How do they do that?

The productivity and buzz of small entrepreneurial companies is the stuff that every HR manager wants to put in a bottle and take to his board. In an attempt to compete with their smaller, faster-moving rivals, larger organisations break themselves down into smaller units. They create more profit centres, try to make everyone more than just an accountable number, and even play around with ‘dress-down Fridays’.

Recently, consultants Apter International told how HR managers from HSBC, Boots and Zurich had been turned on by ‘reversal theory’, which allowed managers to become more “audacious, proactive and determined” – in other words, more entrepreneurial.

It may, of course, all come down to the fact that entrepreneurs are very different from ‘normal’ manager-executives, however senior, and therefore elicit a different response from their workforces.

Some years ago the Hay Group consultancy did research on charting the differences between successful entrepreneurs and chief executives. In some key areas, such as drive, determination and working long hours, there was little difference between the two groups. However, the research showed that where entrepreneurs really outscored executives was in integrity. Some 70 per cent of those who successfully started their own businesses have ‘an honest, ethical style of leadership’, compared with 28 per cent of chief executives. This honesty generates a high-standards culture where people believe they will be treated well and fairly, and just as importantly, their individual contribution will be recognised and rewarded.

The downside of this integrity, is that poor performance is also recognised and punished. In their desire to get results, entrepreneurs will encourage others to be like them and take the initiative. They are three times more likely to do so than CEOs, who are more likely to be interested in keeping the team on an even keel and creating harmony than in pushing on.

What makes them tick?

South African Rory Stear founded Freeplay Energy 10 years ago to market the clockwork radio invented by Trevor Bayliss. It has since moved into flashlights, mobile phones and medical instruments. It has also gone from being a marketing and manufacturing company employing 600, to become a product development, management and marketing firm with just 60 staff. In this latest form, its success will be sealed this year when it goes public.

Stear says: “Passion is overused. [Football manager] Kevin Keegan is always talked of as a passionate manager, but his success is always shortlived. In the long run, it’s not enough to be passionate – other factors have to be present.”

Since Stear’s company is small and developing new products for new markets all the time, there is always an exciting challenge on the horizon. He feels it would be very different if the company was firmly established in various markets. The excitement of new conquests and projects is a great motivator – it turns everyone on, he says. He also believes it is vital that his core people – the development team – are not only well led, but well managed.

“The leader and the manager are not the same person. One inspires and looks at the big picture, and the other makes sure the results come in on time and in budget,” he explains. “In a small company where cashflow is often a problem, it is vital that your key people are protected from these matters. It can be demotivating to know the company may not make its payroll next month. One of the key reasons my people work harder is that they not only like the product – the idea that an orphan in Rwanda may have a better life because of what they do – but the top people also like each other.”

Pretzel logic

John Pike was one of the founding directors behind snack sensation Phileas Fogg. After that company was taken over by United Biscuits, he created Union Snack seven years ago, which now employs 80 staff, has a turnover of £6m, and is the UK’s largest pretzel manufacturer.

He feels that a major difference between companies run by entrepreneurs and others is the shorter decision time, which generates a more active culture.

“Recently, my chief engineer decided we needed new machinery. In a large company this could have taken months going through various committees and accounting reports, but instead it was decided in days,” he says. “It’s vital that people are given an objective which they see as reasonable and own and are then given latitude, authority and discretion.”

However, Pike feels there are two very distinct types of entrepreneur – ‘one-man bands’, who become larger-than-life heads of the organisation, and those who delegate and create much bigger organisations. Unless you trust people and let them build their own businesses within the larger entity, you will always be limited.

One of the characteristics of entrepreneurs is that they are self-centred and often arrogant. They like being in control, and they are often entrepreneurs because they couldn’t stand working for other people. “I appreciate that everyone is an expert in their own field, and that everyone must be made to feel important. But if a customer comes to our Durham factory and the cleaner isn’t doing their job properly, then we could lose the contract,” Pike says. “Before Phileas Fogg was taken over by United Biscuits and employed 300, we had that culture, but it isn’t just a function of size.”

So even when entrepreneurs grow to a certain size, they somehow find ways of keeping the freshness and excitement they had when they started in their back room.

Living the dream

This is very much the view of Michael Clare, chairman and managing director of Dreams, bed manufacturer and retailer. The company is 17 years old, employs 600 and has a turnover of £100m.

“The important thing is to paint the vision, make everyone excited. Everyone wants to be doing something new and we are still growing at 30 per cent a year, so there are all kinds of new opportunities,” he says. “No-one wants to be doing the same thing day in day out. I also make sure only two-thirds of salary comes from basic – the rest comes from individual, department and company performances.

“Everyone is assessed every other month. It’s just as important to tell people that you are pleased as when you are not. What’s vital is to be communicating with your staff all the time. Of course, I cannot do it myself, but my line managers know what I want,” he says.

And what Clare wants is to keep the small-company buzz alive. One way he does that is in the politically incorrect way of reminding everyone that at the end of the day, it’s money they work for.

“Of course people want to be secure, enjoy themselves and be valued, but when I first meet the recruits after HR has talked about job satisfaction and the rest, I just talk money and their eyes pop out of their heads – they love it. I think some HR people have just lost contact with the basics. It’s mostly about money.”

It will be interesting to see if Dreams can keep its buzz and excitement when Clare finally steps down. Inevitably, he will take with him the memory of what it was like to be a small company. After all, the fate of most small companies is to go bust, become big or get taken over by an organisation with no connection to its birth.

Letting go

Kieran O’Brien has just nursed his telecommunications company Packet Exchange through three lean start-up years to break even. It employs 25 people. Previously, he was with a US company that grew in two years to 6,000 people.

“In my old company I could see the entrepreneurial spirit become diluted with every tranche of new people,” he says. “Experience has taught me that somewhere between 100 and 150 people something goes. We have just gone through a period of extremely long hours, low pay and remarkably low staff turnover. It works because you choose self-starters who believe in what you are doing and can work on their own – most importantly, because you are totally honest with them.

“Ironically, as you grow and move into profit, some will have to leave – some because they will not fit into the more mature organisation, and some because they are just exhausted. But all this can be done honestly and amicably. We told our people it would take three years and it has; only now can we start paying competitive salaries.”

In these situations, there is not only the excitement of being a ‘band of brothers’ taking on the world, but also the real possibility of becoming seriously rich. If you are young, the downside isn’t so bad. After all, in a small organisation, you are likely to be given a lot more responsibility and experience, which can be traded elsewhere if need be.

“You must let your people go out and make mistakes,” says O’Brien. “When that happens, dust them down and set them on their way again, ensuring, of course, that they have learned the lesson.”

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