From the June 1998 issue of Entrepreneur

When Earl Mollerud went looking for investors so he could expand his chain of children's hair salons, he didn't like the reception he got. Says the founder of Minneapolis-based Kids' Hair, "I fell flat on my face."

Mollerud presented the problem to a group of business owners, fellow members of a club who meet monthly to discuss each other's problems and prospects. Although none of the advisors were from the hair salon industry, with their combined years of business experience, they were able to map out a successful route to private placement.

"They helped me find the path," says Mollerud, whose company, with the help of the added capital, now has four locations and 50 employees.

Thousands of entrepreneurs have discovered that a group of advisors like Mollerud's comes in very handy--so much so that they pay $2,000 to $10,000 in annual membership dues, and devote several hours a month to prepare for and attend meetings. These exclusive entrepreneurial peer groups have been growing quietly for nearly 50 years now and can be found in almost every U.S. city.

Entrepreneurs who join such peer groups report high levels of satisfaction and rejoin year after year, says Karl Egge, an economics professor at Macalester College in St. Paul, Minnesota, who has studied peer groups. The reason, he says, is simple: "It's a smart use of money and time."

Primal Peer Groups

The original dues-charging entrepreneurial peer group is the Dallas-based Young Presidents' Organization (YPO), founded in 1950. All 8,000 worldwide members are presidents or chief executives under 50 years old, who pay $2,000 to $6,000 a year for the privilege of attending monthly YPO meetings to hash over business with fellow youthful CEOs.

The growth of the nonprofit YPO attracted profit-seekers 40 years ago, when a similar group called The Executive Committee (TEC) was formed in San Diego. TEC members, numbering about 5,500 worldwide, are mostly executives of larger organizations, and pay $5,400 to $8,700 for much the same thing YPO offers.

Recently, several new peer group networks have sprung up, charging similar dues for similar benefits. One is Inner Circle International Ltd., the Minneapolis-based group that advised Mollerud on financing. Egge says peer groups thrive because they fill needs left unsatisfied by groups such as chambers of commerce.

Peer groups are not about networking and prospecting, like most civic and business groups, Egge notes. Nor do they let just anyone join. Many accept applicants by invitation only and require unanimous approval from existing members. Egge adds that high dues keep out casual joiners and motivate members to attend, contribute and try out suggestions they receive.

Peer Power

The groups usually meet monthly for several hours and may also have an annual extended session that lasts for several days. At typical meetings, members brief the group on their businesses' conditions and are encouraged to bring up any business problems, expansion plans or even personal issues they're facing. Then the other members, who are typically drawn from a variety of industries, apply their insights and experience to solving the problems.

In effect, the peer group acts as a board of directors. Many groups are run by paid facilitators, often moonlighting business consultants, who augment the other members' expertise. In some organizations, the members can consult privately with the facilitator for an additional fee.

Surprisingly, business isn't necessarily the main thing discussed. Egge consistently found that sharing personal issues is as important to members as finding solutions to business problems. Members talk about matters as private as marital difficulties and as sensitive as whether to split with a business partner.

But don't think these forums are merely conversation clubs, says Jim Fontanella, president and founder of Renaissance Executive Forums, a La Jolla, California, peer group with 50 to 60 groups in the United States. He says, "It's kind of lonely to run a business. And it's nice to have a group of folks who do what you do."

To deal effectively with such a range of issues, groups should be careful to select members from a variety of fields. "One of the major benefits is a cross-fertilization of ideas from people who are not in your field," says Allen Fishman, CEO of The Alternative Board TAB, a Denver-based peer group. "Some of the best ideas will come from people who aren't locked into your historical ways of thinking."

What Price Advice?

Dues that can reach several hundred dollars a month may present a significant obstacle for many entrepreneurs. And Egge estimates that indirect costs, mostly in time spent preparing for and attending meetings, often makes the true price twice as much. Yet his study showed that most members who pay up year after year consider it a bargain.

Some entrepreneurs point to precise instances in which membership paid off. Mollerud's group, for example, decided he wasn't charging enough for his services and urged him to raise prices. He resisted, but agreed to try it. Business never slowed, he reports, and monthly profits rose more than the amount he was paying for his peer group's annual membership.

Entrepreneurs who join groups but don't go to meetings, ask questions or offer solutions aren't likely to get good value for their money, say peer group members. Another risk is that the advice they hear won't solve their problems. A survey by Egge found that members rehashing the same old issues was another downside.

Most groups require members to sign documents agreeing not to talk with outsiders about what they hear in meetings. That's a major plus compared to other opportunities to hobnob with fellow businesspeople, according to Erik Saltvold, founder and owner of a six-store Minneapolis chain called Erik's Bike Shop. "In this group, you can be open in discussing whatever you want," says Saltvold, who has belonged to Inner Circle for five years.

Getting Results

As with any other business tool, peer groups have their drawbacks. Although members are supposed to refrain from doing business together, Egge reports that in practice, some do wind up forming business relationships. And the supplier-vendor alliances that develop can compromise the confidentiality and objectivity necessary for members to feel comfortable discussing sensitive issues.

But despite the potential flaws, Saltvold credits his group with his company's growth. To make the most of group time, he doesn't spend it on mundane matters, no matter how pressing. Instead, he sticks to questions relating to business infrastructure and long-term growth strategies. The fact that his group includes members with experience running multiunit retail businesses gave him the confidence to proceed with expanding his store when they recommended it.

"I don't think we'd have six stores now if it wasn't for my involvement in the group," says Saltvold. "Every expansion decision I've made I've brought up to the group to justify it."

Contact Sources

The Alternative Board TAB, 225 E. 16th Ave., Penthouse Suite, Denver, CO 80203-1622 fax: (303) 839-0012

The Executive Committee, (800) 274-2367, http://www.tecceo.com

Inner Circle International Ltd., (612) 933-6629, stoehr@incintl.com

Kids' Hair, (612) 929-3614, emollerud@aol.com

Renaissance Executive Forums, (619) 551-6600, fax: (619) 551-8777

Young Presidents' Organization, (800) 773-7976, http://www.ypo.org

Mark Henricks is an Austin, Texas, writer specializing in business topics.