Workshop: Managing rapid growth

Rapid growth can cause major problems, as any fast-track entrepreneur knows. Upsize and Club E sponsored a workshop to advise business owners the best ways to navigate.

 

Rick Brimacomb, moderator, Club E: Let’s learn how each of our panelists fits into the topic of managing a rapidly growing business.

Mike Bromelkamp, Olsen Thielen: We’re a full-service CPA firm, and we work with entrepreneurs all over the Midwest. I’m a graduate of St. John’s, have an MBA from Carlson School in information systems, I’m active with a number of boards and economic development organizations, and I am also an avid Gophers basketball fan [groans from the audience.]

I predict the Gophers will win two games, sometime in March [laughter]. My responsibilities evolve around business development, audit, and I have lots of perspective on managing rapid growth.

Loren O’Brien, B&F Fastener Supply: If I was going to show you my resume it would be pretty short. I’ve been selling nuts and bolts for 30 years.

We started the company in 1998 with three employees, and I had a 50 percent business partner and we had a thousand-square-foot warehouse.

To this point today we’ve grown to a company with 14 branch locations in the upper Midwest. Distribution and corporate headquarters is in Ramsey. We’re warehousing 200,000 to 250,000 square feet of inventory. We have 108 employees.

In 2010 we were fortunate enough to win the Upsize Growth Challenge, when we put together a double-digit growth plan, and we won the Upsize Business Builder of the year award in 2016 and we are very proud of that.

Rick Brimacomb: They’ve done a fabulous job transitioning in their succession planning. Tom Siders, to you:

Tom Siders, L. Harris Partners: I am a recovering CPA. I failed at early retirement; my wife kicked me out after a few weeks. I’m a founding partner of L. Harris Partners. Some guys and gals got together, and we’re focused on helping people add value to their business.

We’re seasoned veterans. I’m the oldest, at 63, and although that bothers me sometimes it’s only 18 when I convert it to Celsius.

Micah Thor, Tech Guru: We are an outsourced IT department. We cover everything that has buttons and lights. We offer CIO, chief information officer, services for small firms that don’t have someone in that seat.

Our company has had consistent growth since its inception, and then rapid growth the last three years. We grew 50 percent each year for the last three years. During that time we added systems and processes.

I’m happy to say we’ve gone through a 150 percent growth rate without disrupting our employees and clients. We dub ourselves the caring technology company, and made that a core value.

Rick Brimacomb: When Micah said they’re the caring company that’s true, because I’m on the phone with Dan Moshe, the founder, late and on weekends.

Dean Willer, Winthrop & Weinstine: We are a full-service law firm, with 120-some lawyers. Our firm is a different animal, about 36 years old so relatively young by large firm standards.

We’ve grown from six to today, and we’ve done this because of our clients. The people we spend our time with are CEOs and COOs of closely held companies that have grown up with the firm. We give them as much business advice as legal advice.

I have an MBA in finance, too. We hope we give them solid, sage wisdom. The majority of my clients are experiencing or hope to experience rapid growth or steady growth.

Rick Brimacomb: For each of you, what are some common characteristics of businesses you’ve seen that have managed their growth well?

Tom Siders: In my experience it’s effective planning. “Planning is an unnatural process,” as the saying goes. The best thing about not planning is failure comes as a complete surprise, without the worrying that comes before.

You need the right management team, and then get solid processes in place. I would advise all companies to have an outside board.

Dean Willer: One of the things you want to plan for is cash, particularly in a growing business. As you start to grow and become profitable, what you don’t realize is it consumes cash.

Cash becomes receivables, cash becomes inventory, and you can quickly find yourself in a position where you are doing very, very well but you don’t have the cash to pay for things. That can make you do unfortunate things. In that planning position, think about cash, cash, cash.

Loren O’Brien: One word for us would probably be transparency. When I explain how transparent we are about our financials with our employees—they know exactly what I make, what our truck drivers make, and they manage that bottom line as good as I do.

The transparency of showing the employees the financials and maybe teaching them the effect that has on the bottom line—that’s one word that I recommend.

Mike Bromelkamp: I want to echo Dean’s comments and say cash is king. You also have to understand what a company’s value drivers are. They know why they’re getting into the business, but no one talks about what the exit is.

You have to know why you’re doing what you’re doing. Know why you’re in business. Get your culture right. Delegate and guide; don’t do it all yourself. You want to educate and empower the people who are on your team or you’re not going to get where you want to go.

