Revving Up Small and Medium-Sized Businesses

Russell Knudsen has been crunching some new numbers. Knudsen is the cofounder and director of corporate finance for ePower Engine Systems, a small business that recently developed a hybrid drive train modification that significantly improves the fuel efficiency of large trucks. He is also one of 625 entrepreneurs and executives in more than 100 small and medium-sized enterprises (SMEs) from a broad range of industries who took part in Gallup's Entrepreneur Acceleration System (EAS) in Nebraska in 2011.

ePower's leadership knew there was significant interest in its technology but had set rather modest growth targets for the first five years. The EAS program led Knudsen to realize that was a mistake. If ePower was able to expertly manage its own performance and establish powerful relationships with customers, sales of its product could take off much more quickly. Knudsen accelerated the company's production schedule and now believes the company can grow from 20 employees this year to as many as 500 in 2015.

Like many other EAS participants, Knudsen credits the program with helping expand his company's horizons -- in fact, ePower's technology offers a nice metaphor for the program itself. The EAS uses Gallup's expertise in behavioral economics to upgrade the management "engines" of SMEs that have significant potential for sustainable growth.

In The Coming Jobs War, Gallup Chairman Jim Clifton notes that there's no shortage of innovation and perceived market opportunities in the U.S.; what America and many other countries need most is more entrepreneurial capacity to convert those ideas into winning business models, thereby creating jobs. That urgent need is what the EAS is designed to address.

Gallup partners with the program's sponsors in a given community -- which may include government, financial institutions, universities, and other organizations working to promote economic vitality -- to recruit SMEs that have the potential for significant growth. Entrepreneurs who take part in the program participate in a series of workshops led by Gallup subject-matter experts, then work with Gallup-trained mentors on company-specific action planning. The curriculum is focused on five areas:

• Leveraging entrepreneurial strengths. Gallup's research indicates that a person's entrepreneurial ability, motivations, and attitudes are the most important drivers of a new business' survival and growth. They may be even more important than the original business idea to the business' ultimate success. In recognition of this, the EAS program begins by identifying the business owner's entrepreneurial talents. Next, the top five talents of each company's executives are identified using Gallup's talent assessment, the Clifton StrengthsFinder. Once the talents of the entrepreneur and the core team are identified, Gallup produces a talent map, which the mentor uses to support the entrepreneur to build a strengths-based team. Successful strengths-based development results in various positive business outcomes.
• Creating a road map for growth. Mentors and Gallup consultants help participants outline a vision for the future of their enterprise. They spell out the goals that give the business and its employees a sense of purpose and direction and create a detailed plan to achieve those goals.
• Building an engaged workplace. Entrepreneurs learn about management principles and the workplace conditions necessary to ensure that employees are engaged, or highly motivated and emotionally connected to the company. Engaged employees can help their businesses maintain stability and momentum through the early stages of growth, which are often challenging.
• Growing an engaged customer base. Adding new customers is key to long-term, sustainable growth, so the curriculum introduces participants to the concept of customer engagement. Participants gain insights into how to help their employees understand customers' needs and establish enduring customer relationships.
• Establishing performance management metrics. Participants work with mentors and Gallup consultants to determine a set of relevant indicators, including key behavioral economic measures. These metrics enable participants to closely monitor their business' progress toward key goals and growth targets.

Each of these areas addresses vital components of business development -- the make-or-break "human factors" that other business incubators often fail to address. The program's mentor-based model gives Gallup the capacity to work with local and national governments, financial institutions, and other individuals or groups pursuing sustainable economic growth initiatives and to reach thousands of SMEs in a given area.

The employment imperative

Small and medium-sized enterprises have received considerable attention in the wake of the global economic crisis because they are a primary source of job creation around the world. SMEs account for about two-thirds of employment in OECD (Organisation for Economic Co-operation and Development) countries and a far higher proportion in developing countries. And as Clifton argues, the employment shortage gripping much of the world is the most important problem for global leaders to address. That's because solving it would harness the human talent needed to find and propagate solutions to all the other challenges the world faces.

Consider the possible impact if ePower achieves its amped-up growth plan and adds 480 engaged employees by 2015:

• The company's home city would get an economic boost as the new job holders settle in, pay taxes, and buy homes and cars. These new employees would bring increased spending power to their communities, raise demand for products and services, and possibly add even more jobs.
• The trucking industry would benefit from the addition of human resources devoted to marketing an innovation that lowers fuel costs. The resulting savings could allow some trucking companies to expand their fleets and add their own new employees.
• The planet would benefit from the more rapid proliferation of a technology that significantly reduces the emissions of large trucks.
• All of this is in addition to the benefits that the employees and their families would enjoy, especially those who were unemployed. Recent Gallup research has demonstrated the toll that joblessness takes not just on people's financial status but on their emotional well-being and the way they evaluate their lives.

