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HUMAN RESOURCES

Dealing With Low Morale
 

Motivating employees when growth slows. Also, pitching to angel investors.
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Human Resources

Q How can we keep employees excited and motivated when we're no longer seeing skyrocketing growth?

Name Withheld
San Diego

Slow growth can be a big drag on morale. And unhappy employees won't do much to help you jump-start growth. And so on, and so on. You have to interrupt this cycle somewhere; the unfortunate fact is that getting rid of unhappy people is probably the best way to do it.

Some people simply aren't cut out for a slow-growth environment. To wax Jim Collins-y, the right people for a company that's doubling in size every year may not be the right people for a business that's wallowing in the single digits. Some people get cranky. They fall asleep at the wheel. Vance Patterson, founder and CEO of Patterson Fan, fired 20 disgruntled employees -- a third of his staff -- after sales flattened and morale collapsed in 2004 (see "I Fired Them All," July 2005). "You may have the wrong people, and that's OK," Patterson says. "You just have to recognize that."

Delaying action will only make things harder. If cut you must, cut soon and cut deeply, advises Bob Compton, co-founder and chairman of Vontoo, an Indianapolis-based voice messaging company. In the 1980s, Compton had to fire people at a company where growth had stalled. Predicting an upturn, he cut only a handful of jobs. His optimism proved unfounded, and within a year he was swinging the knife again, eliminating not only jobs but also recent morale gains. "At that point," Compton says, "my credibility disintegrated." When a similar situation arose a decade later, he says, "I amputated at the shoulder."

Then, of course, you have to work extra hard to get your remaining employees to stay -- and to get them excited again. Lay out your long-term plan. Explain what has gone wrong. Then set a realistic goal for when you expect to dig in the spurs again.

Don't be surprised if the news doesn't produce cheers and a group hug. Some employees will walk out of the conference room, go straight to their desks, and pull up "resume.doc." You will have to lavish a little attention on those you can't afford to lose. Take them to dinner and invite their significant others, says Compton, so they can hear your plan as well. When employees sign on with an entrepreneurial company, he points out, they are not the only ones taking risks; their families are as well.

In the end, however, nothing inspires workers quite like the prospect of a payout down the road. You can buy loyalty by giving your A-players a small equity stake or some extra stock options in anticipation of better days. About 10 years ago, Patterson handed shares to eight employees. "Every one of them stayed through the rough times," he says.

Raising Funds

Q My mother and I own a four-year-old gourmet dessert company, which had $120,000 in sales last year and about $20,000 in profits. We sell online and to wholesale accounts like Whole Foods (NASDAQ:WFMI). This year we are opening four to six retail locations. Soon, I'll be seeking an angel investor to invest $1.5 million. How can I persuade an angel to invest this much when we don't have the revenue to show for it?

Brandi Daniels
Embrace Sweets
Cincinnati

You don't have the track record to support such ambitious expansion plans. And unless you induce a sugar rush in potential investors by plying them with gâteaux, they're going to notice.

So scale back, says Joe Whinney, who presented to a dozen angel groups, starting in 2005, to raise money for his Seattle company, Theo Chocolate. Open one store; make it a success. Then you can raise more dough, in both senses of the term. "Get your product and your brand established before you consider investing in a retail operation," says Whinney, who eventually secured more than $1 million in funding from 30 angels. "Retail is such a fickle and challenging investment." Theo distributes its chocolate bars in 2,500 third-party retail stores nationwide but has only one store of its own.

When it's time for face-to-face meetings, make sure you're packing facts as well as passion, says Chuck Horne, a Seattle-based angel who invested in Theo and now serves as its consulting CFO. Who is your target customer? If you have a retail location open by the time you're talking to angels, they'll want to know how much foot traffic you have. Tell the angels about complementary stores -- nearby establishments that help boost your sales. How often does your inventory turn? How healthy is the market for luxury treats in Ohio? You will need to defend your projected spending levels, fixed costs, and margins: Are they in line with industry averages? No? And why is that?

Then there's perhaps the most important question of all: How will the angels get their money back? This is where your passion can get in the way of your pitch, and this is where Whinney initially foundered. "Some potential investors were under the impression that there's no way I would ever sell the company," he says. His vague message -- something like, "I'm committed to getting you a good return" -- fell flat. Once he started talking seriously about an exit strategy, the angels started writing checks.

For more on finding funding for your business, go to Inc.com's Finance & Capital Resource Center, at www.inc.com/resources/finance. It's filled with stories from the Inc. archives about raising money from angels and other sources.

Last updated: Jun 1, 2008




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