Principles of Management DB- 300 Words

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Entrepreneur 360

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By DAVID FREEDMAN and MATT VILLANO

Illustration by STUART BRADFORD

How does a new business achieve success? Clearly,

there is no single answer—but there is some science

amid the art. We’ve developed

six archetypes of company leadership

that embody the varieties of

management style, processes and

culture that are demonstrated by

today’s flourishing entrepreneurs.

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WILLINGNESS TO TAKE RISKS. RELIANCE ON DATA. EMPLOYEE RELATIONS. ABILITY AND DESIRE TO INNOVATE.

These are among the factors one may consider when exam- ining company leadership and performance. Why do some startups achieve lasting success while others become flash-in- the-pan fads or all-out failures?

Every company has a unique strategy and culture. Some play things safe, staying the course for lasting (yet modest) profit; others see growth through rapid evolution in tandem with tech- nological advances or trends, yielding major returns that may not have staying power. Some place a high level of responsi-

held, for-profit and have shown net capacity growth over at least two years, with an employee size in 2015 of 10 to 1,000. With the help of Gary Kunkel, senior research fellow at the Business Dynamics Research Consortium at the University of Wisconsin—who examined information on businesses from BDRC’s proprietary data sets— we conducted surveys over the first nine months of 2015 with nearly 400 qualified companies. We asked highly detailed ques- tions about market sector, man- agement style, sales territories, target growth rates, expansion planning, processes and other business functions.

We reviewed the data received to come up with our six company archetypes. We think of these archetypes as providing a 360-degree view of thriving business and thus we have dubbed this study the Entrepreneur 360.

You may be surprised that representatives of some of these company archetypes can demonstrate growth. All have benefits, and all have flaws. But whether or not you find them relatable—do you recognize yourself anywhere?—they con- tain lessons for entrepreneurs that can be applied to nearly any industry. And all are emblematic of leaders who have the passion, talent and grit to launch and maintain a resilient business.

—Carolyn Horwitz

bility and decision-making on employees at all levels; others choose to place all their faith in management.

The combinations are end- less. However, when considering the components of flourishing companies of all types, some commonalities emerge.

Through surveys and available data, we’ve examined hundreds of small businesses and come away with six arche- typal sets of practices and char- acteristics that we believe are representative of most growth companies operating today.

The qualifications were simple: Companies had to be domestically owned, privately

Best Practicers These star companies do everything evidence-based management wisdom says they should do. They set high growth targets and are confident of hitting them. They are employee champions, staying highly attuned to staff needs and input and promoting more agile, decentralized decision-making, as well as innova- tive and proactive action. It all pays off: These firms report not only sustained but especially rapid growth, and almost no prob- lems in any area of management or performance.

WHAT WORKS Best Practicers tend to achieve everything they’re going for. They report confi- dence in hitting their daunting growth targets. They attract good employees, retain them and are able to ensure that they build their skills and remain fully productive. Com- pany cash flow tends to stay strong. They’re able to time their expansions well, and they keep up with changing customer needs and poten- tially disruptive technologies.

WHAT DOESN’T WORK Zip. That’s right: These companies as a group report fewer problems on average than their peers across every single aspect of their businesses.

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• Best Practicers tend to be in rapid-growth industries, and are mostly national and international in focus rather than local or regional. They are also more likely to be urban-based.

• Avoiding top-down, command-and- control management, they emphasize em- powering employees through distributed decision-making, transparency, sharing information and frequent, deep communication both up and down in the organization.

• They are big on rewarding employees, by sharing profits, promoting from within and empha- sizing good benefits, good quality of life and a positive work environment.

• They set high growth targets and make a point of clearly communicat- ing those aggressive plans to employees, customers, suppliers and even the local community.

• They see fast growth as a compet- itive edge in its own right and are driven to constantly increase market share.

• They seek to be both brand leaders and innovators, and encourage risk-taking.

• They rely heavily on internal metrics and external market research.

• They expand proactively, without waiting to book the orders that would necessitate it.

• They give to charity for its own sake, and not just to help the company grow.

WHAT DOESN’T WORK Zip. That’s right: These companies as a group report fewer problems on average than their peers across every single aspect of their businesses.

PROFILE

iCracked

W hen new hires are onboarded at iCracked, a repair and reselling company that

specializes in both Apple and Samsung devices, trainers share the same set of mission-critical instructions multiple times: Managers don’t want to hear, “What do you want me to do next?” but instead, “Hey, can I do this?”

