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Session 2: Getting your team in place

OBJECTIVE: This session will help you get your team ready for growth. Your growth plan should incorporate ongoing reviews of the business plan, appropriate delegation of authority, initiating appropriate employee incentives, creation of training tools and manuals, deployment of efficient communications tools and ongoing input from an external advisory board.

      Getting your team in place

Review and update your business plan

William N. Topaz Former President and CEO myownbusiness.org William N. Topaz
Former President and CEO myownbusiness.org
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We've heard a lot of talk about incentive plans for employees. Do you have any suggestions or recommendations on implementing these kinds of programs?
Eentrepreneurship is all about an action oriented person willing to take risk....someone willing to put financial security on the line in the pursuit of business success. The level of risk you incur as you grow will be related to the thought given to the undertaking. The more thought, the less the risk. American financier Bernard Baruch put it this way: "Whatever failures I have known, whatever errors I have committed, whatever follies I have witnessed in private and public life have been the consequence of action without thought."

As you expand, you can reduce the risk by spending more time thinking about your business as well as recruiting other bright people (hopefully even brighter than yourself!) to also spend time thinking about your business.

If you are operating without a business plan, our free "Start My Own Business" course has a full session on this important tool which has received widespread acclaim. It is completely free including providing business plan templates which can be filled in and downloaded. Please visit our business plan session to learn more.

So before embarking on growth, or proceeding on already planned growth, it would be prudent to initiate an objective review to either confirm and justify your plan, amend it or even abandon it. Components of the review could include:

  • Bring your key managers and advisory board together for candid brainstorming sessions. Be willing to objectively and mathematically evaluate plans already in place which are considered to be exempt from criticism or questioning.
  • Require that approved growth programs be financially justified based on either return on investment, intrinsic value, or other measurable benefits.
  • Have key department heads participate in updating your five year business plan.
  • Reassess you five year cash flow projection to determine if debt service is conservatively provided for.
  • Investigate the directions and methods of your best competitors.
  • Conduct critical appraisals of different business scenarios that could be more favorable than the direction you are going.
  • Redirect and refocus your energies on the results of the evaluation.

If your study concludes that your growth entails serious risks or has systematic deficiencies consider following the advice of Warren Buffett of Berkshire Hathaway:

"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

It's possible that when you started your business, you never wrote a proper business plan. It doesn't hurt to write one now!

Refer to our full business plan template. In addition, a very popular software is Palo Alto's Business Plan Pro (U.P. $99), a user-friendly business plan software with very wide range of sample plans already included. MOBI users get exclusive pricing on Business Plan Pro here.

For a more advanced template, especially useful if you are looking for partners or investors, we recommend the Ultimate Business Plan Template (U.P. $97) from Growthink. We have negotiated a special 50% discount for MOBI users.

Delegating authority

In some cases operating entrepreneurs find it difficult to delegate responsibilities because they have never practiced it. But delegation of authority is important for growing business owners because of the importance of committing your time to planning and executing growth programs. Delegation frees you from the time and responsibility it would otherwise take to run your business. The manager you appoint will need not only the authority to run it but also the responsibility for the outcome.

So authority and responsibility will go hand-in-hand. Successful delegation will include giving the manager whatever authority will be required to carry out the assignment and at the same time create a firewall placing limits on the manager's authority. Let's assume that you wish to delegate the operation of a store. Some examples of both the authority you might authorize and limits you might place could include:

APPROVED AUTHORITY

  • Hire and training of staff (but be provided with hiring controls)
  • Cash and credit card management
  • Ordering of merchandise and supplies
  • Advertising budget and selection of media
  • Discretion in appropriate operating issues

LIMITS TO AUTHORITY

  • Making capital purchases
  • Signing checks
  • Stay within choice or range of SKU's
  • Conform to cash and internal controls

RESPONSIBILITIES

  • Conform to operating procedures manual
  • Weekly reporting per format
  • Conform to governing manual provisions
  • Provide information for store's monthly profit (P & L) accounting
  • Spell out short and long range goals

Any business owner who plans to grow should begin practicing the delegation of operating responsibilities. As your company grows, your role should shift more and more from hands-on management to planning, evaluating and motivational responsibilities.

