In recent months, several friends, colleagues & clients of ours have also made the decision to leave stable and predictable positions at medium-to-large sized companies to venture into the entrepreneurial space for more exciting and rewarding possibilities. This is never an easy decision but it seems to be one, at least in our locality, that is becoming more popular and attractive.
“Traditional wisdom implies that you graduate from college and get a ‘good’ job for a big company,” says Robert Glazer, Founder of Acceleration Partners. Despite this conventional mantra, Glazer recently left a stable position to start a business development consultancy and cites several recent trends in corporate culture and practices as a growing incentive for many like-minded professionals.
Salary Restrictions & Shrinking Benefits
A major factor influencing many entrepreneurs to move into more independent spaces is directly tied to the limitation they face in compensation. Effective, dynamic employees that provide growth for their companies are usually limited by specific salaries regardless of the amount of effort they bring. Sales agents that receive commissions can be an exception, but companies rarely apply these structures to other employees who contribute to the success of the entity.
Entrepreneurs who have faced these restrictions understand that by shaping their own course, they are removing the ceiling from what their actions and successes can afford them. Naturally, this is a process that takes time, focus and dedication, but many successfully entrepreneurs argue that with careful planning and steadfast execution, you can achieve a more fulfilling compensation model within a reasonable timeline.
Another ubiquitous issue facing many industries is the fact that benefits are diminishing. The ever-rising price of health care is being passed on from the employer to the employee and many skilled professionals are frustrated by this trend. Recently, the Commonwealth of Massachusetts made provisions to ensure that health care plans will become more affordable for small businesses and individuals, but it is yet to be seen if other states will follow suit.
Corporate Trust & Accountability
One of the implications of diminishing benefits also relates to and fuels the growing lack of trust that individuals have in modern corporations. The conventional wisdom is that the corporation will provide for the individual, but in the wake of recent scandals and growing skepticism caused by the corporate dominion in global politics, many people are fully aware that their role in the corporation is to fulfill tasks and that they can easily be replaced.
Large corporations also have a tendency to have an enormous disparity of wealth. Surveys have shown that in previous decades, the salary of a European CEO was usually 30 times the lowest paid employee and in America, the factor was over 80. Currently, those factors have largely escalated with some executives being paid tens of millions of dollars in severance compensation for being removed from positions for incompetence. The disparity often continues in smaller and medium sized businesses, but is far less extreme.
Another issue leading the ambitious away from corporate culture is found in strict corporate regulations that sometimes impede the employee or sales agent’s ability to produce to their maximum potential. In the case of a friend who is a very experience Real Estate agent, he found that 100% of his business came through word-of-mouth.
This Agent found that these referrals were largely coming from alliances he had created with Mortgage Brokers and other service professionals outside of his company. After this type of practice became regulated and then totally restricted, the agent found that it negatively affected his referral stream. This was a direct factor in his decision to move to a smaller firm where regulations are far less stringent.
Publicly VS Privately Held Companies
Publicly traded companies have an added challenge in their fight for survival, innovation and reinvention – they also have to pay their shareholders dividends which yield a profit every quarter. In our discussions with several former executives and employees of larger, publicly traded companies, one unifying factor that hinders innovation and progress proves to be the opposition to investing in more highly designed systems for employees and customers to use.
We recently built a very intuitive and easy-to-use Administration tool based on a similar concept as an older existing model, but found that our initial research left us wondering why the previous company had made dozens of counter-intuitive decisions. The answer was simple – they were engineering small solutions on the fly for over a decade, adding legs onto the main application every time a unique problem arose. The former CEO of this outfit proposed several times that they reengineer and redesign the application to cut down on training time and make it easier for the company’s employees to do their jobs, but his suggestions were drowned out by the company’s Board of Advisors and their focus on shareholder returns. The irony of the situation is that with a reasonable investment of capital, the company would have been functioning more efficiently within several months. As it stands currently, the company still struggles with the learning curve that new users face when learning the system, and even veterans of the program still stumble to find certain functions.
Recently, a friend working at a medium-sized company in New York experienced a very perplexing case of cost-cutting. In the company’ quest to reach a set profit goal to go public, the CFO made the decision to switch all of their applications to an Open Source platform that offered less familiarity and compatibility than their current model. Within 1 month, issues arising from errors between Spreadsheet formats and the general resistance of the employees reversed the decision and proved that this unpopular choice had more to do with saving the corporation money than ensuring the employees were working within environments that they understood and were fully compatible with the outside world.
