NFIB

When to Give Up Some Hats
03/ 25/ 2002

It's often said that small business owners are chief cook, waiter and bottlewasher all in one, wearing as many different hats as there are jobs that need to be done. This is often necessary during the intial stages of a start up, but as a company begins to grow, the owners need to be aware that what they've started needs a serious structure of qualified people to manage the expansion. Jeffrey Moses explains in today's Workshop.

One of the most successful Internet startups has been eBay, the online auction site. Founded by Pierre Omidyar in his living room only a few years ago, the successful company quickly grew to gigantic proportions (more than $430 million in 2000 revenue). As the company grew, Omidyar and co-founder Jeff Skoll realized that they were not experienced enough to manage the booming rocket that they had created, so they brought in outside help: the present CEO, Meg Whitman, who had formerly been with Hasbro. In turn, Whitman recruited top-flight managers from Pepsico, Disney and other Old Economy organizations. This experienced managment team has held eBay together in the face of the recent tech wreck, and has the company on track to continue growing at a record pace.

This principle can be applied to almost any growing small business. The revenue scale may not be the same, but the application is similar: as a company grows, new management roles are created. It's a rare individual who can handle all the new responsibilities -- and no single individual has the time to perform all the tasks required. Too many founders of dotcoms and other new companies realized this too late, with the result that their companies couldn't last through the tech downturn.

The unique skills and traits of a true entrepreneur enable a new company to take shape and begin to get off the ground. These may include creativity, optimism, dedication, the capacity for working long hours, the ability to impress financial backers, the charisma to attract the first wave of customers, and the knack of inspiring co-workers to perform beyond their best. These skills and traits, however, may not be enough when it comes to the nuts-and-bolts requirements of hammering out budgets (and making employees stick to them), hiring the right people for new management positions, creating flexible short- and long-term plans for a mushrooming business, and mercilessly cutting costs even as revenue expands exponentially. Clearly, business founders who do not have experience in these essential areas should bring in people who do.

Not all companies grow at such a pace, of course. But every company that enjoys increasing profitability ultimately needs new departments and new managers. Even if the founders do have the experience to wear these new hats, the point arrives when there isn't enough time in the day to do everything that needs to be done. New people need to be brought in. And they need to be the right people.

Mistakes made in the initial stages of a company's growth inevitably are magnified as the company grows. Too many companies have to hire and fire top management, then find replacements on the spur of the moment, confusing employees at all levels and making the company's growth path much rockier than necessary. This, and other mistakes, can be avoided or minimized by bringing in experienced personnel to handle hiring and other specific areas that develop as the company grows. If the founders hang on to these responsibilities too long, they may find themselves floundering financially. Bringing in the right people doesn't ensure success, but it certainly improves the odds.

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