Micah Thor: A word I would add is alignment, and there’s a book called “True Alignment.” Companies like Apple have translated the big idea all the way down to the person who greets you when you walk into the store.

That’s something that we try to embody, how do we communicate effectively to everyone that’s working in the company? If you share this sort of philosophy and feeling, we’re going to be a great fit to work together. And make sure as you hire people, they’ll continue to live up to that.

Rick Brimacomb: What would you say is the smartest move you’ve seen a rapidly growing company make?

Tom Siders: It was a client who turned down business—a great opportunity to take a fast-growing business and explode it. He said no, it will outrun our cash; it will stretch our infrastructure. He said, we’re going to do it right.

Loren O’Brien: For us it’s more about managing the balance sheet. During the economic hard times in 2008 to 2009, the banks tightened things. Stupidest move I ever made, we opened four branches in 2008.

We were debt-free in 2008, and it didn’t feel right [laughs]. At that time the banks had tightened, and we looked at other banks. It made sense to split the business between banks.

Micah Thor: The example I have is building the arc before the flood. Looking at, what’s the next horizon for us? Where can we get financing now that we’re in better shape? When times are good, treating them like they’re bad, and staying real sharp.

Dean Willer: My example is to be really nimble. I have a client, they came to the conclusion that it’s harder to win business because the industry they are in the clients are sticky.

So they said, well rather than continue on this path, we’ll go acquire the companies, which I love because I’m an M&A lawer. They basically started buying companies that were in a little bit of stress, and then they brought on these great clients.

It was a pivot for them. By making the switch it was a cultural shift . When I started working with them they had $9 million in revenue; today they have $150 million.

Mike Bromelkamp: In terms of the smartest move, I believe every business is unique. But the smartest move I see is owners who surround themselves with advisers where they need help.

Most entrepreneurs that are starting up businesses don’t typically have that deep net worth so they can go to the bank and say write me a check. You need to be able to determine what the needs are; you can’t do it all yourself.

Rick Brimacomb: What obstacles to growth have you seen most often?

Dean Willer: Probably the biggest one is when people don’t understand their weaknesses. If somebody is good at something they often believe they’re good at everything. Because I’m really smart I can do everything.

Well, it’s often a good idea to make some sober assessments, and what you’re not good at, have somebody else do. You can muddle through, but adding capacity and adding qualified personnel becomes really key.

Micah Thor: Having a technology that enables you to deliver on a process within your organization, keeping things efficient, and making it so you don’t have to hire somebody but can use technology to take care of some processes.

Tom Siders: Obstacles to growth are a lot of times a lack of focus; they try to be all things to all people. So instead of being best in class, they try to be too many things. It dilutes resources, it dilutes time.

Loren O’Brien: Our challenge will be, how does the next generation take it to the next level. I don’t know if I can teach my children how to make decisions; they’re learning on their own.

We have a really good footprint on where we’re going to be in the next five to seven years, but where do we go from there? I really don’t have a desire to be part of that decision. The market for our company to be sold—I get calls every week.

But the decision to turn it over to the next generation is a family decision, but their obstacle is, I was a big part of how we got here today, with the people we have.

There’s not a high school kid in America that says I want to be part of a nuts and bolts company. I’ve told my kids this before, that it’s hard making business decisions as an owner. I’ve thrown darts at the wall for 27 years, and it will be their turn.

Mike Bromelkamp: Obstacles to success in business boil down to a couple subjective items. One is listening: listening to customers, to employees, to channels.

Vendors want your business—they’ll tell you anything you want to hear. Employees want a job; if they’re not invested in a company they’ll just be there to get their paycheck.

But the most important thing is listening to the customer—giving them what they want instead of what you think they want.

Rick Brimacomb: What’s the biggest mistake you’ve seen with growing businesses?

Mike Bromelkamp: Underestimating what your resource requirements are going to be; not developing relationships with the bank. Tax compliance can cause you tremendous cash flow problems, for example. Testing your assumptions on your decisions.

Micah Thor: A mistake is employing the same strategy that got you to $10 million, to try to get you to $100 million. Every single department needs to evolve when you reach that milestone.

We reached that at $1 million, when we said, well that was fun but there’s no way we can do it again. We brought in consultants, we brought in the Bobs from Office Space. It was hard for entrepreneurs like Dan Moshe, the founder, and me to take this and swallow this, but we’re excited now.

Dean Willer: A lot of times when people raise money, they look this far out [indicating two inches] in front of them and they say I’ll give this first investor what they want. Somebody’s going to get $3 million, and the investor wants 12 or 13 different things.