The distinction is subtle; the former enforces hierarchies, while the latter sparks a culture of exploration, experimentation, independence and confidence.

“Our hope is that this philosophy instills in our people a sense of empow- erment,” says iCracked co-founder and CEO AJ Forsythe. “We believe people learn through mistakes and decision-making. True fulfillment comes through finding solutions and implementing them.”

The approach certainly resonates with employees. At last count, iCracked, which is based in Redwood City, Calif., had 130 full-time employees spread over five offices on three continents—and a microscopic turnover rate. The company also employs more than 3,000 techni- cians, a number that continues to grow as iCracked establishes a presence in more cities around the world.

Communication is another key to keeping employees satisfied. Every two weeks, Forsythe runs an all-hands-on- deck meeting during which he and other executives share big-picture strategy and implore the rank and file to share their ideas for the future.

Finally, in hiring, Forsythe says iCracked looks for candidates with curiosity, ethics and drive. “You can’t teach someone to have those traits,” he explains. “But if they possess them, you can teach just about everything else.”

TAKEAWAY The conventional wisdom isn’t always right, but in the case of management best practices, it seems spot-on. The formula isn’t a secret: Pursue aggressive growth; lavish care and atten- tion on employees; set up nimble and broad-based decision-making processes; embrace change and disruption; stay on top of data; and communicate with customers and suppliers.

Key Characteristics

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WHAT WORKS Modest growth targets and conservative management leave Data Champions more willing and able than other types of companies to eschew debt and fund growth primarily through earnings. These are steady- as-she-goes firms that do not tend to produce standout success in any category. But their focus on data may make them more aware of their challenges than their peers, and their emphasis on treating staff well may pair with having much higher expectations of employees.

WHAT DOESN’T WORK These firms complain about struggling with almost every type of business chal- lenge and every type of potential growing pain, from finding employees to timing expansion. And in spite of setting relatively low growth targets, they’re less confident than their peers in meeting them.

TAKEAWAY You don’t have to shoot for the moon or embrace every touted management approach to be a leader. Well-established tactics such as self-funding expansion, being generous with employees, setting modest targets and keeping a careful eye on financials and other performance metrics can do the trick. On the other hand, not only does aiming for relatively moderate growth fail to insulate a company from growth pains, it may actually invite some problems.

C reative firms don’t typically embrace literal names. But in the case of Oakland, Calif.’s Enlisted Design,

an agency that specializes in planning and birthing new products, the name says it all.

The agency handles industrial design, packaging, brand identity and other functions for a wide range of housewares, electronics and food, pet and lifestyle products. So why “enlisted ”? On each new gig, the company embeds its designers into client-side teams and asks that clients enlist specialists on the agency side of the creative process, as well.

Naturally, this crossover creates a glut of data and internal research—information used to tie every effort back to client demands. At the same time, co-founder Beau Oyler admits that the focus on collaboration and cross-pollination results in a scenario in which creatives are expected to put in long hours.

In many cases, the company’s 15 employees relish the opportunity to make hay in a com- petitive industry. In others, employees can feel vexed, stressed and out of balance. With this in mind, Oyler says his biggest challenge is people. “Finding the right talent to do what we do is really difficult,” he notes. “We spend a lot of time on recruiting and interviews.”

The issue bleeds into the company’s ex- pectations for the future. While Oyler wants to become a “leading brand,” he believes hiring more than 25 employees could hinder Enlisted’s ability to serve customers with what has become a signature kind of intimacy.

PROFILE

Enlisted Design

Data Champions The generally conservative companies in this group focus on steadily pushing forward via careful planning and data analysis, and by working hard to empower employees. The reward is continued

growth and solid cash flow that enables avoiding debt. Yet less aggressive growth targets and a lack of tight communication keeps them from sprinting ahead of the pack and can leave them put- ting out fires on all fronts.

Key Characteristics

• Data Champions are more likely than their peers to be in a mature industry.

• They emphasize a reliance on performance data, sharing it across the company to help employees at all levels make decisions.

• They are much more likely than their peers to offer employees higher pay and a share of profit.

• They pay close attention to planning growth, but they are not as likely as their competitors to set a formal growth target, and if they do set one, it averages half of what their peers are shooting for.

