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Great expectations Featured

8:00pm EDT March 26, 2008

Every entrepreneur has a thirst for growth. Such is the ambition that drives each of them. But while that underlying thread may define entrepreneurs within the realm of business enterprise, it is how they quench their respective thirsts that divides them.

“Growing just for the sake of growth can be dangerous,” says Joseph M. Carroll.

As founder and chairman of Hudson & Keyse LLC, he has become something of an expert on responsible expansion. After founding his debt collection agency in 1985 as a humble, two-person operation, Carroll has since grown the company into a major player within the industry.

This process wasn’t as gradual as that frank description would have you believe, though. On the contrary, Hudson & Keyse experienced relatively little swell in its first 15 years in operation. It wasn’t until 2001, when Carroll saw some opportunities that were unique to the debt resolution industry, that he engaged in a comprehensive evaluation and planning process before scaling his company.

From 2003 to 2006, he saw revenue skyrocket by 1,414 percent — from $1.4 million to $21.9 million — and payroll jump from 15 to 131 employees. For some, this success would have been daunting. For Carroll, it was all part of the plan.

Here’s how Carroll used a combination of discipline and restraint to take Hudson & Keyse to new levels of success.

Create models for growth

When Carroll first began to see those unique industry opportunities, he didn’t dive in head first. He first tested the possibilities by devising diligent revenue models.

“The first place I started was devising revenue models, which predicted for us the revenue that we’re going to achieve based on the purchase of additional accounts,” he says.

What’s important here is actually working out the details. Don’t simply develop a vague scenario analysis of how new ventures might affect your company. Instead, draw from your current practices to gauge the dollar amount of additional revenue that an extra account, client or customer will bring.

Carroll says to be realistic in the process. If it currently takes you three months to draw revenue from one new account, don’t assume it will only take three weeks in your hypothetical growth window.

“Those revenue models gave me a pretty solid foundation of understanding the growth in revenue and when it would occur,” he says.

Once you’ve completed this initial planning phase, Carroll says you should then evaluate how much infrastructure you’ll need to accommodate the revenue growth you’ve laid out in the models.

“The time to address controls and processes and systems is before you undertake any type of dramatic growth,” he says.

In late 2004, for example, when Carroll and his management team decided to double the company within three years, they first engaged in an exhaustive evaluation of Hudson & Keyse’s capabilities before moving ahead with their plan.

“We actually analyzed all of our systems, IT, infrastructure, HR, our training programs, our recruiting systems,” Carroll says. “We looked at everything and shook it and turned it upside-down.”

Again, such an analysis should be precise. Eschew vague predictions for definitive assessment. If you typically assign five employees to a given account or process, for example, then look back to your revenue model to determine how many more employees you’ll need to hire to accommodate the additional accounts or processes you’re planning to take on. If each of those employees needs a computer, then determine how many more computers, servers and backup servers you’ll need, and so forth.

“We spent a good six to nine months shoring up areas that we felt would break down if we just simply doubled the size of the business,” he says. “All the planning and moves that went into that growth had already been made before we hired the first person.”

Keep a consistent culture

When you inflate a balloon, its color becomes less vibrant as it continues to expand. In a similar vein, your company culture can become diluted as you increase payroll to accommodate growth.

“When you have 12 or 15 people, everybody knows each other, and there are personal relationships across the board,” Carroll says. “Trying to maintain those relationships as you grow and get more and more people is difficult.”

One of the best ways to do so is by integrating new hires into existing divisions within the company.

After completing your infrastructure analysis, you should have a good idea of how many employees you’ll need to hire within your growth period. When placed within the context of your revenue model, you should also be able to track how many of those employees you’ll need for each stage of expansion.

The trick, then, is to develop an employee career progression that complements the addition of new hires.

Carroll accomplished this by promoting top-performing employees with one to two years of experience to oversee small units of their co-workers, both new and old. The process not only provides for a talented employee to guide the work of his or her less-experienced peers, but it also serves as reinforcement to perpetuate the established culture.

“Instead of just creating new units of people, we actually merged new people onto existing units and promoted a lot of people from within,” he says. “That’s how we grew our operation, not by bringing in 100 people on day one but by scaling the business up very slowly and cautiously.”

Despite the benefits of such processes, culture maintenance is something that still needs to be approached through a variety of other channels. Carroll says you should scale your human resources department accordingly and make an extra effort to organize team-building events and activities.

