What Would You Do?
We have a question for you -- and to be honest, we don't know the answer. You, however, might.
Here goes: say you are a smart, hardworking employee who's been at the same small company for a while now. You've learned a lot, gained a strong say in where the business is going, and certainly helped make it grow. Now, you think you've spotted a major new market within your field. What do you do? Tell the boss? Go off on your own? Stay, create a new division to capture that market, and try to get a piece of the action?
In other words, what do you owe the company? Or if you're the boss, what do your employees owe you?
It's an ethical question, to be sure -- but it has some implications that are purely strategic. How you answer it predicts much about what companies can do to keep the best and brightest on board, or whether they can be kept on board at all. It's a difficult question, but one that's unavoidable if you are a start-up or thinking about becoming one. As we said, we can't answer it, but Judy George -- founder of Domain Inc. and hot retail entrepreneur of the moment -- did.
For our purposes, George's story begins about 11 years ago when she went to work for Robert Darvin, founder of Scandinavian Design Inc. Darvin was one of a handful of successful retailers who sprung up in the late 1960s and early '70s selling sleek wood furniture. George, then a 35-year-old interior decorator who frequently packed her kids along on jobs, signed on as his assistant.
She was smart, good with people, and knew intuitively what would sell. She and Darvin made a formidable team. They established Scandinavian Design in prime shopping malls and created their own training program to ensure they would have enough managers to handle rapid growth (see INC., September 1983). Scandinavian Design's sales rose quickly -- approaching $100 million last year -- and George's star rose just as fast. By 1985, she was company president, earning a reported $350,000 a year.
But you can't find Judy George at Scandinavian Design's Natick, Mass., offices anymore. Instead she's a short drive away in Norwood, building what might have been the second act for Scandinavian Design -- a chain of boutiques called Domain. Says George about her decision to leave: "I needed to have my own dream."
That dream -- which to date has included opening her first Domain store in a suburb of Boston last September and a second recently in the city's Back Bay section -- began two years ago while she was still working for Darvin. George looked at the $22-billion home-furniture market and concluded it had changed. "People were becoming dissatisfied with having to buy one special look, whether it was eighteenth century, contemporary, or [like Scandinavian Design's specialty] teak. They had some special ideas of their own," but no place to translate those ideas into reality. Here, George concluded, was a major opportunity. Someone should give these people a place to shop.
By "people" she means yuppies -- specifically, married, upscale baby boomers. Not only do they have two paychecks burning holes in their matching Louis Vuitton wallets; they have, George believes, outgrown their furniture. They started by using packing crates and two-by-fours to build bookcases in their first apartments, and later graduated to "lifestyle" furniture -- the kind sold by Work Bench, Crate & Barrel, and Scandinavian Design. Now, George thinks, they are ready to trade up again. "They have more money and want to make a statement about the way they live," she says. "They are growing up."
And what grown-ups want, a glance around a Domain store reveals, is a $2,700 French country table, or a double bed covered with sensuous down-filled pillows and romantic gauze ($1,970 for the pine frame alone), or perhaps a six-and-a-half-foot-high armoire that sells for $3,400. To make the store distinctive, 20% of the selling space is devoted to antiques. You can buy "English painted and lined chamber-pot and cupboards," perfect for use as end tables, for $850 the pair, or a four-foot-long English country fruitwood table, "circa 1880," for $650.
Will it fly? George won't disclose numbers, but judging by store traffic, the sound of the constantly ringing cash registers, and the frequent visits from competitors, she seems to be succeeding.
And if it does work, then it works not only because of her intuitive skill but also because of everything she learned before setting up shop. Her stores are really just the natural evolution of what she and Darvin had been doing -- she has kept pace with Scandinavian Design customers' tastes as they have grown. Surely, Scandinavian Design could have operated Domain as a subsidiary.
Maybe in theory, George concedes, but not in reality. Staying would have meant giving control of her dream for a new kind of store to someone else. Ultimately, she says, she would have grown resentful and it would have affected her work. Having equity in a possible Domain division was never discussed, she says, because she knew Darvin would not give it. (Darvin won't discuss this, or anything else concerning George.) And besides, George says, she wanted her own company. "It was time to leave. I was ready to do the risk taking. I loved what I did. I made tons of money, yet I felt as if I had not even begun to touch my potential."
She continues, "I had everything any human being could ask for, except what I knew I needed to be successful -- my own opportunity."
Most every employee who leaves to start his or her own business says something similar. But is that all there is to it when someone -- especially someone of power and influence -- leaves to set up a similar shop? Does he or she owe anything to the employer?
George offers the typical -- and quite plausible -- answer. "My grandfather taught me that to get a dollar, you give a dollar. Well, I gave a dollar-fifty."
No one doubts that she worked hard for the money. But did George get more than a paycheck during her 10 years at Scandinavian Design? It seems all smart employees end up building more than a nest egg when they work for a company. They also build equity. Not in the traditional sense of stock options, but equity in the form of knowledge. While with Scandinavian Design, George learned where to find the best sites for home-furnishing stores and which suppliers give the lowest prices. Most importantly, she learned that the market was changing, and that it was ready for a new kind of furniture store.
Can you quantify that kind of equity? Well, her venture capitalists did. They paid $3 million for a large piece of Domain. George put up some money -- she won't say how much -- but mostly what she brings to the venture is her knowledge. And judging by her first two stores -- three more are planned for the Northeast this year -- she learned a lot.
But not only did she not pay for that education, George -- and she is typical -- turned around to compete for her former employer's customers. Isn't there an element of guilt?
"You know what, I am too into Judy George to feel guilty. I think I did the best I could do. Guilt is what people put in their minds so they don't have to do what they want to do, whether it is personal relationships or work. I feel bad; I don't feel guilty."
You may agree with the large group of people who say she shouldn't, that her leaving is just part of business. You hire good people, you train them, they leave. That's the way it goes.
But should that be the way it goes? Do employees like George have to leave? Is it inevitable? George says yes. "In one company, there isn't room for more than one ambitious, entrepreneurial person."
If she is right, then giving equity to employees like her won't work, because they want more than equity -- they want control. But if she's right, doesn't that mean bright, ambitious employees will leave her -- and any other employer -- making it hard for companies like hers to grow? And also making it hard for employers to share what they have learned with people who more than likely will be competing with them someday?
Can you hold onto these people? Should you? As we said, we don't know. Do you?