• These relatively con- servative firms are more concerned about survival than dominating the competitive landscape.

• In the same vein, they are more likely to be reactive than proactive and are less likely than their peers to expand in anticipation of growing demand.

• They are less likely than other companies to have expanded internationally.

Informed decisions: Enlisted Design.

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• Controllers take pains to get the input of customers and suppliers in business planning, and to commu- nicate their growth plans outside the company.

• They are pressured to keep growing by owners and investors, rather than by competitive forces. They are careful to establish an annual growth target, and they match their peers in confidence in meeting that goal.

• They constantly research their markets and use the findings to make decisions.

• They consistently lag most E360 companies in championing employees, and are especially low in sharing profits and information, promoting from within and empha- sizing benefits and work environment.

• They are not interested in new ideas and don’t place a high priority on keeping up with emerging technol- ogy and processes.

• They are risk-averse, waiting until orders are booked before expanding capacity.

• They tend to be nationally focused, with few special ties to local community.

WHAT WORKS Controllers don’t grow especially fast compared to their peers, but they grow fairly steadily. Perhaps surprisingly, given their somewhat ungenerous attitude toward employees, they don’t report many problems with HR; that’s likely related to the fact that they’re not heavily competing for labor— suggesting they’re able to take advantage of labor pools serving tighter job markets.

WHAT DOESN’T WORK These companies often have trouble retaining their best employees, developing employee talent and getting employees’ best efforts. But problems in other departments are more serious and

pervasive, including maintaining good profit mar- gins, timing expansions and adjusting production and logistics to industry and market changes. That may explain why Controllers are forced to set lower-than-average growth targets, and why they seem plagued with management tensions leading to difficulty in reaching consensus.

TAKEAWAY Being supplier- and customer- facing can cover a lot of sin, as can finding ways of exploiting markets where jobs are tight. That may be enough to keep Controllers hitting reasonable growth targets, though other tactics—especially upping the level of employee engagement—could enable them to do better.

PROFILE

Zozi

T o say the travel industry presents challenges for a startup would be an un-

derstatement. For starters, the industry is highly fragmented,

with tens of thousands of operators around the world. Also, many merchants are behind the technology curve, which means centralizing them onto one platform can be like herding cats.

Perhaps this explains why San Francisco-based Zozi, which provides online booking software for travel outfitters, has been playing it safe. According to founder and CEO TJ Sassani, the company spent its first three years being primarily angel- financed, with dozens of in- vestors writing relatively small checks. Only after Zozi had a steady base of customer accounts did Sassani seek venture money to help speed along growth.

“We have had no problem building this gradually,” he says, noting that the company has raised a total of $60 million.

In terms of employees, Zozi’s philosophy is simple: The company prides itself on team play, yet executives drive decision-making—no ifs, ands or buts.

Zozi’s goal is to hit $1 billion in gross transactions, a milestone Sassani expects to achieve in 2016. A secondary objective is to get to 20,000 merchants by next year, a number that would make Zozi about half the size of OpenTable. From there, of course, the plan is about as traditional as they come: filing for an IPO.

Slow build: TJ Sassani of Zozi.

Controllers This group places a rigid focus on customers and suppliers—even while neglecting to be open or generous with employees or to keep up with technology. Risk-averse and old-fashioned bossy in their approach to hiring and developing talent, they pay close attention to what’s going on in their markets and do what it takes to keep customers happy. The results aren’t uniformly pretty, but in the end these somewhat inflexible companies tend to hit their growth targets.

Key Characteristics

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Classics place an emphasis on sales but glue them- selves to the middle of the road when it comes to most management practices. That’s why they don’t stand out much from the crowd in terms of how well they support employees, how aggressively they seek growth and how they deal with risk. The results are—surprise, surprise—average.

• No daredevils here. Though Classics are average when it comes to risk aversion, they are more likely to be reactive than proac- tive, expanding only when the orders are booked.

• There’s no inno- vation in leadership here, either.

• They express rela- tively high confidence in growth, apparently because they are sales-focused, seek customer input in planning and work hard to communicate success to cus- tomers. Even their charitable contri-

butions are seen as supporting customer relations.

• Their relationships with suppliers are not as close as with customers.

• Overall, they’re not employee champions, and they avoid sharing financial and other information with staff members. However, they do solicit input from employees in busi- ness planning, mostly on the sales side.

