A recent survey (free, though registration is required to download it) found that employee issues and managing information technology were the top challenges faced by growth-oriented entrepreneurial companies.
The survey, designed to show small-business owners how to avoid bumps in the road, was conducted by CDW (CDWC), a provider of technology products and services. Industries represented included automotive, construction, education, financial services, health care, law, manufacturing, nonprofit, retail, real estate, transportation, and telecommunications. Smart Answers columnist Karen E. Klein spoke recently to Harry J. Harczak Jr., CDW executive vice-president, about the findings. Edited excerpts of their conversation follow.
You called this the Business Rearview Mirror survey, and you had survey firm O'Keeffe & Co. conduct it in June and July. What kinds of companies did they talk to?
We surveyed midsize business CEOs and senior officers across various industries whose companies had between 100 and 5,000 employees. Most of them—84%—have between 100 and 500 employees. A total of 862 top executives of midsize businesses responded to the survey; 152 of them had been principals in their companies since before they reached the 100-employee milestone.
What's the value of the "rearview mirror" approach?
We felt it would be instructive for small-business owners to understand how others who have done this before have coped and what problems they've run up against.
Before we get into the obstacles, how long did it take these midsize companies to get to the point where they employed more than 100 people?
Well, 32% said it took 5 to 9 years, 30% said 1 to 4 years, 14% said 10 to 14 years, and 17% said 15 or more years. We also had 7% who reported that they had grown to 100 employees before they'd been around one year, which might have been people who spun off a new company out of an existing firm.
The survey asked these CEOs to choose several significant challenges that they faced while they were growing. What were the top responses?
"Employee recruiting and retention" was checked by 52% of respondents, and 37% said "satisfying employment regulations." "Managing information technology to our advantage" drew 38%, and "establishing and maintaining financial controls" and "external costs of doing business"—such as paying taxes and insurance—each got 31% of the responses. Setting prices, understanding what customers want, and managing sales were also prominently mentioned.
Why do you think employment issues drew such large responses?
Recruiting and retention are common themes for all businesses, small, medium, and large. Since success is so often based on the quality of people you have, and given the high cost of staff turnover, recruiting and retention is critical.
You asked the CEOs about their expertise with technology. Why was that?
We gave them five options, to rate themselves as "total geeks" on the high end and "I still use a slide rule" on the low-tech end. What we were looking to see is how critical IT is to successful companies. For instance, we're a very large company now, but we were founded as a one-person business in the 1980s that sold computer-equipment peripherals. Embedding technology for efficiency in customer service played a very important part in our strategy.
What did you learn on that point?
The vast majority of these successful CEOs rated themselves as "total geeks"—22%—or the next highest category, "power users"—59%. Fewer than 1% are still using slide rules. We also saw that the companies that integrated IT into their business strategies early on were the companies that experienced faster growth rates overall, and that 74% of the CEOs described themselves as being "totally involved" in IT decisions.
So, an owner's level of tech savvy seemed to correlate with positive business growth, in terms of revenue and employee counts?
Yes—73% of the "total geeks" reported double-digit average annual growth in their businesses over the past five years. Close to half—48%—of "total geeks" also reported that their businesses reached the 100-employee milestone within five years of launch, compared to one-third of all survey respondents.
We also found it was important to integrate IT into a company's business strategy early. The survey found that, while 98% of respondents said their company had a defined IT strategy as a small business, those who viewed IT as a "strategic or competitive resource" tended to grow faster than CEOs who said they "spent just enough" to ensure that employees could do their jobs. Plus, 18% of respondents said that "not integrating technology into our business strategy sooner" was their biggest IT mistake over the years.
I noticed that even a larger percentage—21%—identified their biggest IT mistake as "not taking advantage of the technology we acquired." Why does that happen?
Often, companies are not sure really what they require, and so what they buy may not really meet their needs. In order to implement new software, they'd have to change some business processes, or maybe they've underestimated the work needed to integrate and use the new technology. And so it never gets used, or never gets used to full advantage.