In With The New

Variables That Make A Company Successful

There are a number of questions the study didn't answer. One is whether the findings apply to all or even many other companies besides the ones studied. The study companies were all finalists in the Ernst & Young Entrepreneur of the Year award program. "The sample was unusual in that it was the best of the best entrepreneurial companies in the country," says Cox. "To make a generalization to the business population as a whole is difficult." In addition, only 20 percent of the firms studied had under $5 million in sales in 1997, and 41 percent had more than 100 employees in 1995. Average sales were $89 million, and they averaged 269 employees. About 20 percent were publicly held.

Another question the study failed to answer was whether firms following the diversification strategy were turning their backs on established, solid customers to pursue new markets, or whether they were merely, in conformance with current mainstream strategy, being selective and only getting rid of their worst customers. "Our survey didn't distinguish that," says Cox. "We only know they're doing more with new products and new markets."

View the Kauffman Center's "Survey of Innovative Practices: 1999 Executive Report" at

Additionally, Cox points out there are good reasons, other than seeking growth, for entering international markets. These include the opportunity to tap more attractive markets than exist domestically and the chance to partner with foreign companies that have attractive capabilities. And he doesn't discount the importance of financial controls in fast-growth companies. He notes, "Growing takes cash, so there's some cash-flow management in there." Anecdotally, he says he found a pair of similar companies, one which was growing at twice the rate of the other and was flush with cash, and the other losing money and seeing its net worth decline. "The reason was, they didn't have the cash," Cox says of the problems besetting the slower-growth firm.

According to the study, maximizing sales growth will take, in addition to cash investments in new-product development and marketing campaigns, significant loosening of ownership by a lot of entrepreneurs. Most of the privately held companies surveyed failed to offer equity compensation plans to the employees, and, overall, just 3 percent of all equity was in the hands of people other than top managers. "If you want to grow your business," chides Cox, "you've got to loosen up on that and think about how to distribute some of that equity value to the whole company."

The last word on maximizing growth isn't in yet. Cox is replicating the study, with additional questions on strategy, this year. The big difference is that it will include firms from 18 countries. "It will be interesting," he says, "to see if a German company has the same perspective on international sales."

Meanwhile, cookie entrepreneur Taylor is hoping to focus Jana's Classics more on the best markets she's tapped, and perhaps to slow down her rapid growth of the past few years. Bringing out new products and new production lines always impacts short-term profits, she says. "We've been very satisfied with our profits," she says. "But growth is tough. I'm in a position to know that-luckily."

Take it easy, speed racer! Read "Crash Course" before trying to grow your business at maximum velocity.

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This article was originally published in the October 2000 print edition of Entrepreneur with the headline: In With The New.

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