• They are more focused on local markets than most E360 companies.

WHAT WORKS Because of their sales focus, Classics express confidence about continuing growth, and their sales, marketing and HR teams handle the growth in stride. They cope well with the pace of change, probably helped by the fact that they aren’t tech- nology leaders or disruptors.

WHAT DOESN’T WORK Classics’ growth targets are lower than average. And as is common among sales-driven firms, they report problems finding, retaining, developing and getting high levels of pro- ductivity out of employees. They may also have trouble reaching management consensus.

TAKEAWAY In spite of all we hear about leading-edge management practices and disruptive companies, there is still plenty of room for more conventional companies to notch growth year after year. Markets don’t award extra points for being flashy, and success can be built around a mastery of sales.

PROFILE

UpCounsel

I t figures that lawyers would do every- thing by the book. How else to explain UpCounsel’s success? In 2012, when

Matt Faustman and Mason Blake wanted to build a company to match small and midsize businesses with experienced attorneys, they pounded the pavement to get a sense of what legal services were needed. Later, when Faustman, CEO, and Blake, CTO, needed cash to offset the costs of acquiring those new cus- tomers, they sought out venture funding from Menlo Ventures to the tune of $10 million (and $13.9 million overall).

Once the approach was perfected— eliminating the traditional partner structure and reducing overhead by uni- fying customers on proprietary practice management software—UpCounsel was able to provide quality legal services for up to one-third the traditional cost, the San Francisco-based company says.

Data has formed the foundation for each of these moves. Call Faustman conservative, prudent, almost skittish, but the former attorney says he learned early on never to make business decisions without researching each possible outcome. This has resulted in 20 percent month-over-month revenue growth in 2015, the company says.

“The equation is about user acquisi- tion and lifetime value economics,” he

explains. “We know what it costs to bring customers in; we know if we can net more than that over time, we’ll be in good shape.”

UpCounsel applies this same philosophy to HR, hir- ing “smart people,” Faustman says, and encouraging them to rely on research and data to solve problems. There’s no magic, no conversation circles for the company’s 30 employees. Just hard-nosed research and data-driven decision-making. Which is exactly how lawyers like it.

Classics

Key Characteristics

By the book: UpCounsel’s Mason Blake, left, and Matt Faustman.

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Forward Thinkers surge ahead in growth and profits by being aggressive in adopting new technologies and processes, setting high targets and expanding proactively. But they can be disorganized when it comes to oper- ations, controls and managing employees, leading to struggles with some of the basics.

• Forward Thinkers tend to be in mature industries.

• They lead the E360 in being driven by new production technologies and processes.

• They set the highest aver- age annual growth targets among E360 companies.

• They expand proactively.

• They are more likely than their peers to prioritize input from their boards of directors.

• Their focus is more international than local.

WHAT WORKS The big payoffs to emphasizing technology and innovation are strong growth and high margins. That high growth rate isn’t easily financed without outside fund- ing, but Forward Thinkers seem to have little problem finding investors—which may explain why they have unusually influen- tial boards of directors.

T he Matrix gets a lot of attention at Avant. Not the science-fiction movie; rather, the four-part matrix the

Chicago-based marketplace lending plat- form has developed to codify the process through which it tackles new initiatives.

Step 1 is easy: Scale. Any move the company makes has to be proportionate to complexity (that is, the more complex the move is, the larger it must be). Step 2: The move must extend the company’s brand and provide stellar customer experience. Step 3: Company leadership must under- stand the new initiative at its core. Step 4: The company must have the right resources to make the move worthwhile.

“We embrace the notion that you can never be too focused,” explains CEO Al Goldstein, co-founder and CEO. “We like

to think of it as an 80-20 rule: 80 percent of our time on the core mission but somewhere between 10 and 20 percent of our time thinking about what is going to come next.”

Employees play a big part of this mission. The company holds weekly demo days and Q&A sessions; at quarterly town hall meet- ings, executives share financial information

with the entire team. All of this has paid off: Since the compa-

ny’s debut in 2013, Avant has grown from three to 730 employees worldwide and launched operations on two continents. Sure, Goldstein and his crew like to boast about their accomplishments. But if the wins are legit, is it ever really boasting?

