ONE INDUSTRY: FOUR VERY DIFFERENT COMPANIES
Which of the companies outlined here would suit you best? The sooner you know the answer to that question, the better off you and your new company will be
No matter which industry beckons, you must consider the character of your fledgling company -- what you want it to be when it grows up -- as carefully as you scope its market. Too many people adopt business models that are poorly suited to them. They go for growth when what they really crave is control, seek stability when they dream of wealth. The result: a bad fit and a schizoid company. We've selected four companies to illustrate how founders can shape very different businesses even within the same industry.
Type One: The Traditionalist
Chad and Stacy Mitchell, age 35 and 34, respectively
Great Wave Software Scotts Valley, Calif. Started in 1984
Business Publisher and marketer of a line of educational-software products.
Number of employees 15.
Revenues About $2 million.
Equity 100%.
Strategy Long-term, not rapid, growth. Keep a tight focus on a small market and wait. "We make more money by focusing on one or two segments that are profitable for us rather than spreading ourselves too thin." Maintain market share. Leave themselves time to raise four kids.
Skills and background She's a marketer. He's a Ph.D. in computer science.
Role of founders Torn between managing people and pushing product out the door. "When you have two or three employees, you're primarily solving business problems," Chad says. "As soon as you have more than 10, you're primarily managing people." Newly hired CEO will take over management of a company that's already grown too big to feel comfortable to the founders. "I don't really want to be Mr. President. I never wanted to manage a big business."
Financial return Until recently, modest salaries. Earnings are retained. Getting acquired looks like best bet for cashing out. But no hurry.
Working relationships Rely on contractors and keep hiring to a minimum. Look for smarts and versatility: employees who can work in any department as needed. "There's a certain amount of mind-share that goes with each employee. A smaller number of more talented people will save you a lot of management overhead."
How financed Out of earnings. Reinvest every cent. Must scrutinize patterns of profitability. "Never spend it until it's in the bank."
Chief Advantages
* Sanity. By shunning growth, ensure time for family and community. "I drew a line in the sand. Here is the point to which the business will control our lives and no further." Result: a well-rounded life.
* Bootstrappable. No outside capital required. Only a few thousand to start; earnings have done the rest.
* Size. A bigger company with hundreds of employees would never turn a profit in this market. Welcome to the "nice-little-company" club.
Chief Disadvantages
* Financial rewards. They're on the late train. Wealth can come only if the company grows or is sold.
* CEO's role. Demands a split personality. Company's too small to layer with managers and too big for a craftsman-founder to manage comfortably.
* Boredom. If the game is standing still, how exciting can it get?
Type Two: The Job Creator
Pat Sullivan, age 39
Contact Software International Carrollton, Tex. Started in 1985
Business Sells line of software products allowing salespeople to manage contacts.
Number of employees 85.
Revenues $12 million, growing 70% to 90% a year.
Equity Held by venture capitalists, angels, partners. CEO is majority shareholder. Employees get options.
Strategy Stoke growth. Gain mass distribution through retail channels quickly. Dominate the market. Go public by 1995.
Skills and background Sales management and computer retailing. Self-taught as a programmer.
Role of CEO No longer hands on. Must delegate decision making down the line. Growth won't allow him to overcontrol. "It's reached a point where managing everything myself is too much to handle." Focuses his energies on marketing and new-product development. Spends half his time in the marketplace and more time on "internal issues" than he'd like.
Financial return Could be worth millions with a public offering.
Working relationships Meets weekly with team of seven managers, including founding partners. Board members (one of them a mentor) advise regularly. Employees: he signs their checks biweekly but knows the names of fewer all the time.
How financed "Our original venture-capital firms were Visa, MasterCard, and American Express." Two individual investors. A venture-capital firm bought in for $2.5 million. "Fast growth consumes a lot of cash."
Chief Advantages
* Building something. Especially wealth. A proven way to make millionaires.
* Resources. A steep growth curve is a thing of beauty to investors. Growth tends to attract higher-caliber employees, bigger customers, maybe even bankers.
* Excitement. "Trying to conquer a market and to compete on a worldwide scale is pretty heady stuff."
Chief Disadvantages
* Costs. Even if the offices are spare, the expense of adding people and opening offices can be staggering.
* Impersonal. It's hard to maintain the same camaraderie when the staff balloons from a few to 85. "There was someone here last week going through my files, and I didn't even know who she was. You can't possibly get close to so many people."
