Managing Through the Entrepreneurial Fog: An Inspirational and Practical Guide for Leading Others

Preface

While writing this book, I shared its title with many who have started and operated their own businesses. The reaction was always the same: an immediate long-reaching smile, telling me the title explained it all. For those of you who have the same reaction, this book may be merely an affirmation that you have not been, or are not, alone. However, you might find the journey a bit unique—in fact, I can almost guarantee it.

When driving through the streets of Anytown, USA, one sees countless small retail businesses scattered throughout, each with its own story to tell, all open for business and ready to sell to anyone willing to walk through the door and buy products off the shelf. Right alongside those businesses, sometimes even subletting office space from them, are those that are less obvious, even invisible to eager retail customers—literally thousands of businesses not exposed to the general public. These are niche companies providing solutions to other businesses that create the demand for what they have to offer. Whether it’s graphic-design work, housekeeping services, or software development, they too are open for business.

When starting and operating a software development company, my management skills were put through challenges I never could have anticipated. You will first read about the management principles that helped me maneuver through the entrepreneurial fog you are about to understand and experience.

It was exciting to go to work every morning. There was never a dull moment—frightening moments, maybe, but never dull. We founded a true start-up company that was going to take on very successful companies as its competition. In every sense of the word, we began with just enough to open our doors: little or no money, no paying clients, and limited foresight. Yet we had an abundance of faith in our product, laced with hope and dreams for the future.

In the later years, I would say, It should be a crime for me to deposit my paycheck, because I am having way too much fun.

This book is about a group of people who experienced all of that and much more.

Acknowledgments

Introduction

You are reading about a software company that had a very efficient solution for automating materials management (purchasing and inventory control). For the most part, other than the second chapter, this book is about the company, not the product. You will read about the process that took the main characters from working on a project at a rural hospital in Oregon to leaving their jobs and starting a company that would compete with established and well-funded enterprises. We worked many eighteen-hour (and more, when absolutely necessary) days while experiencing some lows and some extreme highs during the process.

In order to successfully transition from an administrator at a hospital to the president and CEO of a software company, I needed a strong basis for managing people, regardless of their profession. Early in my career, I developed a management philosophy I call Play by the Rules. It has been my foundation for facing the challenges encountered during my years as an executive. This book guides managers from the beginning by defining the philosophy in detail. Numerous anecdotes are used to connect the world of academia with practical applications experienced in a management environment. By using an entrepreneurial venture as a backdrop, the subsequent chapters then become a case study on management. Boxes are presented throughout the text to provide examples of how the rules listed in Play by the Rules were used to manage the company.

As the title suggests, although we definitely had the entrepreneurial spirit when the software project was transformed into an idea for a business, we also found ourselves in an entrepreneurial fog. When we decided to start a company, we truly had no idea what we were getting ourselves into. The following months brought a path full of potholes to be navigated without a compass; thinking about the minutia necessary to run a business would only take away from the overwhelming euphoria that got us there in the first place. Our software fit on a computer tape that cost $17, and we planned on selling it to our first customer for the bargain basement price of $60,000. For the most part, we were ready to open shop. During the thirty-six months prior to us making our decision to press forward, we were developing the software while I was concurrently checking what was available on the market. There was no doubt we had a product that was outperforming what our soon-to-be competition was offering, so it definitely seemed as if success was on the horizon.

Unfortunately, in our euphoria, we failed to see the patch of fog that was obstructing our view of that horizon. These are just a few of the stumbling blocks we encountered in the beginning:

•Although marketing was discussed, we didn’t really understand what it would take to make the business a success with such limited resources.

•No thought was given to establishing credit to make it easier to manage cash flow. We soon discovered that without any assets, credit for the business was either unavailable or unaffordable. Ultimately, our personal credit (to the tune of $20,000 per month) was the only way to make it happen.

•After we made our first sale, our clients would be operating our software around the clock; therefore, we would need to provide twenty-four-hour customer support. In the beginning, we had only one programmer who also worked full-time for a hospital. We truly had unrealistic expectations of him.

•One obstacle not given much consideration was that approval for capital purchases were budget items linked to the fiscal year, which in many cases could mean waiting between six to nine months for a client to get funds for making a purchase. Especially in the early years, staying in business during the wait periods would prove difficult.

•We were accustomed to having 100 percent coverage for medical benefits paid for by the hospital, and some of us could not afford to go without them. As a result, we had to offer equal benefits for all future employees. It was an escalating expense that stayed with us throughout our existence.

