Professional managers can help you set up internal operating procedures that fit your company's objectives and lead to orderly growth.
Milton Chang
Now let's discuss the 80% perspiration part of the business. Work is fun when things around you are happening quickly. You want to work hard because everyone is responsive. But that fast-moving environment can develop only if you have an efficient operation that systematically supports ongoing activities. A gung-ho engineer who often has to wait around for prototype parts to arrive will soon accept long product-development cycles as a way of life. A chaotic operation will turn your vision of an ideal organization into so much wishful thinking.
In this segment of the Business Engineering series, I discuss the internal workings of a low-risk startup company as they relate to accounting, finance, information systems, administration, and other operational issues. You want to invest early in an infrastructure in anticipation of your future needs to avoid chaos.
To run a business you have to attend to a lot of details. You can't do it all yourself for very long. You want to evolve from a doer to a manager and eventually to a leader, so the best strategy is to hire professionals to do the job and to work closely with them. By being actively involved from the start, you'll define the culture, develop an intuition for the business, and delegate more effectively as the company grows.
A trusted administrator is a godsend to take care of record keeping and to make timely filings. Over time this person will learn your philosophy. He or she will become one of the guardians of the culture and help bring company history into decision making. So you should consider compatibility of personality as well as the person's aptitude, attitude, and aspirations when you hire for that position.
As you add more engineers and increase your R&D spending to develop your product, you'll need a full-time controller or accounting manager to help you understand the business as well as to pay bills. For example, after your controller sets up a chart of accounts, you will be able to see at a glance how much money is spent by each department. Accounting begins to take on a "control" role. Any change in spending pattern can prompt you to take action. The financial statements are easy to understand at this stage, so you'll want to begin practicing now.
Another important control function is knowing where the company's money is going, which, unfortunately, includes making sure it doesn't get into the wrong hands. While participating in an executive management program at Harvard Business School with 120 company presidents from around the world, I was shocked to learn that about 75% of them had experienced theft in their business. It's hard to protect yourself from a professional embezzler, but simple sign-off procedures will discourage improprieties. If you review all invoices and checks yourself, you'll learn a lot about what's going on and gain another management "control" tool.
Right from the beginning, you'll want someone to be the champion of the information system (IS) to help people do their jobs.The IS provides a focus for the company-wide process of developing procedures and protocols. Because the IS is a communication tool, it can encourage teamwork by tying together different functions. The IS reinforces the company culture! You have to start early, because it takes time to think through the ramifications of your decisions and to refine the process. If you start too late, when the organization is under pressure to ship products, people won't have time or patience to work on the infrastructure. You'll likely never get out of the fire-fighting, chaotic mode of operations.
The accounting function now evolves from tracking to analysis and looking ahead. Your financial person can be a driver in developing the plan and the budget. That person will most likely over time become your confidant and sounding board. In fact, the finance department often takes on the function of managing the information system because it has access to all the numbers. And because of the many accounting rules and regulations, the financial people also get involved with contracts and take on the administrative aspects of human resources. You'll want to recruit with these roles in mind.
At this stage, you'll need to take on a leadership role to help your professionals manage. New people need to know what makes the company tick, and existing people may feel a loss of control with more people on board. Everyone wants to do a good job, but people feel insecure about making decisions on their own when things are changing too rapidly. Many questions arise: Am I doing okay? Are we all pulling our weight? Where's the company headed? How's the company doing?
Employees need the bigger picture (vision, goals, philosophy, culture, and strategy) to provide them with a banner, resources (technicians, test instruments, and a budget) to get the job done, and the infrastructure (IS, procedures, and process) to help them work efficiently. To give your employees what they need, your professionals must be committed to developing procedures, documenting them, and constantly refining them as the environment changes. You'll spend most of your time clarifying the bigger picture so the procedures they develop will fit into the company's overall objectives.
You'll need a vice president of finance to help you with day-to-day activities, to plan ahead, to formulate strategy, and to deal with financing issues. The way you structure your business in the beginning can have major tax ramifications later because of certain technical accounting rules. Your accounting department will begin to take on finance and legal responsibilities. Ideally, your employees will be motivated to grow into the position. They can learn from your lawyers, auditors, directors, and other outside experts. Inside people have an intrinsic understanding of your culture and know the company's history well enough to make good decisions.
People in finance do things we engineers don't do well or don't care to do; they make all the numbers come together to allow the business to run. Many times, we engineers have ideas for businesses but never start them--or if we do, our businesses never get off the ground--because of roadblocks we don't know how to get around. The main culprit is the lack of ability to execute. The best way to prepare yourself for the operational aspects of the business you want to start is to participate in the planning cycle and the budgeting process in your present job.
FURTHER READING
Robert C. Higgins, Analysis For Financial Management, 3rd. ed.,
Richard D. Irwin Inc. (Burr Ridge, IL), 1992.
Reprinted from and Copyright © Laser Focus World--December 1995
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