At Kirby's prompting, Smith also checked Petra's assets-to-liabilities ratio. It was .82 -- too low, in her view. "He had too much short-term debt," Kirby says, most of which came from having to pay down a $100,000 line of credit every year. Smith shifted the majority of his debt from the credit line to a seven-year note, reducing his line of credit to a mere $35,000. Although such a small line may mean future cash-flow troubles, Smith isn't worried: Petra bills biweekly, and its accounts receivable turn over 10 times a year. In one study that Smith looked at, the average turnover of receivables was 5 times a year.

Smith used the numbers as guides rather than as absolutes. That's an approach most research groups recommend in order to take into account the vagaries of individual businesses. "There are so many variables," says Robert Chalfin, president of the Chalfin Group. Chalfin adds that the survey process itself often skews information in favor of profitable companies. "They're happier to talk about their results," he says.

Smith has also become a lot more scrupulous in other areas, paying more attention to the company's weekly break-even point of $23,000 and charting sales in relation to it. He's learned that a big part of financial discipline is in monitoring the simple things. "Losing money for a year is a good wake-up call," he says. --Ilan Mochari


Magic Numbers

"No single ratio tells the whole story," says Robert Chalfin, president of the Chalfin Group Inc., in Metuchen, N.J. Still, that doesn't keep consultants from compiling -- and businesses from buying -- industry statistics. Where can you find the benchmarks for your industry? Here are some likely sources:

Industry groups and trade associations. Many trade groups have statistics readily available because they often do their own surveys of member companies. Most groups also have a handle on who else is tracking the industry.

Prominent corporate partners. One giant computer company conducts surveys at the regional workshops or conferences it arranges for its partners and resellers. Your big-name partner most likely has good industry information; if not, it can't hurt to attend the workshops and ask colleagues.

Regional groups. Since industry numbers -- such as salaries -- vary widely, regional statistics often paint a clearer picture. Some organizations, such as the Greater Phoenix Economic Council, keep data about such factors as wage rates.

Accounting firms. If your accounting firm works with many small private companies, chances are that it knows where to find information on your industry. One oft-cited group that provides statistics is the Risk Management Association ( www.rmahq.org), a nonprofit in Philadelphia whose numbers are used by bankers to size up the credentials of loan applicants.


Please e-mail your comments to editors@inc.com.

Hands on

Better the Hire You Know

Recruiting past employees provides crunch relief

By Anne Marie Borrego

The dot-com revolution may have lost a little steam, but a lot of businesses are still struggling with the digital economy's shortage of skilled labor. So more and more employers are welcoming back what are known as "boomerang" hires -- former employees who have left for other jobs (seeking dot-com fortunes, perhaps), only to return.

In 1999, $2.6-billion computer-publishing giant IDG hired 904 employees in the United States, 122 of whom were rehires. Among those returnees was Jeff Julian, senior vice-president of Internet development and publisher of IDG.net. Following the lure of the Internet, he had left his job in business development at IDG to join RemarQ Communities Inc., a San Jose, Calif., company that provides Web sites with discussion-group capabilities. "I must admit, I felt like I wanted to get in on some of that growth," Julian says. But after eight months with RemarQ, he returned to IDG to take over for his former boss, who was leaving the company. "I feel like IDG.net has as much potential as any start-up, but at the same time you get the value of a strong brand," he says.

Philip A. Nardone, president and founder of $5-million PAN Communications, in Andover, Mass., not only courts departed employees but also lays out specific guidelines for their return. "In public relations, attrition tends to be high," Nardone says. So he keeps in touch with former employees by E-mail. If an appropriate job opens up, he lets them know. Some of his rehires, like Mary-Beth Sorgi, must go through the interview process all over again.

Sorgi left her job as an account manager at PAN four years ago to work in the marketing department of a bank. Nardone lured her back by offering her a position at a more senior level. "Some of our employees come back at a higher level if they've accrued some expertise that I feel is a value-add for our clients," Nardone says.

If returnees haven't gained any significant business experience during their absence, they usually return to the same position with the same salary that they had before, assuming that position is available. PAN's boomerang employees restart their 401(k) plans at the company's next enrollment period, just like other new hires. "In many ways they're treated like new employees," Nardone says, "except they already know the ropes and can hit the ground running, as opposed to new employees who have to get oriented."

