SUCCESSFULLY MANAGING THE SMALL BUSINESS ENTERPRISE

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(Talk given at The President’s Forum, The College of Business, Eastern Michigan University)

During the past day and a half you have heard about a range of experiences and opportunities on the subject of entrepreneurism.

Naturally every entrepreneur wants his or her company to grow. Most of you here know, of course, that this process is not simply a matter of getting more business or accomplishing more sales every year. (I wish it were as simple as that!)

Management for growth is a complex process with many variables. It requires many changes – and much flexibility- along the way.

I can speak from personal experience as Chairman, President and Founder of J.P. Industries, Inc., which grew in just 10 years to become a Fortune 500 industrial company.

I also want to share with you results from a study conducted some years ago by Dr. Lorraine Uhlaner formerly of Eastern Michigan University’s College of Business-Department of Management and guided by me.

The purpose of this study was to learn how to improve the success rate for growth businesses.

Overall, 500 presidents and managers at over 150 companies engaged in construction, manufacturing, wholesale and business services were interviewed.

To participate in the study, the companies all had to be at least three years old with sales of $500,000 or more. They had to show a sales increase of a minimum of 10 percent from within a three year period. Over half of the firms actually had higher growth rates. Their average sales were $12.7 million. On the average, each firm had 58 employees.

Many things change as a corporation grows and becomes more complex. I frequently said at J.P. Industries that the only constant is change. Solving a problem once does not mean it is solved forever. Growing businesses require ongoing adjustments in order to succeed.

Let me briefly describe the variables that were examined in this study and some of the findings.

Adaptation.

A business must be able to relate effectively with the outside in several ways.

*         It must be able to obtain personnel, capital, supplies and information.

*         it must establish a market niche for sales revenues and growth.

*         It must have a presence in the community beyond its suppliers and

its customers. This includes relationships with government agencies,

community groups, and the media.

Responsibilities.

A business must be able to define and manage activities and responsibilities so that they fit together smoothly at the right time and place.

Here, we’re talking about work and information flow, decision-making, definition of responsibilities and authority and how these are allocated and delegated.

Social-Psychological Integration.

A business must be able to achieve agreement about its goals and those of its employees. This includes the level of satisfaction among its employees, their concern for the business’s goals and the degree to which the company’s values and goals are commonly perceived and accepted.

Overall Technical Performance.

A company must be able to actually produce the type of service or product it sets out to provide – with the necessary quality and sell it at a competitive market price.

Economic Efficiency.

This is simple: A business must be able to convert inputs to finished products in a way that assures adequate profitability.

Additional Findings.

This study revealed, for example, that more than half of the presidents look within their firms to find top managers. The most important qualities they look for are the applicant’s area of expertise, work experience, knowledge of the industry, and ability for team work.

The task of developing younger managers seemed especially problematic to presidents who were founders of their firm. The grooming process goes beyond recruitment. It also involves allowing the young staff the opportunity to make their own decisions, even if the decisions result in negative consequences.

On strategies for allocating equipment and dollars, we found that slightly less than half (46.6%) used informal processes – the squeaky wheel gets the attention. But the rest of the companies (53.4%) used more formal methods such as budgets, scheduling, setting targets and goals and imposing spending guidelines or limits.

When it came to coordinating efforts, two-thirds of the presidents said they sometimes used informal methods such as conversing with employees, or keeping an eye on things by field/site visits. In addition, some managers coordinate through a chain of command, establishing rules, work procedures and advance plans, assignments, goals and schedules.

Only 17 percent of the presidents are solely involved in coordination. Over one-third of them assign this task to their top managers.

When presidents were asked how responsibilities are assigned, over one-third of them said they use job descriptions. Twenty-two percent said that there is a joint development of jobs between an employee and his or her manager.

One trend that became apparent was that firms tend to assign jobs more formally as they grow.

Company Values.

1)    Presidents ranked five values as important in terms of sharing them with staff:

2)    Customer Service: including good customer relations, value-added service, and follow-up on complaints.

3)    Honesty: integrity among employees and with customers and fairness to customers.

4)    The organization meeting the employees’ needs: morale, respect for employees, fairness and job satisfaction.

5)    Work ethic: productivity, attendance, getting the job done, motivation.

6)    Efficiency: of business practices.

Many of the presidents said they used informal ways to communicate values such as through conversations, while others also use the strategy of hiring people who already share their values. Many of the CEOs hold company-wide meetings for the express purpose of communicating values.

At J.P. Industries, our “Better Makes Us Best” philosophy was a driving force at all levels from plant floor to top management. The philosophy briefly stated as: by striving each day to do better, eventually we will be best at what we do.

We communicated this philosophy through a book I wrote on the subject, through employee involvement teams and we proclaimed it on banners hung on plant walls. It gets communicated!

When presidents sat down to set future directions for their companies, close to three-quarters of them performed market analyses. They also studied the competition and the economic and social trends that may affect their industries.

Nearly three-quarters of them said they assess their company’s strengths and weaknesses while devising their long-term goals.

Many of them use specific strategies for making sure their objectives are realized. These include action plans and budgets.

Change.One of the most important findings I see in this study is the amount of change these presidents and their companies went through as their firms grew.

It is a real process of evolution.

*       Almost half of them had changed the way they coordinated their activities since the firm was founded.

*       Almost as many had changed the way they set the direction of the firm — such as deciding on the type of products or service, customers or distribution channels.

*       A little over a third had changed the way they assigned role or job duties.

*       Thirty percent had changed the way they recruited top managers.

*       Twenty-one percent had changed the way they share values that are important to the success of their business with their employees.

*       Twenty-one percent had changed the way they allocate resources such as equipment, dollars and managers.

What triggered the changes?

Growth of the firm, more employees, the stress and time demands on the president and a change in key employees, other than the president.

The data suggest that the key areas of organization problem-solving are important to the overall success of the firm, including specific outcomes like net profitability and cash flow.

In particular, a firm’s ability to obtain the resources it needs to set a direction for the firm, to establish a market niche, and to influence all aspects of adaptation, was found to relate to net profitability.

Even more important, the president that develops an effective strategy for dividing or assigning the work, and in turn, coordinating and managing the efforts of individuals, is likely to lead the firm to superior overall performance, including greater profitability.

It is interesting that of the two problem areas — adaptation and coordination ~ presidents of growing firms tend to pay more attention to adaptation (what product to sell, how to increase sales), but coordination may be the more important predictor of overall profitability.

One other area of our analysis has important implications for public policy.

It is often felt that the profitability of the firm is a self-oriented goal that is beneficial primarily to the ownership of the private firm. However, the results of our study substantiate a strong association between profitability and rate of growth of employment.

What this suggests is that profitable firms produce more jobs than unprofitable firms, and that they add jobs at a quicker rate.

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