.

University researchers, industry representatives, and entrepreneurs can use the iBridge website to search for innovations that, until now, have been lost and untapped behind university walls. With more than 700 research projects listed, the iBridge website is fast becoming a place for researchers and technology transfer officers to post research from their universities, as well as the place to go to find research occurring at other institutions. The website is designed to ease the transaction burden on university technology transfer offices, and encourage more open and efficient access to innovations of interest to entrepreneurs and industry representatives alike.

Have an idea for an Internet business, but finding it hard to know what your potential customer is thinking about? Try using one of the tools set up to optimize keyword searches. I heard about this creative use of a free tool on this morning’s Wall Street Journal radio show. These tools are set up to help in Internet marketing by showing what key words are being used most often. (Here and here are a couple of examples).
Assume I was setting up an Internet golf equipment store. By typing in keywords like “putter” or “golf balls”, I can find out what brands are getting the most searches on the Internet. Or assume I am thinking about selling laptop cases on the Internet. I see that in the month of December 1724 searched for laptop cases with the word “pink” in their search, while only 77 included the word purple. That gives me a clue on what color to carry in my inventory.
These tools can help me see the potential size of the market, what brands and related products are most popular in searches, and even what colors and features I should carry. It is a great tool to first get a feel for how much Internet traffic is possible and to learn more specifically what these potential customers are thinking about.
These tools are set up for web search optimization, but they can also be used to get the pulse of the market. For simple searches like this, most of these sites are free to use. While active web marketers are very familiar with these tools, they can be very helpful for any entrepreneur wanting to get more data about their potential market. If I can figure out how to use them with my limited technical skills and general fear of technology, anyone can!

Increased Competition Can Be a Good Thing

I found an article that reminded me of a lecture from an Economics course I took about 30 some odd years ago. (I often can’t remember where I put my cell phone, but somehow remember what this professor taught us that day….). His point was that new competitors are not always a bad thing for a business. They can actually create more attention for all competitors fighting for market share and possibly even a bigger market for all to share.
Office of Advocacy of the U.S. Small Business Administration released a working paper that examines how the entrance of new establishments within a 150-mile radius of young firms affects the existing firms’ profitability. The findings? New entrants in local economies at first harm, then help, already existing firms.
“The benefits from a growing and dynamic local economy are clear,” said Dr. Chad Moutray, Chief Economist for the Office of Advocacy. “For local business, in the short term new entrants are competitive foes, but in a few short years they learn to cooperate with each other.”
An entrepreneurial economy seems to lift all boats as it grows. What is interesting is how as businesses get larger, they often look to governments for protection from market competition. This study suggests that when left alone, entrepreneurial market places work well when governments keep their hands off.