Not all job creation has the potential for ripple effects this far-reaching. But the broader point is that successful entrepreneurship puts more people to work finding and propagating solutions, whether those solutions are as simple as selling parkas in a mountain village or as complex as implementing a new inventory system for a major retailer. That's why the EAS program's goal is to help SMEs fulfill the all-important task of entrepreneurs everywhere: understanding and meeting the needs of potential customers.

That focus provided a moment of clarity for Dan Shundoff, founder and president of Intellicom, a business technology company based in Kearney, Nebraska. "You start to really look at the relationships between managers, employees, and customers and the level of engagement you have, [and] you start to understand -- we could do more," says Shundoff. "We could be more efficient, [and] we could create more value -- not just revenue, but value."

After participating in the EAS program, Intellicom's leaders turned their five-year growth targets into two-year targets, and they are already on their way to meeting them. The company's key performance indicators show a 20% increase in employee productivity and a 24% increase in profits in the first half of 2011. The growth has already allowed them to add two full-time employees.

A healthy dose of confidence

The EAS' potential impact on SMEs has been evident from the program's beginning. In 2007, Gallup consultants began working with the government of the state of Puebla, Mexico, to adapt the management science Gallup had been using for decades with large corporations to the needs of entrepreneurs and SMEs. In some cases, the results were dramatic: Participants whose small businesses were struggling improved their day-to-day operations and sales growth. They also experienced a renewed sense of confidence.

Blanca Garcia and Efrain Morales are Gallup consultants who lead the EAS initiative in Mexico. Garcia and Morales tell the story of a husband and wife who were running a printer cartridge recycling business. They'd had serious problems and were considering shutting down the company. Learning about their strengths made them realize they had conflicting leadership styles, which left employees confused and disengaged. "She found out she is great selling, and he is great at managing operations," Garcia says. "They split [those tasks], and now the business has grown."

"They also have started a new company, a retail clothing store managed by the wife and another employee," Morales says. "They not only improved their finances and created jobs but found stability within their family."

Other more established businesses have been revitalized through their participation. Jagusa was a hospital cafeteria management company before enrolling in an EAS program in Toluca, Mexico. As a result of the experience, Jagusa leaders revisited the company's vision for growth, and it now provides nutrition consulting to hospitals and large companies. It opened two new client sites in 2010 and added 60 employees. "We were lost and we worked a lot," says José Arturo López Jacobo, Jagusa's head of quality. "Because of Gallup, we work less hours, but we achieve more. . . . We are more organized because of our new action plans. We know how to act and how to motivate ourselves. Gallup helped make us intentional."

Boosting entrepreneurial capacity could change the course of history in countries with severe structural employment problems. Many countries in the Middle East, for example, face widespread joblessness among their youth population, which has fueled social instability. Even in countries with high average education levels, job creation can be scarce if that education fails to support young people with an entrepreneurial mindset -- or fails to provide them with the skills to design and implement effective business models.

A number of countries are addressing the problem with education reforms, but they also need short-term solutions. They need strategies that target the heart of the problem: untapped human potential. "This initiative is organic," says Gallup partner Todd Johnson of the EAS' grassroots approach. "If your goal is to generate sustainable job creation, you've got to identify, engage, and accelerate the development of entrepreneurs in your ecosystem with businesses that have high growth potential, whether that ecosystem is a city, a state, or a country."

Building momentum

Gallup closely tracks the progress of EAS participants to continually increase the program's value to SMEs and their communities. In addition to reporting on key performance indicators such as net sales, profits, employee counts, and employee turnover rates, participants assess their own level of confidence in the future growth of their companies -- a factor that has proven to affect entrepreneurial performance.

Ultimately, Gallup will gauge the EAS program's success not only by the growth of participating SMEs but also by how well the program cultivates "entrepreneurial ecosystems" in the communities where it is implemented. That means aligning the efforts of various stakeholders that have the potential to boost the community's entrepreneurial activity. This includes new and established entrepreneurs, mentors, subject-matter experts, industry specialists, and local governmental and non-governmental agencies.

Fundamentally, however, the EAS helps build entrepreneurial ecosystems one business at a time by sparking the kind of momentum described by Terese Johnson, chief financial officer of the Nebraska-based Phoenix Web Group: "When we walked away from the table, for the first time we had a unified and clear understanding of how we wanted our business to grow," says Johnson. "No more 'cross our fingers and hope it works.' We had clear steps to take. We were energized."