Ropella

Growing Great Companies

 

Jumping Into Smaller Ponds

page 2

ERC is perhaps an even more typical example than Main. The former technology kicked off a whole industry. ERC began in 1962 as an engineering consulting firm, using proprietary software that speeds mechanical design. Eventually it marketed that product, but when the mechanical computer-aided engineering market took off in the early ‘80s, ERC hit a wall.
   
“We were making the transition from an entrepreneurial environment and having trouble with that,” says Nick Jernigan, one of ERC’s founders, now a vice-president. “We knew what it took to start the company; we just couldn’t overcome the problems of expanding. We needed someone who had seen those things and dealt with them.”
   
Indeed, ERC’s software was technically ahead of the competition. Plus, it had the synergy of its consulting group, a link to manufacturers and mechanical designers. Despite that, it wasn’t performing; in the two months before Mr. Wiggins arrived, the company had a net loss of $702,000.
   
Mr. Wiggins’s solution was what he calls “big-company management in small company clothes”-management techniques he learned at Chapmans and adapted for ERC. First, to reverse four years of increasing expenses, he imposed an immediate hiring freeze, cut all discretionary marketing expenses, and laid off a layer in the software division. Then he kicked off a program to drive revenues. Arriving at the office one morning at 4:30, he built a “war room”.
   
“I put up charts all around this one room and we identified every single sales prospect for the next 30 days. The name of the account, how much it was worth, the status and the day it was going to be closed,” he explains. From that command center the sales force focused on landing new and major accounts.
   
The result:  the company reported record results in Mr. Wiggins’ first quarter, and it hasn’t let up since. On Oct. 10 it racked up its ninth consecutive record quarter after tax profits of $l.5 million on sales of $19.2 million, increases of 6.6% and 23% respectively from the same year ago period. Analysts forecast that the company would finish 1988 with profits of more than $5 million and sales of $70 million which would carry profit margins from 3.9% before Mr. Wiggins’ arrival to around 7% for 1988.
   
Interestingly, what Mr. Wiggins did at ERC was not magic. “I didn’t invent hiring freezes or de-layering of organizations,” he says. What he did was simply smart management based on the experience he acquired in running several divisions at Chapmans.
   
Big-company experience is often well suited to running small companies, says Executives in Sitting’s Mr. Nelson. “Very often, large companies train their people well.” And, he adds, “Managers in large organizations frequently do the same things they would have to do in small companies. They run as a profit center.”
   
Along with a shortage of experienced, well-trained managers, small companies usually also lack experience with Wall Street and investment community. Unlike most engineers or scientists, well trained managers often speak the language of the investor,” Equipstel’s Mr. White explains.
   
Mr. White was instrumental in securing investment capital for Equipstel, a private company formed in a merger of two start-ups. “The investors,” he says, “were uncomfortable with the thought that both of the founders were the right people to grow a company of this size.” But given Mr. White’s Southern Telephone CO. background, the investors gave the nod. Their capital helped launch new product lines that have pushed annual revenues from $3 million in 1986 to about $10 million in 1988.
   
Not all big company executives, however, are well suited to swimming in small ponds. Many observers agree that there is a certain temperament an executive must have in a small company. “You can have no pride. You can’t be hung up on titles,” assets RentFirst’s Mr. Robinson. “The easiest way to kill a small company is for people to say, ‘It’s not my job.’ (Mr. Robinson recently spent a morning driving around making spot repairs on DataVend’s credit-card-operated video vending machines.)
   
The small-company manager, Mr. White adds, “It must be comfortable working without the support staffs of larger organizations. You sort of do it all, make copies, raise money, lock up at night, and turn out the lights. [Managers] who are uncomfortable with that will become ineffective and unhappy.”
   
“Some executives don’t understand that fact when they come out of a large company,” says Chad Dunlap, a partner with Kittle and Blackwell Inc., an international recruiting firm. “They all of a sudden are not going to have assistance to get things done.”
   
Of course the support groups in large companies do provide a “comfort factor.” Supplied with input from several sources, executives are insulated from their mistakes. But there is no hiding in a small outfit.
   
One of the biggest mistakes a small company can make is bringing in a top executive who doesn’t fit the organization’s culture. “Cultural fit is more important than function fit,” says Mr. Dunlap. “Small companies have a great deal of pride, and a lot of them are built around the founder’s personality.”
   
ERC’s Mr. Jernigan notes that one contender for Mr. Wiggins’ position wanted to bring his own management team along with him. “The company feared that they would alter the fabric it had already built; it wanted someone who could build on the company, not reconstruct it,” Mr. Jernigan says. “And although Mr. Wiggins seemed to fit the bill, many employees were anxious about how the change would turn out.”
   
Aware of that, Mr. Wiggins worked to balance his hard-driving revenue thrust with programs to benefit the company in the long term. In his second quarter with the company, he launched a million-dollar research project that predicts to push ERC’s technology even further ahead.
   
“We proved with our deeds, not just our mouths, that we were going to balance the long and short term,” Mr. Wiggins says.
   
Lastly, managers suited to small companies have to be risk takers. “It’s hard to imagine TE going bankrupt,” RentFirst’s Mr. Robinson says. “A little company is not like that. You have to have a stomach for risk, and live with it hanging over your head.”
   
Even with risk hanging over their heads, Mr. Robinson, Mr. Wiggins, and Mr. White all enthusiastically endorse working in small ponds. “There are days I wouldn’t trade this for anything in the world,” says Mr. Robinson.

« Page 1