Inventing Entrepreneurs

It seems as if CEOs can't find enough self-motivated employees -- the kind with the entrepreneurial drive to exploit opportunities and help grow a business. What to do? Create them, says Matt Hession. Hession claims he's expanded his company by setting up managers in ventures of their own and giving them 49% of the equity. Let's see if it works. -- J.H.

What started as a celebration of growth ended up feeling like a declaration of war.

Matt Hession, worn out from five years of hard work and speedy expansion at Key Nursing Corp., decided in 1987 to whisk all of his top managers down to the Bahamas for three days. Mornings they would talk business. Afternoons were reserved for long and serious sessions of sun, a time for managers to share ideas. Theoretically, anyway. "It was awful," recalls Hession, president of the contract nursing business. "Everybody was sniping. They were hurting each other's feelings and running to me. The animosity kept building." By the time it ended, Hession had concluded that "we should not do this again."

Which is not to say Hession was unhappy about the fracas. "I expected it to happen sooner or later," he says offhandedly, sipping a beer.

Hession saw the discord as a kind of progress. The folks who co-own and manage his "affiliates," as Hession calls the separate companies he has formed to expand Key, were acting stubborn. And competitive. And independent. In short, they were behaving like a bunch of -- well, somebody has to say it -- entrepreneurs. Hession loved it. "I have a lot of respect for Matt and what he's done," says Sandy Gilbert, president of one affiliate, Key Nursing of North Carolina Inc. "But it's getting hard to say who's an affiliate of whom."

Those aren't exactly the kinds of words most founders yearn to hear. But the whole point of Hession's unusual experiment is to nurture entrepreneurial instincts, wherever they lead. "I'm not just in the nursing business anymore," says Hession, whose Thibodaux, La., company has its roots in his own experience as a professional nurse. "I'm in the business of developing entrepreneurs."

During the past five years Hession has chosen nine people and with them founded temporary medical staffing businesses like his own. To start them out, he gives each of them 49% of a separate company, puts in the $1,000 or so it takes to capitalize it, then loans them working capital at 2% above prime. Like a financial feeding tube, he steadily funnels them money -- his investments have ranged from $5,000 to $80,000 -- until they are healthy enough to obtain their own lines of credit. Apart from getting his loans repaid, Hession's hope is that most will eventually buy him out of his shares, which he has purchased for practically nothing except his time.

The results of Hession's casual experiment would please even the starchiest venture capitalist. Two of his eight affiliates have soared. One of them, Analytical Medical Enterprises Inc. (AME), has grown fast enough to earn the 75th spot on 1989's Inc. 500, which ranks the fastest-growing small private companies -- far eclipsing its parent, Key, which landed at #376 in 1987 and #476 in 1988. Adding an unexpected twist, William Borne, AME's president and chief executive, has successfully tried Hession's recipe for developing his own group of entrepreneurs. "I have some very successful grandchildren," says a doting Hession, whose $1,500 equity investment in AME has so far yielded him an astounding $240,000 or so.

But there are some dropouts in the family, too. Three Key Nursing affiliates have slowly bled to death, while one, Key Health & Management Services Inc., hemorrhaged wildly. Last June the shareholders-managers ran off to form a competitor, leaving Hession with about $50,000 in debts. Before launching another affiliate, Hession plans to "put some more legal teeth" into the arrangement.

No matter how much formality Hession introduces, his system will not work for most kinds of businesses. Opening a contract nursing company doesn't take much money (as little as $1,000, plus $10,000 to $15,000 in working capital) or market research (any hospitals in the area?), nor does it gobble overhead (most affiliate owners work out of their houses). Relatively few businesses fit that profile.

Nevertheless, what Hession has learned along the way about fostering entrepreneurship applies to every business -- now more than ever.

Think about it: how many minutes has it been since you last bemoaned the fact that you can't find employees who are self-motivated and creative? In practically any industry, it has become a cliché to note the quickening pace and breadth of competition, the product life cycles that are shortening like December days. You need employees who can act quickly, responsively, and decisively. Until now, your best plan for finding them may have been to wait for cloning technology to catch up.

And even if you had stumbled upon a tribe of entrepreneurial types living in a cave somewhere, you'd probably have scared them back inside. Few are less capable at managing entrepreneurs than other entrepreneurs. Matt Hession is no different. That's one reason why he didn't bring entrepreneurs into his own company; he set them up in ventures of their own.

By doing that, Hession has created, in effect, an old-fashioned apprenticeship program for entrepreneurs. "I've taken the same trip these affiliates are taking," notes Hession. "I know when they need a kick in the rear, when they deserve a pat on the back."

Hession's curious vantage point has led him to some surprising conclusions. Entrepreneurial employees can be found, he says -- if you learn the right traits to look for. They can be nurtured -- if you are willing to commit the emotional resources. And they can help you become more successful than you ever dreamed -- if you can resist smothering them. "The right people are out there," says Hession, 37. "If you've been through it, you are in the best position to find them and support them."