The Entrepreneurial Back Office

While vision gives birth to businesses, overlooking the need for efficient, cost-effective office management costs many startups dearly

By Barry Sloane

Here's a blunt message for entrepreneurs: Don't ever lose sight of your vision. It's your space, your dream, your niche -- it's what you do well. It's why you're in business in the first place. Now, here's a second message that may appear contrary but isn't. Once you have established your vision -- you know that you're going to bake tastier cookies, serve premium brews in upscale coffee shops, or deliver parcels and letters overnight -- and once you've put the idea into a business plan in a slick binder, then you must get past vision and deal with all of the other stuff.

The other stuff is what comprises the "back office." It's what you really do when you show up for your entrepreneurial "job" on that first day. It's a matter of mastering what I call "disciplines." You must, for example, figure out how to keep the books and records, incorporate your company and pay taxes, get adequately insured, and equip your company with technology that is state of the art and also meets your needs.


  At Newtek Business Services (NKC ), a publicly traded company that I founded in 1998 with two partners and that, in fact, packages an array of business services under an emerging brand name, we were luckier than most entrepreneurial companies. One partner was an accountant who could handle compliance and regulatory issues. Another could secure product and service niches.

As for myself, I had worked on Wall Street for 15 years before leaving in 1995 to start a company that was folded into Newtek. Thus, I was able to attend to our financing, raising more than $200 million, and eventually taking our company public.

However, beyond those areas, we at Newtek had to traverse the familiar entrepreneurial terrain of securing services from the outside. Indeed, it isn't humanly possible for any individual to have all the skills necessary for running an effective back office, least of all founders, whose forte and inclination skews toward spotting the innovative ideas that become new businesses.

In our case, we turned to an outside attorney, who became our de facto inhouse counsel. A local IT firm that we put on a monthly retainer attends to our equipment and technological needs. In all, we work with about a half dozen outsiders.


  Not that this tactic is bad, of course. Indeed, it's the entrepreneurial answer to accessing the level of sophisticated services that large corporations routinely get from companies such as Citicorp in finance and IBM in technology.

Amazingly, none of those master vendors, with the exception of American Express, has packaged services for companies ranging from startups to fast growth and with annual revenue of up to about $20 million. I say amazingly because these outfits comprise 9 out of 10 businesses in the U.S., create 75% of new jobs, and account for 51% of the nation's GDP.

Let's get back to that typical cobbling together of inhouse talent and outsiders to provide a back-office solution. While it gets the job done, it's expensive. What's more, it's inefficient. Dealing with multiple vendors means juggling multiple interfaces -- contact people, phone and fax numbers, e-mail addresses, and Web sites.


  The Newtek premise -- and our annual revenue of $55 million would suggest that it makes sense -- is that a lot of the cost and inefficiency can be stripped from back office business as usual.

Take the local accountant that you, the entrepreneur, retain to handle your company's tax preparation. Chances are that he or she is a highly skilled professional, a CPA., who bills accordingly. Yet the job itself amounts to nothing more than processing, plugging numbers into a software program. A properly trained, lower-level worker could do that just as competently, and for far less money. And saving money is what you, the entrepreneur, need figure out how to do by whatever means you choose.

You can't ignore the back office or you'll be out of business. But your focus must be your core competency -- your vision -- for that is what builds businesses.

The solution is to handle your company's processes and procedures as inexpensively and efficiently as possible. That way, you'll never lose sight of your vision.

Barry Sloane, 43, co-founded Newtek Business Services, Inc., a publicly traded company based in New York, in 1998, and currently serves as chairman and chief executive officer.

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