Employee motivation

In a following section, "Achieving lowest expenses to sales" you will learn the importance of achieving a frugal mindset in order to achieve the lowest operating costs to sales in your industry. In order to secure this important objective, your management incentive plans should be tied into earnings rather than to sales or other objectives. To a manager on a profit based incentive, a penny saved is worth achieving because it will come back to him in his bonus check. On the contrary, a penny misspent or lost will take away from the incentive payout.

The strongest motive you can give to people who take over running parts of your business is to share the earnings they individually produce.

A monthly income statement compartmentalized to their individual operating unit provides this incentive.

Dr. Dan Nathanson Anderson Graduate School of Business UCLA Dr. Dan Nathanson
Anderson Graduate School of Business UCLA
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What are the most common mistakes made when growing a business?
If you are operating a chain of retail stores, each store should operate on its own frequently drawn profit and loss statement (P & L). Timing of incentive compensation is important. It is better to calculate the P & L pay monthly, or in some cases weekly, and disburse incentive payment frequently rather than over long stretches of time.

There is another reason for installing an accounting system which reports financial statements on individual profit centers: you will be furnished early warning signals in case of a troublesome operation. A common mistake made by expanding entrepreneurs is that losing businesses are supported too long. If early P & L's of a new operation shows unacceptable losses, corrective measures should be undertaken early and massively and if still not successful, the unit shut down or sold.

In businesses where compartmentalization of profit centers is not practical, effort should be made to base incentives on key performance indicators (KPI's) which will differ according to the business. A successful KPI should be measurable, measured frequently and support the overall goals of the company. Here are some examples:

  • A payroll service provider might base the incentive on how many new payroll sign-ups were achieved in a certain period of time.
  • A collection department could measure its success in collecting overdue payables.
  • A manufacturing firm's KPI could measure the number of parts rejected by the quality control department.
  • Most towing services are 24-hour businesses. An owner might begin delegation by hiring a manager to operate the store during the night shift. Perhaps on a weekly basis the manager could be paid a bonus based on a portion of total receipts above a specified amount. Later on when the towing service owner begins opening branch stations, individual profit and loss statements for each station can be used for managers' incentive plan.

Training

Dr. Dan Nathanson Anderson Graduate School of Business UCLA Dr. Dan Nathanson
Anderson Graduate School of Business UCLA
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What is the value of an organization chart?
If you have not already developed operating and training tools, the time to do so is before growth programs are implemented. As you grow, your employees will then have clearly stated procedures and well-defined job responsibilities. These manuals will become building blocks to create solid understandings of goals, management structure, procedures, training, safety, and employment issues. Three-ring binder formats work well since updates can be easily inserted.

Governing manual
The governing manual provides documentation for management to set out overall company goals including business plan updates (at least annually or more frequently if appropriate), cash flow projections, company mission statement, and corporate bylaws governing board meetings.


The manual can be used in regular meetings with your key management to insure everyone in top management is on the "same page" and fully understands their individual roles. A governing manual should be considered as an ongoing and changing document to reflect advancing goals. It can also be used in retreats, workshops and one-on-one discussions.

Procedures manual
A procedures manual provides the instructional guide for employee training. Day to day functions of office, sales or manufacturing should be spelled out in detailed but concise form.

Building your business will require that the standards you have established for quality and uniformity will be maintained as the business grows. A procedure manual can provide instructions for how all important business procedures and operations are conducted. Your procedure manual will also serve as a training tool to cover these issues.

Dr. Stephen Morgan President University of La Verne Dr. Stephen Morgan
President University of La Verne
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How important is it to growing businesses to keep up with technology?
Training manual
Your training manual for each individual job responsibility will be a helpful tool in not only establishing standards but to help train job back-ups. You should have at least two or more employees qualified to perform each of the important functions of running the business. The practice will insure smooth running operations even when employees are on vacation or off the job.

Employee handbook
The employment handbook is the set of rules governing employees, records, vacation policy, job benefits and rules of conduct.

Your handbook should become the written summation of what your employees need to know regarding your company objectives, policies and current labor rules. Your employee handbook should include procedures for each job function and how problems will be resolved. It could include divider tabs for the following materials:

  • A document explaining company history and objectives
  • Employment policies
  • Pertinent labor laws and rules
  • Job descriptions and qualifications
  • Benefits package
  • Safety rules
  • Organizational chart and operating procedures

Sixty-five percent of all accidents on the job are related to drug or alcohol. Substance abusers utilize 16 times as many health care benefits and are six times more likely to file workers compensations claims. Learn more about drug screening.