The desire to get the money is so large that people will often concede on these things, and two to 10 years later we’re having a conversation about what to do now.

I literally represented an investor,  and everybody got wiped out because they gave the venture capital fund the right to approve a sale. The VC guys said no, and my guys got wiped out. You have to say before you agree, what if this happens or that happens? It is really important.

Tom Siders: I have an example, when the owner lost his moral compass, and he ended up in jail, because cash had become so tight and yet there was this huge opportunity around the corner, and he didn’t pay payroll taxes, etc.

Loren O’Brien: I want to cover the biggest mistake I didn’t make. Back when we originally started, I had a 50-50 business partner, Steve, and I was 26 years old, and he was 32.

I don’t know how many young business owners do a buy-sell agreement funded by life insurance. But we did, and my partner died at age 32. Without that our company would be a shell of the company we are today.

Insurance was cheap when I was 26 years old, and to have that insurance claim to pay off the debt on the company when Steve died, I’m a proponent for it.

Audience: I have a question around business credit. Would you say it’s better to go all-in with one banking relationship, or is it better to have three to four guys you can call upon, so if I have a liquidity opportunity, I can decide where am I going to go.

Tom Siders:  I think your banker could be one of your best partners. I’m a big proponent in developing a great relationship with your banker. The bank actually has an investment in your business.

Dean Willer: It’s hard for smaller companies to have too many useful banking relationships. It’s really important that when you are on the front end that you think about that. If you find someone that adds value and can give you advice, it really comes down to what is this relationship.

Mike Bromelkamp: I’m going to qualify what’s being said a bit. The banker is not a partner in your business; they’re a vendor that sells you money. But you do have to have a good relationship with that person, and they have to believe you’ll make the right decisions.

Tom Siders: The worst thing you can do is surprise your banker.

Micah Thor: One of the mistakes we had early on is not having a diversified source of financing. We had to try and diversify as much as possible after 2008 to get as much funding as possible.

Now that we are healthy, we’re going through this process again, because we haven’t ever had that relationship, that situation where we called a banker and said, hey, you know us, we’re good for it, and they deliver. They’re not an investor, they’re not a partner, they’re a bank.

Mike Bromelkamp: There are a lot of good sources of credit in this town but you have to know where to look for them.

Audience: Loren O’Brien, can you detail your transparent accounting policy: when you introduced it and what cultural effect that had:

Loren O’Brien: It goes back a long ways; we’ve always done it. When we put people on a pay program that was based on the bottom line, it’s only fair to let them now what that is.

On the expense side, they know if they’re running high on expenses. I think if anything an owner would be uncomfortable with it. When we first started it, I tried to teach people. I’m a horrible teacher; I just expect things to get done.

But it was a group thing where we went through the P&Ls line by line and said this is the effect each of you has on the bottom line. So, it’s worked well.

Rick Brimacomb: Circling back, I want to touch base on the moral compass question. How can you keep track of those things.

Tom Siders: That’s why I always recommend even a closely held business to have a couple of outside advisers. It’s two more sets of consciences.

Dean Willer: As a lawyer I usually recuse myself from this topic [laughs]. I usually see that when things like this happen, it’s well, I’ll just keep the payroll tax one week, and then it’s two weeks, and then it’s two months, and then you’re looking at a $390,000 liability.

It’s always incremental, then you’re trying to hide it, and then it’s a series of ifs—if this happens, if that happens. It’s not always somebody sitting down and saying you know what, I should commit fraud today.

If you have people you can rely on to say hey, don’t do that. Don’t do the little things wrong, and do the little things right every time, and I think you can avoid a lot of those problems snowballing.

Mike Bromelkamp: The statistics are showing that 85 percent of American businesses are going to be touched by fraud in some sort in the first few years of their business.

My first job, I started at Arthur Andersen, and I was running an audit department for a well-known Fortune 1000 company in the Twin Cities, and the reason I was brought in was because they had lost their moral compass.

A lot of times you don’t know the cost to your business, but I can tell you there’s nothing good that happens when you don’t keep that compass in place. Having said that, being involved here in the Twin Cities that recognizes organizations with strong ethics, I think we live in a good place here.

But it still happens, and one of the reasons I have a job is we do a lot of forensic work and there’s a lot of this junk that goes on.

Dean Willer: I wanted to say, Mike, I can’t believe Arthur Andersen was brought in to help someone find their moral compass [laughter].