“We sponsor a lot of activities and get-togethers, and we also try to rally people to understand that we’re all part of a team,” he says.

Learn to let go

One of the main reasons Carroll wanted to scale his company was so he wouldn’t have to be intimately involved in its every operation.

“I understood that in order for me to ever achieve any kind of independence timewise, I would have to have a much bigger operation and be able to trust other very capable people to run it,” he says.

At the same time, one of the greatest challenges he faced when scaling his company was not being intimately involved in its every operation.

“I was always able to have a direct role in literally everything that happened with the business,” Carroll says. “Letting go of that control was the largest single change I had to make.”

This paradox is not uncommon among entrepreneurs. Personal freedom and total control are often incongruous.

What’s important to remember is that letting go doesn’t mean foregoing responsibility. By delegating to capable managers, you can still maintain oversight while finding balance between your personal and professional lives.

Carroll says that some mechanical functions, such as payroll, are easier to hand over than others. Though crucial to the business’s operations, these tasks can be passed on to employees with little additional training.

For tasks unique to your specific company, Carroll says to work very closely with your managers until you are completely confident in their abilities. Doing so will quell any nagging doubts that might arise should you delegate prematurely.

“When we hired our first vice president of collection management, I worked very closely with that person on an almost daily basis for almost nine months before I handed that area of the business off to them,” he says. “It’s a lot of hand-holding, looking over people’s shoulders, and making sure that they’re adequately and properly trained.”

From that point on, it’s also important to meet regularly with your managers to check progress and keep them accountable.

“A good CEO has to trust but verify,” Carroll says. “It’s one thing to simply delegate a task to someone, but ultimately, the responsibility to make sure that things get done is still up to you. For my own satisfaction, I continued to maintain a very close eye on what was going on.”

Hire smart people

Delegation is a lot like teaching a child how to ride a bike. You can offer guidance by holding on to the handlebar while running beside her for a while, but when it comes to letting her steer on her own, you’ll feel more confident letting go if she has some experience and a better sense of balance than your own.

The same is true for direct reports. While intensive training can certainly prepare them for responsibility, you can delegate more confidently to experienced managers who are smarter than you in the first place.

“When I realized that I really needed to hire people that were more knowledgeable, had more experience and were more capable than me in distinct areas, the company really started to take off,” Carroll says.

As you conduct business with thriving companies, identify the senior executives who were integral in their success. If you operate in a relatively new field, look to similar industries to meet your needs.

Carroll says you must then show potential candidates the sizzle of entrepreneurship. “There are a lot of people that grow up in large corporate environments that reach a certain point in their career and maybe they can’t advance anymore, or perhaps they just want to have a greater impact on an organization than they can in a large company.

“I’ve never been able to attract people with more money, but I have been able to attract people by offering them a greater impact on the operation and the ability to be more entrepreneurial.”

When doing so, don’t be afraid to shoot high. Carroll queried executives at Fortune 100 companies who had experience running 5,000-person operations.

“You don’t know if you don’t ask,” he says.

Just make sure you’re wooing someone that’s in it for the long haul. Look for a candidate who has a track record of staying with an organization for 10 to 20 years. Then, articulate your company’s future plans and where you see that candidate fitting in.

“We’ve laid down our commitment and have said, ‘We want to build this company for the next 20, 25 years, and we want you to be a part of it,’” Carroll says. “We want people to be focused on the long term and not just meeting the next quarter’s numbers.”

Get better at what you do

As you scale your company, you’ll likely encounter a number of chances to deviate from your model of disciplined success.

Just remember: Responsible growth is an outlet for solid performance. It’s not a crutch to accommodate sloppy business practices.

“As a company gets bigger, the perception is that expense controls become less and less important,” Carroll says. “It’s just the opposite. The larger you get, the more important it is to make sure the expense controls are in place and that you maintain the discipline that you’ve had as a smaller business.”

To maintain such restraint and ward off the “growth for the sake of growth” demons, Carroll says to continually ask yourself one simple question: Is your company getting better at what it does?

“Sometimes, in order to achieve that, you have to gain additional size,” he says. “That’s going to feed your bottom line and allow you to become a more successful company. At the same time, there might be occasions where it makes sense to slow down or actually cut back because you need to improve in a given area.

“It’s really an individual, CEO-specific situation, but everyone that runs a company intuitively understands whether or not you’re better now today than you were six months ago.”

HOW TO REACH: Hudson & Keyse LLC, (800) 654-5391 or www.hkinc.com