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May 6, 2005

Starting a Business

Working On Your Business Versus In It

Posted by Jay Ebben at 12:25 PM

In past columns, I've stressed the importance of vision and developing a road map for your business, whether written on paper or not. Part of this includes understanding your role in the business and how this will change over time. When starting out, you will be wearing many (if not all) hats in terms of setting up supplier relationships, taking and fulfilling customer orders, answering phone calls, dealing with customer complaints, and much more. How much you continue to be directly involved in many of these tasks depends heavily on your vision of what you want your business to be and how much this requires you to work on the business rather than in it.

A useful way to look at the evolution of your role in your business is through a framework developed by Drs. Alan Filley and Ray Aldag of the University of Wisconsin in the late 70s. They observed that small firms generally fall into one of three organization types: Craft, Promotion, and Administration. In my experience, this framework is very applicable and has helped many entrepreneurs that I have worked with to better understand the relationship between themselves and the direction of their organizations.

Craft Firms. Firms that fall into this category are many times started by an entrepreneur that is particularly skilled at a certain craft, such as a pastry shop started by a talented baker or an auto repair shop started by an expert mechanic. Though not professional managers, these entrepreneurs see an opportunity to put their skills to use in business, and the business depends on that individual continuing to be personally involved in creating a product or providing a service to customers. These firms are characterized by little change or growth, many times because the owner is content with the business as is, but also because the owner is busy working in the business rather than on it. This is a fine type of business, and many owners of craft firms make nice livings doing something they love to do. However, in developing a vision for your organization, it is important to understand that these are not organizations that run themselves and that they will be difficult to grow until the owner removes himself or herself from day-to-day operations.

Promotion Firms. You have probably heard the phrase "the person good at starting a business is often not the best person to run the business." This is the case with most promotion firms. A small percentage of new firms fall into this category and are generally characterized by very high growth centered on a product or service with some competitive advantage. These firms are usually started by the stereotypical entrepreneur, the one who has started five different businesses in the past 10 years, and who has high growth goals and the vision and charisma to generate excitement about the business. However, many are not good at managing and delegating tasks (Read: control freaks), which is okay early on but becomes a problem as the company grows. To be successful as other firms enter the market, these companies need to become administrative, which many times requires the entrepreneur to hire professional management and take a lesser role in the organization -- not necessarily an easy thing to do.

Administration Firms. Administration firms are characterized by professional management that spends its time planning and budgeting, rather than being directly involved in the day-to-day activities of the business. These companies will likely have formal procedures, processes, and job descriptions, and will focus on product and process improvement (Note: This doesn't mean that these companies have to be boring!). Rather than the high growth of promotion firms, administration firms will plan controlled growth that will come from specific areas of the business and engage in strategic planning to respond to market changes. Also unlike craft and promotion firms, administration firms tend to run by themselves whether the owner is around or not.

As you start out, you can use this framework to help you create a vision of what you want your business to look like down the road, to picture the evolution that your business will go through, and to anticipate how your role in the business might need to change to get there. For instance, if you are starting a business based on a craft that you enjoy and growth is a goal, at some point you will need to make a transition from working in the business to working on it.

Likewise, if you want to eventually be an absentee owner of this business, you will need to implement administrative controls so you can remove yourself from everyday management. If you are a "promoter" by nature and are starting a high-growth-potential business, you should understand that your drive and flexibility in the short term are important to taking advantage of your opportunity, but that in the long term, you will need to make a transition to an administration organization and delegate authority to survive.

Remember that there is not necessarily a "best" organization type for your business: It is really up to you to decide how your business should develop.

Jay Ebben Ph.D. is a professor of entrepreneurship at St. Thomas University and is the columnist for Inc.com's Start-up Resource Center.

1 Comment

Posted by: mark Alan Effinger at May 10, 2005 11:35 PM

At first glance, I didn't think these elements from jay: Craft, promotion and Admin, were going to really apply. But reading between the lines, they have definite merit.

In 1998 I was in dialogue with Jim Collins regarding evangelistic leaders being able to create sustainable, self-directed companies. Steve jobs coming back to Apple was my marker (thank God he did such a bang-up job. Saved my butt on more than one bet over the last decade or so).

Anyhow, what we discovered in the process of building companies based on more of a passion/evangelistic promotional drive is that you need to have Risk Reduction Criteria in place to keep your people "sane", while you as a leader keep things spinning. Adding sensible, measurable metrics for what you do, and how you do it, takes some of the anarchy out of the rapid-growth process.

We published ours as Fun, Fame & Fortune, backed by a series of Risk Reduction Criteria. Go to http://store.concept2cashflow.com/criteria.html to read ours... and please, feel free to share yours with us as well. We believe these types of specific details can help highly creative firms increase velocity while still having fun and keeping work-play.

So... whether the 3 definitions above fit your business type, or some combination, I believe establishing realistic but aggressive and organic metrics will help ANY entrpreneurial organization become more like Michael Gerber's E-Myth company.

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