In the case of a publicly traded Real Estate Agency, I’ve heard many agents cite the pressure to sell add-on products such as Home Warranties or Mortgages as being a hindrance to the way they normally operate with their clients. These products are not merely available for the agent to sell if they choose, but are sometimes aggressively pushed through the agents to benefit the higher structures within the corporation.
When it comes to public agencies and marketing, there is little offered to the agent to actually distinguish them from their internal competition. Ads and website profiles are often highly standardized, which makes sense from a cost-conscious administrative standpoint, but in the end it tends to commoditize the inventory rather than differentiate the team. Luckily for most agents, their business is rooted deeply in referral marketing and they can leverage their personality and reputation. Conversely, in the case of a medium, privately held New England Real Estate operation, two agents I know recently joined and were given custom branding, a fully developed website, cards and stationary valued at about $10K. It was clear that this firm wanted to distinguish these agents and didn’t mind paying the tab.
Basic Advantages of Small Business Model or Entrepreneurial Culture
- A potentially better profit split in an agency or sales role
- An environment that thrives on relationships and connections with people – not mass marketing.
- An overall higher quality of work & clientele in a boutique operation – despite potentially less volume.
- More independence and autonomy. Karen McCormack of McCormack and Scanlan Real Estate refers to her Real Estate Agency as “experienced sales people who operate as independent agents. We nurture each other in a supportive and inventive environment.”
- Speed, agility, less bureaucracy – the overall culture. As Mark DiPasquale of Aspen Mergers explains, “In many larger companies, the leadership views culture as a poster on the wall. Some superficial, half-hearted attempt at embracing the staff. They know it’s the “right thing to do” but have no clue what it’s all about. What they really want is the numbers, doesn’t matter what it takes to get there or who has to be sacrificed along the way. Leadership is pretty isolated from the front lines so they will set a broad vision that’s loosely grounded in reality and with no concrete suggestions on how to get there. Then, if it fails, they point to everyone else and say, “you didn’t execute well enough”. It becomes the never ending dance between senior management and middle management that consumes far too much time and energy.”
- Variety of work, better atmosphere & more excitement. In my personal example as a partner in Fresh Tilled Soil, there is always an abundance of new projects – each more exciting than the last. As a designer in this type of setting, whenever you tire of working on one account you simply start working on another. The people I work with are incredibly capable and pleasant to be around and I only see many great relationships and interesting projects ahead.
- Lessened ramifications of legal issues, paperwork or general bureaucracy. In the design field, many of us in the creative fields have had clients that have taken 3 months to cut a check or have issued us 5 page descriptions on how not to use the logo and corporate identity standards. This is merely a result of the long and stale bureaucratic process evident in most corporations. When people are doing rather than thinking about doing, when they are not restricted by the restrictions of their own company, this is when innovation and true breakthroughs occur.
- Issues or disputes within the company can be resolved in real-time. Small companies can have a quick meeting and resolve numerous issues in the time that it would take one large company to file a complaint. Also, once a challenge, problem or concern leaves a regional and travels to headquarters, it no longer has the true context or personality of how it originated so the solution or response may very well lack legitimacy.
Advantages for the Consumer
- A higher level of service. The benefit to the consumer is that the product or service they’re receiving should be of a higher quality and could also be more personalized, reflecting something unique and/or regionally valued.
- A customer dealing with a smaller firm can often speak directly with the head of the organization. This can be a very powerful and attractive incentive – and a practice that implies that decisions can be made quickly on behalf of the customer.
- The advantage of supporting their local economy. Many studies have indicated that entrepreneurs can benefit a local economy by providing jobs directly and employing the services of other regional businesses.
- Forcing innovation. If the consumer supports a small firm or entrepreneur and that company creates a truly innovative product or service, larger industries will be forced to react and compete with the popularity of this new idea out of fear of becoming obsolete.
Disadvantages of the Small Business Model
- It’s taxing on a small firm with only several partners or employees to manage the workload that they start to create while at this size. There is a serious investment of time and energy that all new entrepreneurs should be prepared to make before leaving their day jobs and making the plunge. The best way to accomplish a smooth transition is to begin moonlighting around your existing schedule and leverage yourself from the old environment to the new.
- Fewer resources make it harder to administer the business and continue to create growth. This relates to the need for smart scalability.
- Smaller firms have far less exposure through traditional forms of marketing, branding and paid search engine inclusion without a large budget. However, there is good news on the horizon. During the last 4 decades the public has become increasingly distrustful of mass marketing and advertising and many companies are finally beginning to realize that they have to leverage their integrity, personality and value to the consumer for people to recommend them favorably to their peers. Findings have shown that consumers are 6-8 times more likely to respond to a friend or family member’s recommendation for a product or service than through an advertisement.