Hands On

Too much, too soon

Sometimes fast growth is bad for your business
BY ILAN MOCHARI

How does it feel to purposely halt your company's growth for a full year? "Extremely painful," says Pearce Jones, president of Design Edge, a high-tech product-development company in Austin. Yet at the start of 1998, Jones and Design Edge gulped and slammed on the brakes, realizing it would hurt even more if they didn't slow down.

It wasn't an easy decision to make. Company metrics showed that every new employee led to $150,000 in increased revenues. Sales had grown from six digits to $6 million since 1993.

But margins were a lot smaller than the 30% that Design Edge was shooting for. Spinning off a prototyping facility had been costly. Also, Design Edge was carrying a lot of debt from the purchase of a building in 1995 and frequent outlays for engineering equipment (as technology changed and the employee total jumped from 11 to 50). Among the company's concerns was that the slimmer margins would cause its profit-sharing employees to bolt for other high-tech companies that offered stock options and lush benefits.

And so, in pursuit of better margins, Design Edge began its great growth freeze of 1998. The company intentionally ceased hiring, deactivated sales and marketing, rejected new business, quit offering new services, and catered almost exclusively to existing customers. Plans for adding 5 to 10 employees and a second office were postponed.

It felt awful, but the results were wonderful. Profits doubled in 1998, and not a single employee left town. Design Edge also began a DiMaggio-like streak of 19 consecutive profitable months, building its cash reserves and bolstering its standing with the bank. Three small-business loans were consolidated into one. "Since we were funded on debt, our balance sheet looks a lot better, especially in terms of long-term liability," says Jones.

The year off positioned Design Edge to grow more comfortably in 1999. Already the company has hired five new employees and opened a second office. And the fat profits have enabled Jones and the management team to sweeten its incentives program, tangibly rewarding all the employees who were responsible for much of the growth in the first place. "Many of them have been here five years," says Jones. "It was time to return to them the investment they'd made."


State of flux

Having a hard time keeping up with all the changes taking place in American business today? According to a recent study conducted by Penton Research Services, a unit of business-publishing giant Penton Media Inc., of Cleveland, there are more than 8,500 of those changes every business day. Here are some national averages:

  • New business incorporations: 3,196 per day.
  • Corporations going out of business or being acquired by another company: 2,621 per day.
  • Businesses changing their addresses: 1,984 per day.
  • Businesses changing their phone numbers: 704 per day.
  • Corporations changing their names: 8 per day.

Penton Research Services studies business-to-business marketing trends. The company compiled the above statistics from a variety of sources, including Dun & Bradstreet, Enterprises IG, and the IRS. The number of changes on the average business day was calculated by dividing annual figures by 250, which assumes a five-day workweek and 10 holidays each year. --Cheryl McManus


Hot Tips

In the midst of the labor-market crunch, TMP Worldwide Inc. is keeping perk-hungry employees happy with an options program that works something like team bonuses. Every year, the global recruiting company and owner of Monster.com sets aside about 100 options for every rank-and-file employee with at least one year of service. "Team leaders can either divide them up evenly or use them to recognize tiers of performance," says TMP vice-president of human resources Margaretta Cullen. Of course, an options plan really works only if the stock's value shoots up -- and TMP's has, by more than 1,000% since the first grant, in January 1997. --Anne Marie Borrego

Although Gen-X employees may prefer such perks as free food and stock options, workers with kids in college need something else -- cash. To help out with hefty tuition bills, Pace Communications Inc., of Greensboro, N.C., doles out $5,000 per year per child to employees who have kids in college, provided the student maintains at least a C average. "Would you rather your company do something for you or for your child?" asks Bonnie McElveen Hunter, Pace's founder and CEO. According to Hunter, her return on the investment is increased employee loyalty. "I hope that people feel like this is an organization where they can spend many, many years," she says. --A.M.B.