Safety manual
In working environments where safety rules are important, clear rules should explain the do's and don'ts of the working environment. Your Workers Compensation representative can help you set up the manual and in safety training.

Conferencing and communications tools

Building your business will require you to stay in face-to-face contact with important customers anywhere in the world. The Internet offers a number of ways to communicate, from sending instant messages to phone calls, to video conferences. The time and money that you would spend on traveling can be used much more efficiently by conducting "virtual" meetings on the Internet. You can share documents, make presentations and conduct meetings on short notice.

  • Webinar conferencing is typically one-way from the speaker to the audience with a limited amount of audience interaction. A typical business application would enable you to conduct a presentation to a world-wide network of customers or employees. It would be important to include useful information as well as a product pitch so that your audience would not feel they are attending an online advertising commercial.
  • An electronic meeting system (EMS) is a system of computer software that permits problem solving and decision-making of groups within an organization or without. Typically a host invites the participants to an electronic meeting via email. For example Cisco Systems Webex provides an easy way to share ideas with anyone, anywhere. It combines real-time desktop sharing, including documents and spreadsheets, with phone conferencing so everyone sees the same thing while you talk. It can often eliminate the need for people to travel and meet on site.
  • Telepresence has taken video and web conferencing to new levels. Its main benefits include reducing travel expenses, improving employees work/life balance (less travel) and increase productivity. It is set of technologies which allow a person to feel as if they were present in a meeting. User's movements and voice can be sensed to bring about this effect. A telepresence conference room includes high definition video cameras, large screens displaying life-size images and audio to create an "in person" experience. Facial expressions for crucial discussions can be discerned across the "virtual table" and nurture collaborations that can provide solutions across the entire organization. For more information go to: http://www.cisco.com/en/US/products/ps7060/index.html

Advisory board

Dr. Dan Nathanson Anderson Graduate School of Business UCLA Dr. Dan Nathanson
Anderson Graduate School of Business UCLA
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What are the benefits of having an advisory board?
A common mistake made by entrepreneurs is they fail to solicit advice from proven leaders in their business. Mentors won't come to you.... you will need to find them and cultivate them. If you don't have one or more mentors now, begin nurturing friendships with experts in your business who can be called upon for advice. Start building your advisory board now. When an important decision comes up, call a formal "board of advisors" meeting. You will be surprised how people are flattered to be asked and receptive in sharing their wisdom and experience.

But keep in mind when seeking out advice that you need to be watchful of getting bad advice. For example, it would be a good idea to establish a rule that you will never accept advice that could risk losing your entire fortune or business. In other words, you should keep in mind that you only need to get rich once. And once you are rich, it would be foolish to consider any expansion decision, with or without advisors, that could risk your business.

Case History: A young builder found a successful niche by specializing in construction of 4-unit apartment buildings. One afternoon he encountered the respected founder of a large savings and loan bank who volunteered the advice that the future was in huge apartment projects that could create specialized environments and many amenities. The builder didn't stop to consider this advice and missed out on what could have propelled him into a leadership role in the industry. He missed out because of a common trait of entrepreneurs: "I'll do it my way."

Growing your business will require making some important decisions. These are the times to bring an advisory board to the table to gain the benefits of their specialized know-how. The team could include:

  • Your lawyer (If necessary a specialized lawyer).
  • CPA
  • Banker
  • Key managers
  • Mentors
  • Family members
  • Consultants

Top Ten Do's and Don'ts

THE TOP TEN DO'S
  1. Require monthly financial reports on profit centers.
  2. Compartmentalize profit centers.
  3. Strive for quality and uniformity.
  4. Create incentive plans tied to earnings.
  5. Develop or revise operating guides or manuals.
  6. Conduct "virtual" meetings on the Internet.
  7. Create an advisory board.
  8. Start implementing cost reduction efficiencies.
  9. Establish training manuals for each job responsibility.
  10. Ask Workers Compensation insurer for training help.
THE TOP TEN DON'TS
  1. Base incentives on company-wide earnings.
  2. Overlook web based virtual meetings.
  3. Overspend time and money on travel.
  4. Disregard safety training.
  5. Hang onto hands-on management style.
  6. Have the guts to take a "bet the company" risk.
  7. Believe that "recognition" not "reward" is best incentive.
  8. Rely on informal training of new hires.
  9. Disburse incentive compensation annually.
  10. Disregard the value of an advisory board.

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