Established Companies Need To Keep Entrepreneurial Spirit

The art of entrepreneurship can be profitably applied in large, established companies as well as in small, start-up ventures.

Q: I’m the CEO of an old firm with over 400 employees. We are profitable, but I am convinced we could do better if I could just get my managers to act like entrepreneurs rather than bureaucrats. Is this wishful thinking?

A: Absolutely not. Given the rapid pace of change in markets, technology, and competition, an established firm has to be perpetually “re-started” in order to maintain its relevance and vitality. And this requires the foresight, innovativeness and industriousness of an entrepreneur.

Noted economist Joseph Schumpeter believed that “creative destruction” of the old ways of operating within a firm was necessary at precisely the point at which management starts enjoying the comfort, predictability and stability of the status quo. Such change requires the creativity and leadership of an entrepreneur who can strategize, seize opportunities, innovate, take calculated risks, and move quickly and decisively.

I call this combination of management ability and entrepreneurial savvy “MetaManagement.” The term “meta” means beyond, and “MetaManagement” refers to management behaviors that go beyond mere administration.

However, in order for your firm to benefit from this entrepreneurial power, your managers must truly feel like entrepreneurs, and this requires a work environment in which:

There is a visionary, strategic plan for the company and a customized, agreed-upon mission contract with each executive.

Executives enjoy the authority to experiment, test, and make changes.

Managers are rewarded like owners either through “virtual” ownership techniques (e.g. profit-sharing) or actual equity-sharing programs featuring things like stock options, ESOP’s or share awards. A “piece of the action” is essential for a true entrepreneur.

There are opportunities to try new approaches to product development, marketing or production and processing.

There is easy access to other decision-makers within the firm and to all of the firm’s customer constituencies.

There is a tolerance for unique behavior and failure.

A manager is recognized for his or her unique performance. MetaManagers need “stage time” and applause to keep the level of confidence and self-esteem that is necessary for successful entrepreneurial behavior.

The presiding CEO is a team leader who is able to articulate a vision, coach, take risks, and share the spoils.

It is up to the CEO the Chief Entrepreneurial Officer - to provide an environment that will allow MetaManagers to function effectively. Keep in mind that “managers do things right,” but “MetaManagers do the right things.”

Q: I’m in the process of starting a small retail business and would like the names of venture capital companies that I can contact to raise some money. Can you help?

A: Forget this funding source at your stage of development. Most VC’s are interested only in up-and-operating organizations that are beyond the start-up phase.

Unless you can justify an investment of $400,000 or more, you probably won’t appeal to a venture capitalist. Retailers without a track record rarely attract this kind of first-stage financing.

If you are lucky enough to find an interested VC it will cost you. In start-up situations, they typically want an equity deal that will offer them a return of up to 10 times their original investment in five years.

Even in seasoned deals with great promise these investors look for an average annual compounded rate of return of at least 35 percent. It is doubtful that you could make a defensible case that your idea could produce this kind of payback.

I’d suggest you look for an “angel” or two. Angels are wealthy, private investors who enjoy dealing with first-stage entrepreneurs like you.

They generally will provide in the neighborhood of $100,000 for an equity interest in a firm that has been operating for five years or less. But even here, less than half the action is directed to start-ups.

They also want an opportunity to hit it big, so be ready to give them a good slug of equity for their money. Also, these investors will want you to offer them a reasonable hope of a “back door,” or financial exit, sometime in the foreseeable future.

Problem: Angels are hard to find. Accountants, attorneys, bank loan officers, management consultants and market research companies often are conduits to interested angels.

While angel-hunting can be a time-consuming and laborious process, it can also be rewarding. Henry Ford jump-started his auto empire in 1903 with five angels who came up with $40,000.

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The following fields overflowed: CREDIT = Paul Willax The Spokesman-Review