One possible problem: alienating loyal employees who resent the promotions and raises conferred on boomerangs. "There might be a little trepidation in the minds of the other employees when someone comes back at another level," Nardone says. He adds that it's up to the boomerang hire to "quickly prove to the team that he or she deserves that title."

Wayne Luke, an area managing partner at recruiting firm Heidrick & Struggles, in Atlanta, says that welcoming back former staffers sends a positive signal to employees that the grass isn't always greener at other companies.

As for avoiding any jealousy among the remaining staff, he says, the best method is to evaluate all employees on their own merits. But, of course, you were already doing that.


Welcome Back the Prodigal Worker

Kaye Morgan is vice-president of company office operations for Management Recruiters International, a search firm that placed 35,000 people in jobs last year. These are her tips for recruiting boomerangs:

Get a thorough update. Before you launch into any interview with former staffers, make a list of any qualifications they may have earned since working for you, Morgan says. Some may have gotten a master's degree. Others could have taken a course in Java. "Also, find out what they missed about your culture," Morgan adds.

Find out why they left. "Ask yourself, 'Do those reasons still exist within the company?" Morgan says. "If they do, you're going to lose that individual again sooner or later."

Stay in touch. One MRI client used its E-mail system to alert former employees about innovations within the company. That prompted several departed staffers to throw their hats back into the ring. Don't hesitate to approach former workers directly. Tell them that you were sorry to see them go and that there may be an opening in a similar position but at a higher level. However, Morgan warns, "by making the first move, you could lose a little of your bargaining power." --A.M.B.


Hot Tips

Give online shoppers what they really want -- human contact. For E-buyers in search of live help, there's nothing more frustrating than endlessly looking on a site for a customer-service phone number. At Shoebuy.com, customers had to click through multiple links to find the company's toll-free number, says president and cofounder Scott Savitz. After receiving complaints, he placed the customer-service number "all over the place," including in the company's advertisements.

"There's no question that was one of the best moves we made," Savitz says. "When an actual person answers the phone, there's an instant sigh of relief." Savitz says 80% of customers who call to return items end up exchanging them instead, which has helped to increase revenues. --A.M.B.

Autobytel.com CEO Mark Lorimer wanted to give all his employees a chance to speak out on policies that affected their jobs. His solution: a "Wag the Dog" committee. Six employees at a time serve for six months each, with Lorimer holding a permanent seat. Wag the Dog hears presentations from other departments, such as accounting and HR. Committee feedback on those presentations has resulted in policy changes. Mostly, though, the committee has improved the way higher-ups communicate with employees, Lorimer says. Workers like it because it gives them face time with the CEO. Managers like it because it lets them know what the employees want. --Jill Hecht Maxwell


An Inside Job

Once Jack McDonald stepped in as CEO of Austin-based Internet services firm Perficient, he grew the company fast: from 9 workers to 180 in 10 months. But using outside recruiters was costing up to $15,000 per hire. So McDonald offered his employees a $5,000 bonus for successful referrals. That carrot proved even more enticing than he'd hoped. Of 65 new hires since January, nearly half have been referred by Perficient employees.

The bonus even inspired one employee, Internet team leader Jim Manley of Tampa, to post an ad on BrainBuzz.com. As the ad ran, Manley used his weekend time to preinterview candidates, sending the ones he liked on to Perficient's seven-person HR department. Three of his referrals landed jobs. Here is the ad that grossed $15,000 for the enterprising employee:

"If you're looking for THE BEST Internet development job in the country, look no further.

"Our explosive growth, including the opening of a London office, has created an immediate demand for technology professionals nationally. We are hiring Internet consultants with a minimum of 2 years of professional experience in one or more of the following disciplines: Visual Basic, Java/Java Script, Enterprise Java Beans, HTML/XML, Active Server Pages (ASP), TCL Scripting, C/C++, SQL, and Vignette Story Server. Programming experience with other languages will be considered. Experience in the E-commerce/E-content and corporate portal Web spaces is highly desirable. A background in structured programming and development methodologies is required, as well as an understanding of databases, like Oracle or MS SqlServer, in addition to client/server technology.

"Opportunities exist at all levels from associate consultant to project leader. You will be able to live anywhere in the US, including sunny Florida, as this job requires Monday through Friday regional travel (all expenses paid). These are immediate openings so serious inquiries only, please." --J.H.M.


Chris Sullivan: My Biggest Mistake

CHRIS SULLIVAN
Founder and CEO of Outback Steakhouse Inc. In 1999 the Outback chain included 611 restaurants generating revenues of $1.6 billion.

