Over the course of the last 25 years, I have had the opportunity to be involved in small technical firms ranging in size from 2-200 employees. Recently, my firm was acquired by a global enterprise which made me reflect on my journey and experiences with small firms-specifically, growth drivers, culture, and unique characteristics of small organizations.
Most of the firms I have partnered in have been in the technology space. However, the people dynamic is the primary focus of my learning. Most of these organizations were founded and driven by people who became entrepreneurial so that they could have a direct line of sight from their efforts to results. Starting and growing a business was, for many, aspirational. Running a business was not the goal but a required element to maintain independence. Being creative, I have seen entrepreneurial ingenuity in ways to survive and advance as a smaller firm. Outlined below are a few examples of lessons learned, unique experiences, and innovative ways of running a small business. As the CEO of several firms, a business investor, a board member, a business coach and an entrepreneur, I have been fortunate enough to view organizations through a variety of lenses.
Employee ownership – In 2005, I led an employee buyout of an IT tech firm. We grew 30% annually through the banking crisis of 2007 and the extended recession that followed. Our core employees had an ownership stake in the business. In 2007 when pressure was highest, when revenues were down and profit was low, we banded together as partners and grew through tough times. Our key people had a stake in the overall success of the business, so we fought harder because our work together was our future and not just a job. In 2014, the firm was acquired, but 2007 was the ‘make or break’ year and employee ownership helped unify the team. Today, stock options are standard in larger or VC backed firms. Many privately held firms delay a shared equity model, because they do not have someone to show them the way. For me, having an equity-sharing model in a small organization has had its challenges, but the benefits have far exceeded any downside. In my most recent investment, we have allocated a healthy percentage for employees and are already seeing comparable recruiting to the larger tech players in town.
Exit Strategy – Build a profitable business that can stand the test of time and your conversations with investors, partners, and potential acquirers will be from a position of strength. Build a house to flip and you build for aesthetics. Build a house for you and your family to live in and you build it with care. Acquirers will pay a premium for a house built with care. My 25 years of experience has been largely dominated by bootstrapped organizations. We decided that profitable growth was our fuel and happy customers would be our investors. This mindset meant that we had to build future strategies, but always had to win today. This mental model built a closing mentality on the sales side and a passion for projection completion. In the IT services game, customers pay when you ship or upon completion of milestones. Venture capital, private equity, and other investment vehicles can make you more comfortable and move the needle faster in some instances and every situation is different, but when you turn a profit and live on your own cash flow, it teaches you the true essence of running a business. Cash is king.
100% health care for employees and families – In 1996, I joined a small tech firm in Raleigh, NC called I-Cubed. I was employee #7, and weighed an offer from the founder to join as a sales rep. I asked what made his firm special and why I should be a part of his team. Grant Williard said firmly and clearly, “If I am fortunate enough to have health care for me and my family, then so will my employees and their families. Being a part of a winning culture means we will build a profitable company that wins in the marketplace and takes care of its team.” I accepted the job, and worked with Grant Williard for a decade until he developed a technology that was acquired by Adobe Systems. The lesson was clear, winning the right way builds employee commitment and loyalty over time.
Young people can lead – Most organizations have programs for interns, and recruit new college talent. The ‘secret sauce’ for leveraging Gen Y employees is based on the ability to recruit, reward and retain them over the long haul. We have had interns grow from doing small meaningful tasks to running profitable business programs. The ones we were able to retain validated our investment. The ones that we lost to large enterprises like IBM, SAS, and Red Hat, et al created a learning platform to improve our process. Our lessons learned are clear: performance-based advancement, stretch assignments, visibility to the firm’s leadership, coaching with care, and social responsibility. The young and talented are driven by a combination of personal advancement and social responsibility. We were successful because we showed how organizational success creates new jobs in a tough economy, positively impacting the community, in addition to investing in local programs through volunteerism and donations. I have found that in the organizations I have led, our youngest employees have been the most innovative because they work for excellence but have a lack of fear about tough tasks which allows them to truly be creative.
Ultimately, these concepts can be applied to any size organization, but with smaller firms and specifically in industries like technology, you can have a faster time to value from the changes you make.