Loren O’Brien: It’s never going to be 100 percent, that employees will never do something bad. We handle those things immediately, and it’s an example to the other employees that we don’t tolerate bad decisions.

Mike Bromelkamp: There has to be a way for employees to disclose this stuff, because everybody knows what’s going on when this stuff comes up.

Micah Thor: Back to alignment, the leadership needs to set the tone, set the example, but then have your sub managers, team managers and they must subscribe to the same mentality.

And then when things happen, deal with them in a timely manner, because it can be a cancer.  As IT guys, we get to hear a lot of the dirt that goes on in companies, and it gives us an opportunity to talk about what happens.

Another thing is, we have mostly millennials in our company, and they feed on what’s going on in their heads, and we dedicate 15 minutes of every meeting to help them understand why is this older generation talking to you in this condescending tone.

Tom Siders: A fish rots from the head down, so if you’re doing things and bragging about it, you shouldn’t be surprised if your employees say, well if that’s OK why can’t I pocket this or steal that.

Audience: You mentioned the value of a board of adviers. What are the roles  and responsibilities between a board and a strong leadership team? What are best practices?

Tom Siders: The board of directors is responsible for setting strategy and policy, and the management team is responsible for executing. The owners have to open themselves up to the opinions of others.

Have the outside board hold the owner accountable for where we’re headed and taking our firm. I’m a big proponent of an outside member or two; they don’t get an override of the majority owner, but hopefully they have an advisory role.

Dean Willer: And if you’re going to do it, use it. Get some value for it. Don’t keep them in the dark. Get people who give you feedback, and engage them.

Rick Brimacomb: There are two types of boards, there are fiduciary boards and advisory boards, so if you don’t want to go all the way to a fiduciary board you might go with an advisory board. They can help you sort through the issues you might have.

Rick Brimacomb: I’d like to ask each of you to touch on one thing to remember to avoid.

Loren O’Brien: Mine would be: not all business is good business. In the industrial and construction supply business, we can sell our parts to everybody, but it has to be a good fit for our company, with the amount of inventory we have to hold for that company, with how fast their pay their receivables. We can’t sell everything to everybody.

Mike Bromelkamp: Keep your eye on the prize, do it well consistently, and do it with a team around you. Keeping your eye on the prize is very difficult, and I understand that. Having good advisers around you is critical.

Dean Willer: I would avoid being an ostrich. Entrepreneurs have so many things going on. Don’t avoid things like the small problem because you want to avoid it. We’re Minnesotans so we’re all going to be passive-aggressive, but don’t.

Micah Thor: Don’t keep bad employees around.

Tom Siders: Your mean PUREs—previously undetected recruiting errors .

Micah Thor: It sucks to fire someone, but you have to do it if it’s not working.

Tom Siders: Don’t spend all your time working in the business, rather than on the business.

Rick Brimacomb: And finally, share one thing business owners should remember to do, starting with Micah.

Micah Thor: I’ll do a cliché and say embrace technology. It may be self-serving, but once upon a time I went to a conference and saw a dashboard. And it was a picture of this guy on a beach and he was looking at this dashboard and his business was kicking ass.

And I thought it was a pipedream, and it will never work. Well a few years later we got a dashboard working well, and you can look at just a screen or two and we can understand our business.

If somebody comes to you and says here’s a piece of technology that will radically improve how you do business, hear them out.

Tom Siders: It’s drive for show and putt for dough. It’s revenue for show, but it’s cash flow for dough. Cash flow is the most vital ingredient in your business.

Dean Willer: It’s manage your cash, and keep a laser eye on it.

Loren O’Brien: Mine is doing budgets every year. We have our management team do a set of budgets.

When we do ours, we go through 350 expense accounts and we look at those accounts and we stick to them, and if we don’t hit those budgets we go back and figure out why. It may seem simple but it’s a huge help.

Mike Bromelkamp: Make sure you’re listening, you’re listening intently, you’re listening to the facts on your dashboard, you’re listening to your employees and customers. You don’t get many chances. But listening is something I think most of us find difficult, and you have to practice, but it does make a difference.

 

Rick Brimacomb, Brimacomb + Associates and Club E: ri**@*******mb.com

Mike Bromelkamp, Olsen Thielen: mb*********@****as.com

Loren O’Brien, B&F Fastener Supply: lo****@**************ly.com

Tom Siders, L. Harris Partners:
to********@*************rs.com

Micah Thor, Tech Guru:
mi***@********it.com

Dean Willer, Winthrop & Weinstine: dw*****@******op.com