My biggest mistake? Clearly, it was the way I handled the rollout of the Carrabba's Italian Grill concept. After we entered into a development agreement with the founders, Johnny Carrabba and Damian Mandolo and their families, we let a lot of our disciplines -- systems we had used in the past with Outback -- get away from us.

With Outback we would approach a new market by developing one new restaurant in the first year and two or three in the second. With Carrabba's, we developed four, five, and six restaurants in the first year. We should have gone in and made sure our franchisee partners had opened their first restaurant in a successful manner before we started with a second one. We said, "We know we're going to be successful at this. We've been successful with Outback, so let's just build them."

We had plenty of capital because of the public offering and the success of Outback, but we didn't get the people side right. And we didn't keep with our belief that you've got to develop people so that they're prepared to be successful. That really caused us major problems, which took two years to correct. Fortunately, we were able to handle them, but it was painful, it cost us a lot of money, and we had to close restaurants for the first time in our careers. A lot of good people lost their jobs. I hated that.

Afterward, we took our time and got ourselves positioned correctly, and the last eight restaurants that we've opened have been extremely successful.

Capital is always great to have, but in almost every business we know of, you've got to have the right people, and you've got to give them time to be successful. If you don't do that and don't have the right support systems in place, it doesn't matter how much money you have. You can lose it very quickly. --Written with Emily Barker


Win the Space Race

Running out of room at the office? Can't face a move? Take a cue from David Roberts of Silicon Valley's FireDrop: move your neighboring company and take its space.

Roberts cofounded his company, which created a new communications platform known as the Zaplet, in Redwood City, Calif. -- an ideal location for recruiting engineers. "It's in the center of the world for the Silicon Valley -- equidistant from San Francisco, San Jose, and the East Bay," he says.

Roberts leased 25,000 square feet of space on a second floor in a brand-new, 12-building development, assuming that he'd be able to lease more space on the floor below if he needed it. "But within 90 days all the other space was taken," he says.

With his company growing rapidly, Roberts needed square footage for his new hires, and he needed it fast. But he also wanted to stay put in order to keep attracting good talent.

More important, he didn't want to split the team between two locations.

So Roberts subleased some space in another building within the same development. Once it was secured, he negotiated with one of his downstairs neighbors about taking over that company's offices. Roberts paid to move the neighbor into the other building and then occupied the space downstairs.

At 150 employees and growing, FireDrop may negotiate a similar deal with its two other neighbors. "The great thing about dot-coms is that they either get bigger or they disappear," says Roberts, who expects to have the whole building full of FireDrop employees by summer.

All the moving around has been a lot of trouble, he says, much of which could have been avoided if he had had more confidence in the company's prospects back when he first leased space. "I wish we were smart enough at the beginning to have realized we'd do very well," he says. --A.M.B.


Significant Figures

Until recently, Greg Smith, president and CEO of the $1.5-million systems integrator the Petra Group Inc., based in Corning, N.Y., rarely examined how his company compared with the rest of the IT nation. Why would he? Sales and profits had grown every year since the company's inception, in 1993.

But in 1998 sales flattened. Petra faced unprofitability for the first time. Though it was easy to attribute losses to the sales slump, Smith felt there was more to the story -- he just couldn't pin down an answer. Was he overspending in ways he couldn't see?

In passing, Smith mentioned the problem to his lawyer. The lawyer gave Smith the name of an accounting firm in the area, Kirby Beals Maier, that was familiar with private-company growth issues. The firm's Nancy Kirby suggested that Smith benchmark Petra's numbers against those of other IT-services companies of the same size. Specifically, she wanted Smith to examine payroll as a percentage of sales, which is crucial in an employee-dependent services company.

Smith quickly obtained two industry studies. One was from Robert Morris Associates, a nonprofit group in Philadelphia whose studies are used regularly by bankers and loan officers. The other came from the Chalfin Group Inc., a consultancy in Metuchen, N.J., which Smith found through various Internet searches.

That was only the beginning. Armed with industrywide information, Smith quickly saw a problem: payroll and related costs for his 15-employee business exceeded 60% of company sales, a marker that the Chalfin Group generally designates as a red flag for companies trying to stay in the black. "At certain points you have to face the music to remain profitable," Smith says. Part of facing the music for Smith meant reducing his head count by two and using contractors instead of staff employees.

Published on: Jul 1, 2000