The fog can possibly be seen as a good thing. Knowing everything required to start and operate a business is not necessarily a prerequisite for success, and perhaps is not even desirable. Entrepreneurs (synonymous with risk-takers) often make decisions based on ideas that have never been tried before—how to build a better mousetrap. When an idea is conceived and the decision is made to turn it into an enterprise, one can thank the heavens all contingencies are not considered prior to making that decision. If most entrepreneurs knew what they were getting themselves into they would say, Forget it, it’s not worth it. Our company had no documentation, no office, no marketing material, and nowhere near enough cash to stay operational for more than six months. What we did have was a true start-up company that one might say was based on the proverbial wing and a prayer.

At the time the project of developing the software began in December of 1981, only 27 percent of the nation’s seven-thousand-plus hospitals were using computers to operate their materials-management (MM) departments. At the hospital where I had just been hired, purchasing a software package was not an option. I was told the computer resources were limited to an IBM System/34 and virtually a one-man data-processing department (today known as information systems or information technology) that supported the entire hospital. It is important to note, I am not a computer programmer; instead, my strength is in understanding computer systems and being able to find ways to automate processes. The way I look at it, my mind doesn’t get cluttered with having to know the minutia required for writing the code; I leave that to the programmer. Instead, I am free to be a dreamer, and the programmer simply makes my dreams a reality. When I was hired, I was told that if I outlined a plan for automating the department, perhaps an automated solution for MM could be developed. I had actually met Lentz Ferrell, who was the director of data processing, when my wife, Jan, and I were flown to Oregon for my job interview a month earlier. Lentz came across as an incredibly positive individual who truly enjoyed his job. He was, and still is, fearless and unaware of his own limitations. One might question the worthiness of that last attribute, but even if Lentz did not know how to do something in the beginning, he ultimately made it happen. Taking advantage of this quality would prove to be extremely beneficial in the very near future, and for years to come. With his strengths combined with my sincere desire to make my job as easy as possible, we had the key ingredients for starting a project, not a company… or so I thought.

Later, when I presented to potential clients, my opening line was, People have often asked me how I ever got into this business, and my answer is simple: ‘You are looking at the laziest person you have ever set your eyes on. So I used the computer to assist me with reaching that status.’ Most chuckled at my answer or gave me a look that said, Just a cute sales pitch. Though few took the statement as genuine, it was indeed—and still is—my approach to everyday life. The irony of it all… I had to work very hard to achieve my desired state of laziness.

The first item I purchased for laying out my designs for the software package was a set of coveralls to wear over my suit while working alongside my staff in the warehouse. I did not see how I could possibly communicate my needs and desires to Lentz unless I did everything my staff members did to accomplish their jobs. Although the majority of my staff was on the lower end of the hospital pay scale, their responsibilities were crucial for ensuring quality patient care, a fact I stressed to all I encountered. Working with them was a humbling process that gave me a true appreciation for just how big of a project I had committed to undertake.

The software definitely satisfies a niche market; how many hospital materials managers do you know? When people consider hospital administration as a career field, MM is usually looked on as the bottom rung of the ladder for getting experience. I refer to MM people as the Rodney Dangerfield of health care—they get no respect. Yet I found the field to be one that afforded many opportunities for improving an operation that was in dire need of it. When I started the new job, all processes were performed without the aid of a computer. It soon became apparent that automating the department from the very beginning was going to require much of Lentz’s time, a fact I had little control over. Fortunately, Lentz shared my level of enthusiasm from the very moment I handed him my first outline for the new system. When it all began, pdf files hadn’t entered the market, Microsoft’s PowerPoint was still on the drawing board, laptops did not exist, IBM’s PC had not yet entered the market to push Tandy’s TRS80 to the back of the bus, and when files could finally be transferred from one computer to another, it was at the speed of twelve kilobytes per second. For anyone taking on such an endeavor, no matter how big it might seem at the outset, it was important to remember to take it just one day at a time. When I look back, I can honestly say that in the beginning I had no idea just how big of an undertaking was in front of us. I knew it was going to be big, just not how much it would change my life and the life of those around me. I cannot say that, if I had realized just how big the project was going to be, I would have taken it on. However, as it slowly evolved, it became quite apparent there was no turning back.

= = = =

1. Play by the Rules: A Management Philosophy

If you are a manager and don’t want to be regarded as a great boss, you should not be a manager in the first place. Regardless of the profession, you have the opportunity to inspire those under your purview to the point where they feel privileged to have you as their leader. Much work may be necessary for you to get there, but in not aspiring to be the best manager possible, you do a disservice to the organization, to yourself, and most important, to those you agreed to lead.

Management: A Profession All By Itself

Whether I was an administrator at a hospital or the president of a software company, I always looked forward to going to work each day. It was exciting to be able to work with people from all walks of life. My job was to provide a work environment conducive to their happy and effective efforts toward accomplishing the goals of the company. Throughout the years, I had the opportunity to witness and become involved with many different types of managers from around the country. Some were very experienced and some were brand new to their field; many of them were very good, and some were not good at all. Some were well educated, good at their jobs, and easy to work with, while others were just educated idiots. Often the managers with a limited education were among the best, while others managed with the attitude It’s just a job. This type of attitude was referred to in the military as being on the ROAD (Retired while On Active Duty). Unfortunately, it’s also found in the civilian sector.