PROFILE

Avant

WHAT DOESN’T WORK Most departments in a Forward Thinker company struggle to some extent to cope with the rapid growth— and those proactive expansions sometimes turn out to be ill-timed. Forward Thinkers also report trouble with management consensus and keeping the organization focused on objectives.

In step (from left): Avant founders Paul Zhang, Al Goldstein and John Sun.

Forward Thinkers

Key Characteristics TAKEAWAY It’s no surprise that technological and process innovation can rocket a company to success, particularly in mature industries that may have become sleepy. But fast, innovation-fueled growth also calls for extra atten- tion on company components that may become stressed by the pace of change. What’s more, managers at cutting-edge firms need to be prepared to deal with what may be conflict- ing direction from outside inves- tors and other stakeholders.

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S peed. That was the driving force behind restaurant delivery service Dashed.

When CEO Phil Dumontet started the Boston-based company in 2009, he wanted it to be the fastest in the industry. It has largely achieved that goal.

Revenue is up 140 percent since 2011, the company says. A key factor: diversifying delivery methods, with roughly a quarter of all deliveries handled via bicycle, scooter or smart car.

“We can zip around traffic, park in commercial spots and be much more nimble with our fleet,” Dumontet says, adding that propri- etary mapping technology enables drivers to find the fastest routes between stops.

To keep drivers engaged (deliv- eries can get boring by the end of an eight-hour shift), Dashed has set up a leader board that rewards drivers in each transport category for the fastest times every day. Rewards ranging from cash to medals are given out at the end of every week.

Beyond implementing this incentive system, management philosophy has remained relatively unchanged since the beginning—a move by design. Even the recent rollout of driver ratings was done quietly, so it wouldn’t detract from the company’s primary mission. Says Dumontet: “We want it so when customers think about Dashed, they think about one thing and one thing only: speed and fast delivery.”

These companies thumb their noses at management best practices, from taking care of employees to proactive use of data. But unlike Controllers, Contrarians seem made of Teflon, blithely gliding over the bumps and pits that trip up other companies. They keep putting up the growth numbers, and they do every- thing their way.

• Contrarians rank among the lowest on most measurements of championing employees, including promoting from within, sharing profits, decen- tralizing decision- making, supporting skills development, sharing financial information and encouraging new ideas.

• They don’t even bother to claim to prospective employees that opportunities and rewards are high.

• When it comes to planning and decision- making, they don’t turn to data, operational metrics or internal

or external market research. They don’t listen to customers or suppliers, either.

• They are slow to change, tending to be reactive rather than proactive.

• They don’t keep up with new technologies and processes.

• They don’t bother to clearly articulate a growth plan.

• They are less likely than other E360 com- panies to be national or international in scope, or to be in a pioneering industry.

WHAT WORKS Contrarians’ employees have needed skills and are fully productive, and managers usually reach a consensus. They maintain good profit margins, their departments are all able to adjust to growth and they time expansions well. Growth is readily funded from cash flow.

WHAT DOESN’T WORK Nothing. Though their style is opposite that of Best Practicers, Contrarians are the only other group to be essentially problem-free.

Accord Engineering

Archimedia Solutions Group

Assay Depot

Atlas Home Energy Solutions

Baird Group

Benay Enterprises

BrainStorm Tutoring & Arts

Burns Marketing

CarGurus

CircleUp

ContextMedia

Crowdtap

Hawkins International

Icontrol Networks

Intelisys

JAMF Software

LaSalle Network

MobileX Labs

Mobius Consulting

Myriad Mobile

NatureBox

Next Jump

PURE Group of Insurance Companies

Spectrum Aeromed

Spokeo

Stellarware Corp.

Syndio

Synduit

TerraCycle

Trepoint

UltraTech International

UniqueHR

Videon Central

WebDevelop .com

WebpageFX

Work Market

Here is a partial list of qualified companies that completed our Entrepreneur 360 survey between January and September 2015. For the full list and details, go to Entrepreneur.com.

PROFILE

Dashed

TAKEAWAY Most companies pay a sub- stantial price for ignoring even some best practices, and it takes magic to thrive in the absence of all of those practices. What’s the magic? The success of Contrarians defies group analysis, emerging instead from whatever it is they’re doing at a micro level. Each is winning on some serendipitous combination of peculiar execution and possibly fluky conditions in their individual markets. Hey, whatever works.

Contrarians

Key Characteristics

Entrepreneur 360

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