How To Make Bigger Better

Managing your company's growing pains

For four years after he started DrinkWorks, a company that makes custom drinking cups, Richard Humphrey was routinely logging 100-hour weeks. "I was concerned that if I wasn't there every minute the company would fall apart," he says. Humphrey's Newport Beach (Calif.) company thrived, winning Sea World and Circle K convenience stores as customers, but he deteriorated. "I lost a lot of weight, I got sick, I had an engagement break off," Humphrey says. "I lost touch with people."

Doing it all may be encoded in entrepreneurial DNA, but it's hardly the best way to manage a growing company. Entrepreneurs risk burning out and taking down their businesses and their personal lives with them.

Even when an entrepreneur can physically withstand such a grueling lifestyle, it's hardly ever necessary. After a close relative fell ill in 2002, Humphrey was forced to leave the business in the hands of his five employees. He was stunned by how well they handled things. "They stepped up to the plate, and it worked out," he says. "After that the whole company balanced out."

Managing growth successfully comes down to getting the right help at the right time. At the outset, it's important for entrepreneurs to develop relationships with professionals such as accountants and lawyers, then make sure the right hires come on when they're most needed. As the company grows, it may be wise to explore partnering or outsourcing -- or even stepping back from the helm of your company. The trick is to make sure you act decisively before your clients feel neglected, your checks are bouncing, and your personal relationships are crumbling. As Dale Carman, the founder of a 100-person animation studio, says: "The problem with success is that it can kill you unless you put the right people in place and give them the authority and responsibility and power to do their job."

It's important to keep an eye on the future, even if you're working out of a spare bedroom. "Start out acting like a big company from the beginning," advises Marty Schmidt, president of Solution Metrix, a small business consultancy in Boston. At a minimum, create professional accounting procedures and hire an accountant who specializes in small businesses. Even after DrinkWorks had contracts with big-name clients, Humphrey was using a bookkeeper at tax time and winging it the rest of the year. Drafts of contracts got sent to a friend who was an attorney for an informal overview. "I lost a lot of time and money trying to do things myself," says Humphrey.

The next step is to bring financial expertise on staff -- the sooner the better. "Even as they grow into big companies, many small companies don't put in place the disciplines and structures you would see in a company that was a subsidiary of a larger corporation," says David S. Lobel, managing partner of Sentinel Capital Partners, a private- equity firm in New York. "An outside accountant may come in once a quarter to close the books, and the CFO is more like a bookkeeper. So the forecasting suffers and the understanding of how much profit the company makes on each item is underdeveloped." An experienced CFO can regularly generate projections and detailed financial statements, giving you the building blocks to manage growth.

As head count rises, try to put aside your ego long enough to figure out which tasks can be done by someone else. "The fundamental thing entrepreneurs don't get is to stop taking pride in their own accomplishments and start taking pride in the accomplishments of the people they hire," says John Delmatoff, owner of PathFinder Coaching, a small business consultancy in Murietta, Calif. You may have a background in finance, but if your company depends on your working closely with clients, hire a CFO.

Getting started on the right foot extends to office space, too. Yes, cost can be an issue. But Humphrey found that several would-be employees who sounded promising on the phone failed to show up for interviews. "I realized later that candidates had been driving up, seeing this ugly building, and driving off," says Humphrey.

That little epiphany prompted him to stop thinking like the founder of a struggling startup and to start acting like the CEO of the company he hoped DrinkWorks would become. In 2000 he hired a director of operations. The next year, DrinkWorks moved into a 2,000-square-foot space with room to expand. "We created a fun, amazing environment, with a large creative room for brainstorming and a surround-sound system on which we played our favorite music," says Humphrey. "Immediately we found that good people wanted to work for us and we had almost no turnover." By 2003 the $6 million company had 14 employees.

Partnering Up

When it seems the only way you can take on a new client or launch a new product is to clone yourself and your staff, take a look beyond the four walls of your company. Merging with another company, outsourcing, or acquiring another business may be the best way to keep growing.

Outsourcing became a necessity for Morgan Roach, who started Ncompass in June, 2001, to make software that helps luxury auto dealers train their sales staff. The $2 million Orange (Calif.) company had a handful of clients its first year. Then Roach signed one of the largest Mercedes dealerships in the country. "After that, things started moving really fast," Roach says.