Have you ever had a boss you despised, one who made you think, If I ever find myself in a position of authority, unlike this boss, I will do everything possible to inspire my employees? I had such an experience early in my career, which gave me the motivation to learn all I could about being a good manager.

Managers are in a unique position. They are in control, some more so than others. Unfortunately, many managers—especially new ones—do not know where to begin, which oftentimes relates to a lack of self-confidence or simply not knowing what it means to be in control. These managers are in a tough position; they got the job all right, but they are in need of some direction. Having been there myself and then having the responsibility for leading other managers, I believe it doesn’t hurt to have some rules to follow as one develops management skills.

Although I have been a manager for many years, I never imagined that I would ever find myself in a position where I would be writing about a management philosophy of my own. There are two reasons I even dare to share this philosophy:

1.My professor (Dr. Croy) for the final class of my graduate program at USC gave us the assignment to write our own management philosophy or expound on our thoughts about others’. I chose to write my own. After I submitted the paper, entitled Play by the Rules: A Management Philosophy, he returned it to me with the question, Would you consider coauthoring a book with me? I never answered him because when I graduated two weeks later, I received orders from the air force reassigning me to a base in Florida. I found myself extremely busy at a new job and getting settled with my family in a new home. Dr. Croy has since retired, and I have always felt guilty about not responding to his request; I guess this is my way of trying to clear my conscience.

2. When our company began to show relative success, I was asked essentially the same question by three hospital administrators: As a vendor, how are you able to successfully manage my materials manager without having any line or staff authority, and do so with such positive outcomes?

Instead of giving them a detailed answer, I simply thanked them for their comments. Unfortunately, the answer is not a simple one. Instead, it requires a rather detailed explanation. I apologize in advance, as many pages in this chapter will read like a textbook. Nevertheless, the philosophy is included for review. Many personal anecdotes of my own experiences as a manager are included throughout the text; these were events that had significant impact on my management beliefs and practices that formed throughout the years.

A Complex Management Scenario

At our company, we were doing more than just selling an expensive piece of software; we were selling a solution to a problem impacting the way materials managers ran their departments. It was an absolute rush to work with the majority of the managers—they recognized the need for change and were willing to do whatever it took to make the transition to the new system a success. The majority of our clients became showcase examples who took advantage of all of the features our software had to offer, and eventually we were able to proudly use them as references for future potential clients. Through their own successes with our system, our clients assured us that what we were doing was worth all of our efforts.

Unfortunately, some managers treated their purchase (years later, up to $1 million for software and hardware) as a solution they believed would require minimum effort on their part—as if it was a plug-and-play piece of software. That type of motivation usually surfaced after our system was installed and the new staff received training for the file build. We could ill afford to have any of them unhappy, especially from the get-go. Consider the dynamics of the situation: on one side, these new clients just went through a rather involved process to acquire an expensive piece of software they believed would make their jobs easier and more efficient. The sales presentation was convincing enough, the references were glowing, the site visits were impressive, and they were able to sell their bosses on the idea that they had made the right choice… and then the reality set in that what they observed and admired was going to take a great deal of work, work they either did not want to do or were incapable of managing. For our part, we had just sold our system to someone showing signs of buyer’s remorse, not because they believed they chose the wrong solution, but because they didn’t expect to be so overwhelmed.

As soon as it became apparent there was going to be a problem, our entire staff at Health-Ware Management Company increased its efforts for supporting those clients. Similar to the 80/20 rule, we had a 90/10 phenomenon where 90 percent of our time was spent supporting 10 percent of the clients. The clients’ lack of management skills usually became apparent during the first training session, with managers finding reasons why the process would not work for their institution. The reaction was similar to that of a deer caught in the headlights. Since I always conducted that initial day-and-a-half training class, I was the one who first observed negative behavior on the part of any members of the new staff. If it happened to be the manager who seemed troubled, I had to do my best to delicately manage the manager, a position I did not relish.

I can now hear the comments: How arrogant can you be? Perhaps a lot, but people need to put themselves in my position. I had a client who, by making just a few choice phone calls, could put an unjustified black mark on the reputation of our company. I knew I couldn’t let us take the fall just because this individual was insecure or, worse, incompetent. We knew how to make the system work well and so did others; given the opportunity, it could greatly improve the efficiencies of any operation. I had enough confidence in myself as a manager to take on the challenge of influencing the client to make the new project at hand a positive experience for all. When I recognized the possibility for failure, I had no choice but to carefully interject my influence on the new MM staff. Yes, it was self-serving, but the truth was I also wanted this new client to be successful. Almost always, the manager was open to advice and would eagerly act upon it. Ultimately, we bonded with a working friendship to the point where we were able to discuss any concerns either of us encountered in the future. There were those few exceptions where some managers were incapable of ever being able to see the project to a successful completion; later on, you will meet some of them.

