978-0134741086 Chapter 17 Part 1

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CHAPTER 17. BUILDING A NEW VENTURE TEAM AND

PLANNING FOR THE NEXT GENERATION

Part 1: Learning Objectives

1. Explain the challenges involved in the entrepreneur’s role as leader and what is

required to be a successful leader.

2. Describe the importance of hiring the right employees and how to avoid making hiring

mistakes.

3. Explain how to create a company culture that encourages employee retention.

4. Describe the steps in developing a management succession plan for a growing business

that will allow a smooth transition of leadership to the next generation.

5. Explain the exit strategies available to entrepreneurs.

Part 2: Class Instruction

Leadership: An Essential Part of an Entrepreneur’s Job LO

Small business managers take on a wide range of roles and responsibilities, but the most

important is the role of leader. This can present significant challenges for the entrepreneur

and yet is critical to the success of the venture.

Leadership in the New Economy.

Leadership is the process of influencing and inspiring others to work to achieve a

empower employees to act in the best interest of the business.

Effective business leaders should exhibit the following characteristics:

 Innovative – They seek to develop new ideas; they avoid the comfort of

complacency.

 Passionate – Leaders must be passionate about their businesses, and inspire others

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 Willing to take risks – Understanding the risk/return trade off. Playing it safe is

not an option.

 Adaptable – Leaders must stand fast on their values, but adapt their leadership

styles to fit the situation and the people involved.

Management and leadership are not the same; yet both are essential to a small company’s

success. Leadership without management is unbridled; management without leadership is

uninspired. Effective leaders consistently exhibit certain behaviors:

 Set the example for their employees.

 They are authentic.

 Create a climate of trust in the organization.

 Build credibility with their employees.

 Focus employees’ efforts on challenging goals and keep them driving toward those

 They are willing to take risks.

 They encourage creativity among their workers.

 They maintain a sense of humor.

 Create an environment in which people have the motivation, training, and the

freedom to achieve goals they have set.

Research shows that today’s workers tend to respond more to adaptive, humble leaders

who are results oriented and who take the time to cultivate other leaders in the

organization. Servant leadership is a style in which a leader takes on the role of servant

1. Hire the right employees and constantly improve their skills.

2. Create a culture for motivating and retaining employees.

3. Plan for “passing the torch” to the next generation of leadership.

Building an Entrepreneurial Team: Hiring the Right

Employees LO 2

The problem of attracting necessary talent is very difficult for small businesses as they

usually cannot afford to match the salaries and benefits packages bigger businesses

company’s selection and hiring process. As much as 80 percent of employee turnover is

caused by bad hiring decisions, such as:

 Not requiring candidates to demonstrate their abilities.

 Failing to follow a consistent, evidence-based selection process.

 Failing to provide candidates with sufficient information about what the job entails.

does not get done, delays in delivery times, diminished customers service, lower quality of

work because remaining employees are overworked, and diminished employee motivation.

To reduce turnover companies can:

 Provide rewarding and challenging work.

 Pay employees fairly.

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 Provide simple (and inexpensive) rewards.

 Conduct exit interviews where employees leave to determine areas that require

improvement.

How to Hire Winners.

The following guidelines can help entrepreneurs to become employers of choice and to

hire winners as they build their team of employees.

 Encourage employee referrals.

 Make employment advertisements stand out.

 Use multiple channels to recruit talent.

 Recruit on campus.

 Forge relationships with schools and other sources of workers.

company–sponsored event; posting “what it’s like to work here” videos online that

are created by current employees; keeping a file of all the workers mentioned in the

“People on the Move” column in the local newspaper and then contacting them a

year later to see whether they are happy in their jobs.

Offer What Workers Want.

Create Practical Job Descriptions and Job Specifications.

A job analysis is the process by which a firm determines the duties and nature of the jobs

to be filled and the skills and experience required of the people who are to fill them. The

first step in a job analysis is to develop a job description, which is a written statement of

the duties, responsibilities, reporting relationships, working conditions, and methods and

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one of the most important parts of the hiring process because it creates a blueprint for the

job. The best sources of information to prepare a job description are the manager’s

knowledge of the position, the worker(s) currently holding the job, and the Dictionary of

Occupational Titles, which is available online and provided by the U.S. Department of

Labor. Refer to Table 17.4, A Sample Job Description from the Dictionary of

Occupational Titles.

The second objective of a job analysis is to create a job specification, which is a written

to get out of the interview and to develop a series of questions to extract that information.

These guidelines should help to accomplish this:

Involve others in the interview process.

Develop a series of core questions and ask them of every candidate.

Ask open-ended questions (including on-the-job “scenarios”) rather than questions

Probe for specific examples in the candidates’ past work experience that

demonstrate the necessary traits and characteristics.

Ask candidates to describe a recent success and a recent failure and how they dealt

with them.

Arrange a “noninterview” setting that allows others to observe the candidate in an

selling the candidate on the company.

 Breaking the Ice. The entrepreneur should first diffuse the tension that exits due

to nervousness. Consider using the job description to explain the nature of the job

and the company’s culture.