Soon Roach was spending three-quarters of his time on the road visiting prospects and installing his proprietary software systems for about 80 clients. He hated being away from his wife and four young sons. But he knew that expanding his 23-employee staff would be a mistake. "Adding staff would be a huge management expense for me, and ramping up that fast could have killed my company," he says. So in June, 2004, Roach partnered with Anaheim (Calif.)-based USnet, whose computer technicians now handle the installation, training, and implementation of Ncompass' software. Roach has slashed his travel from several days a week to three days each quarter. "My wife really needed me home to help out, " says Roach. "My not having to travel so much has been great for all of us." In the past six months, Ncompass' revenue has doubled.

Ada Shapiro faced a similar decision -- whether to expand to accommodate customer demand -- at an age when other business owners are thinking about retiring. The 70-year-old became CEO of Carolina Marking Devices in 1996 after the death of her husband, Sol, who had founded the Charlotte (N.C.) company in 1957. Shapiro brought steady growth to the $3 million, 45-employee company, securing dozens of government contracts for its custom-made rubber stamps, corporate seals, and badges.

Her customers began requesting vinyl banners and signs. But producing them would have required costly digital equipment and the creation of an art department. Shapiro didn't want to make the large investment that would entail, nor did she want to take on any debt at this point in her life. She didn't relish the thought of putting in longer hours, either.

At an industry meeting in 2003, Shapiro asked the CEO of another similar business, Kinney Stamp & Engraving, to consider a merger. The companies had been friendly rivals for years, but in January, 2005, Kinney's 13 employees and sophisticated equipment moved into Carolina Marking's 23,000-square-foot production facility. Shapiro is CEO, and Fred and Ron Kinney are senior vice-president and senior manager, respectively. "The extra management layer will really help me, not only to take time off but to do more of the creative work and planning and less day-to-day administration," says Shapiro. She's spending more time with her 3 1/2-year-old grandson. "My kids say they hadn't heard me this happy and excited in 10 years," says Shapiro.

Often, important partnerships are less formal. Humphrey joined the Young Entrepreneurs Organization in 2000 to take advantage of its mentoring program. Later that year, he created an advisory board of entrepreneurs he had met through that group, including the president of a regional accounting firm and the former president of a military contractor. The board met once a month and helped Humphrey draw up goals such as improving return on investment or developing a sales coaching strategy. Humphrey had to make progress on each goal by the next meeting. "I knew I would never have their respect if I didn't deliver on those commitments," he says. "I wish I'd done it sooner. It didn't cost anything, but it was worth millions to me."

Passing the Reins

Sometimes the best thing an entrepreneur can do for his or her company is to let someone else run it. In October, 2004, Humphrey recognized that he had taken DrinkWorks as far as he could without a dramatically larger sales force and new product lines. He sold the company to a competitor, Warren (Pa.)-based Whirley Industries, which had a big, established sales force. Whirley also made a midpriced product line that complemented DrinkWorks' offerings.

Humphrey is vice-president of new business development for Whirley-DrinkWorks and has moved his family from California to Pennsylvania. "I'm happy that the companies merged," says Humphrey. "DrinkWorks was such an emotional part of me, if I had had to let it go, I don't think I could have done it."

Often, as in the case of Dale Carman's ReelFX, the solution is less drastic. Carman and a friend from high school, David Needham, founded ReelFX in 1993, when Carman was 22. The company, which produces visual effects for film studios and advertising agencies, now has revenues of $25 million. In mid-2004, Carman realized he wasn't doing what he does best. "I recognized I had a passion for the work, not a passion for running a company," he says. "I'm good at pulling off animation projects. I'm not as good at finance or taking a company public or being CEO."

The answer for Carman was to hire Steve O'Brien, a serial entrepreneur, to replace him as CEO. O'Brien has already set up an employee stock-options program, which Carman had wanted to offer but didn't know much about.

Carman's new title is chief visioneer. He oversees creative, while Needham heads sales and marketing. With O'Brien, the three are members of a new six-person management team that collaborates on all key decisions. "This way I can focus on what sets us apart and what we're special at, and Steve can apply all his skills and expertise to running the company," Carman says. Although he still considers the company to be his "baby," giving up some control wasn't as tough as he expected. "There's a point at which a wise man asks for help," he says. For the wise entrepreneur, that point is often sooner rather than later.

By Karen E. Klein

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