I have heard some say that all it takes to be a manager is good common sense. I admit, that doesn’t hurt, but it is not the only attribute necessary. I contend there are many more management concepts one must grasp to be a successful boss. I managed many unenviable situations to positive outcomes because I strongly believed in a management philosophy I developed and call Play by the Rules. Two other philosophies must be understood before this concept can be applied: Theory X and Theory Y by Douglas McGregor, and Abraham Maslow’s hierarchy of needs. An understanding of these philosophies is necessary before the features of Play by the Rules can be discussed.

Key Elements of Theory X and Theory Y

According to Theory X, employees are inherently lazy and will avoid work if possible.

1.Employees require close supervision with strict levels of control in place, and for effective management, a narrow span of control must be adhered to at each level. Consequently, management believes that employees will show little or no self-motivation unless they are compensated for doing so.

2.Managers influenced by Theory X believe in not taking responsibility and in blaming someone else if a job is not properly executed.

3.Managers also think most employees are only out for themselves and their sole interest in the job is to earn money. Managers tend to blame employees in most situations when things go wrong, without questioning the systems, policies, or lack of training that might be the real cause of failure.

Managers subscribing to Theory X take a rather pessimistic view of their employees and believe it is the manager’s job to structure the work and energize the employee. As a result, managers tend to use an authoritarian style that is based on the threat of punishment.

In Theory Y, management has a greater belief in employees’ abilities.

4.Managers influenced by this theory assume employees are ambitious, self-motivated, anxious to accept greater responsibility, and capable of exercising self-control, self-direction, autonomy, and empowerment.

5.Management believes that employees enjoy their work, and that given a chance, they have the desire to be creative at their workplace and become forward-thinking. There is a chance for greater productivity by giving employees the freedom to perform to the best of their abilities without being bogged down by rules.

Managers subscribing to Theory Y are accustomed to exerting little or no control over their employees.

Theories X and Y have been around for about fifty years and are often used when referring to an individual’s management style. Few claim to be a pure X or Y manager because of the extremist views of either label. An individual labeled as a Theory X manager without any qualifiers would be thought of as an authoritarian who leads with strong-arm tactics, while an individual labeled as a Theory Y manager without any qualifiers would be thought of as weak with little control over his or her subordinates, providing an environment for anarchy.

The Management Scale

Rather than use the label Theory X or Y, I prefer to employ my own scale when considering a designation for managers:

Play by the Rules

Management Scale

The explanation is simple and eliminates the ambiguity that comes from giving just X or Y as a label. A rating of 10.0 identifies a pure Theory X manager, and conversely a rating of 1.0 indicates a pure Theory Y manager. Few managers are found at either end of the spectrum, but moving on the scale in either direction clarifies one’s managerial practices and beliefs. In addition, you can add a dimension beyond the strict definitions given to both theories by considering the rating of 10.0 to mean very decisive and 1.0 to mean indecisive. Sizing up a manager this way differs drastically from McGregor’s theory because it actually puts a manager who might lean toward being an X type of manager in a positive light. The 10.0 area normally has a strong negative connotation; however, when moving the designation a bit to the right on the scale, the meaning changes the rating altogether. It can be quite helpful for a senior manager to know subordinate managers’ ratings when assigning responsibilities for certain tasks or projects.

To better understand the implications of the management scale, consider the following explanations of different ratings for a manager:

Broadening the Scope of Management Insight

Unfortunately, there are managers who use the tools of Theory X and Theory Y as the only basis for their management principles. This is a mistake; it is imperative for managers to understand their employees if they want to be leaders others can proudly follow. The idea of a hierarchy of needs was introduced by Abraham Maslow (1908-1970) in 1943, and his motivational theory is a fundamental philosophy that is taught in most business, management, and psychology curriculums in colleges and universities throughout the nation. The theory suggests that people are motivated by satisfying specific needs as depicted in a pyramid.

Maslow’s Hierarchy of Needs

The theory suggests that all people start at the bottom of the pyramid and must satisfy a lower need before ascending to the next level. I’ll describe each level in more detail, and provide some examples of how managers can meet these needs—or not.

Basic

Basic needs are vital to survival, such as the need for water, air, food, and sleep. Maslow identified these needs as the prime and most instinctive needs in the hierarchy because all needs become secondary until these physiological needs are met. Fortunately, the vast majority of managers never need to worry about employees not having their basic needs met, especially since they are already employed.

Safety

Safety needs are most often related to job security, which ensures stability in an employee’s life. A manager has a significant impact in this area, even in everyday life; making a simple comment like "I just don’t