 Asking Questions. During the second phase, the employer asks the questions that

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approximately 25 percent of the interview talking, and about 75 percent of the time

listening taking notes, and paying close attention to a candidate’s nonverbal clues

or body language.

Some of the most valuable interview questions are designed to gain insight into a

candidate’s creativity and capacity for abstract thinking. A puzzle interview

includes offbeat questions to determine how job candidates think and reason and to

 Selling the Candidate on the Company. In this final phase of the interview, the

interviewer encourages the candidate to ask questions (and notes the nature of

these questions), and then explain to the candidate why the company is an

attractive place to work. Before closing the interviewer should thank the

candidate and then tell what will happen next in the hiring process, such as when

time invested may end up inviting a problem into the work place. Failure to conduct

background checks is the equivalent of giving your house key to a stranger. Employers

should have applicants sign a disclosure document authorizing the employer to conduct a

background check.

Checking potential employees’ social networking pages (Facebook, Twitter, LinkedIn)

employees that range from two weeks to several months.

Refer to Table 17.8, Strange But True!

Consider using You Be the Consultant: “Avoid These Hiring Mistakes” at this

point.

Creating an Organizational Culture That Encourages

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A company’s culture is the distinctive, unwritten, informal code of conduct that governs

an organization’s behavior, attitudes, relationships, and style. For a small company,

having the right kind of structure and culture can lead to a competitive advantage.

An important ingredient in a company’s culture is the performance objectives an

entrepreneur sets and against which employees are measured. The intangible factors that

make up an organization’s culture have an influence, either positive or negative, on the

tangible outcomes of profitability, cash flow, return on equity, employee productivity,

effectively.

Sense of Fun. There is no reason for work and fun to be mutually exclusive. A fun

atmosphere makes it easier to recruit quality workers and encourages them to be more

productive and more customer oriented.

Engagement. Workers who feel fully engaged take pride in making valuable

 Challenge employees to learn and advance, and provide the resources

necessary for this.

 Create a culture that encourages and rewards engagement.

Diversity. Companies with appealing cultures embrace diversity, and actively seek

workers with different backgrounds to increase the talent, skills, and abilities. Refer to

Learning Environment. Companies need to encourage and support lifelong learning

among their employees by investing in employees’ skills and helping them to reach

their full potential.

Job Design.

There are choices entrepreneurs make about jobs and how they are designed.

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 Job simplification is a type of job design that breaks work down into its

simplest form and standardizes each task. This results in impersonal,

monotonous, and boring work that creates little challenge or motivation.

 Job enlargement (horizontal job loading) is the type of job design that adds

more tasks to a job to broaden its scope. Adding more tasks allows an

employee to perform as more complete unit of work.

 Job rotation is a type of job design that involves cross training employees so

that they can move from one job in the company to others, giving them a

core characteristics of an enriched job: skills variety, task identify, task

significance, autonomy, and feedback.

Another job design decision is about flextime, which is an arrangement under which

employees work a normal number of hours but have flexibility about when they start and

stop work. Companies offering flextime not only raise worker morale, but also have an

traditional office, such as a satellite branch closer to their homes or at home.

Telecommuting is an arrangement in which employees working remotely use modern

communications equipment to connect electronically to their workplaces.

Motivating Employees to Higher Levels of Performance: Rewards and

Compensation.

Non-monetary rewards can be through pay–for-performance systems, profit-sharing plans,

open book management and cafeteria benefit plans. These intangible rewards are very

powerful yet inexpensive and entrepreneurs tend to relay on nonmonetary rewards.

Pay-for-performance compensations systems are those in which employees’ pay depends

on how well they perform their jobs. For example the entrepreneur could link employees’

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Profit-sharing plans provide a reward system in which employees receive a portion of the

company’s profits.

Open-book management is a system in which entrepreneurs share openly their

companies’ financial results with employees. The goal is to teach employees how their job

performances have a direct impact on profits and give them an incentive for improving the

company’s bottom line.

Cafeteria benefit plan is a plan under which employers provide certain basic benefits and

then allocate a specific dollar amount for employees to select the benefits that best suit

their needs.

Many small companies provide health insurance, retirement programs, paid sick and

vacation days, and tuition reimbursement options. Other unique benefits offered by small

 A manager in a company is designated as the “dream manager” who works with

individual employees who want to accomplish personal and professional goals,

from buying a house to advancing in their careers.

 Employee health and fitness programs that encourage employees to lead healthier

lives.

After its initial impact, money loses its effectiveness; for many workers, the most

meaningful motivational factors are recognition, praise, feedback, job security,

promotions. None of these cost the company any money, but are often the best

motivators and have more impact on employee performance over time.

Management Succession: Passing the Torch of

Leadership LO 4

Family-owned businesses make up more than 80 percent of businesses throughout the

world. Family owned businesses in the United States account for 70 to 90 percent of

global GDP. Family businesses account for 90 percent of U.S. businesses and create 64

percent of the nation’s gross domestic product, employ 62 percent of the private sector