Coming to grips with growth

Nation's Business, Feb, 1998 by Sharon Nelton

"This is such a great store!" customers often remark when they first explore Noueau Contemporary Goods, a colorful Baltimore emporium that sells everything from quirky greeting cards to hip furniture.

Owners Steve Appel and Lee Whitehead smile warmly at the compliments. Little do the customers know that behind the smiles, the partners are, in Appel's words, "nervous wrecks" a lot of the time.

In 1986, not long out of college with degrees in graphic arts, Appel and Whitehead started with a tiny but kicky gift store in a suburban retail center in Savage, Md. Within a year, they had moved the shop to a 1,000-square-foot space -- more than triple the size of the first location -- on Charles Street in bustling downtown Baltimore.

They still had to support themselves with jobs on the side -- Appel as a waiter and Whitehead as a picture framer. In the early 90s, as Nouveau slowly grew and started to turn a small profit, they were able to quit their other jobs.

They took on additional space six years ago, and in 1996 they seized an opportunity to expand into a newly vacated adjacent area. Now the store covers 6,500 square feet. Since 1996, the number of their employees has increased to 10 from four, and their sales for 1997 reached $1.2 million, up from $720,000 the previous year. The partners expect sales eventually to reach $3 million.

How do Appel and Whitehead feel about all this expansion? Just as terrified now as they were when they started out 12 years ago. It hasn't gotten any easier," says Appel. "I think it's gotten a lot harder."

They still struggle with inventory and payroll. They now have staff positions they never had before, like a full-time shipping-and-receiving employee and a full-time interior designer. They're still having trouble delegating responsibility and control. They're never out of debt. And their retail consultant, says Appel, has been exhorting them to get a delivery service. Get a delivery service! "-- instead of using their own. employees and van.

They think it would be fun to have another store -- in the Georgetown section of Washington, D.C., perhaps, or in Rehoboth Beach, Del. But they know come to grips with the growth they've experienced since 1996. "I think we really need to master this business because we don't have it mastered at all," says Appel.

Like Appel and Whitehead, most entrepreneurs learn that success as a business owner doesn't mean you can finally sleep at night. Expanding a company doesn't just mean grappling with the same problems on a larger scale. It means understanding, adjusting to, and managing a whole new set of challenges -- in essence, a very different business.

A growth spurt can produce a company that's much more complex -- one that needs much more sophisticated management and an infrastructure that it probably never had.

Roger Miller, president of DependiCare, a Broadview, Ill., supplier of medical equipment for home health care, says that when his company's revenues were $1.5 million a year, it was easy to be hands-on and do without "a lot of systems, processes, and procedures." But when DependiCare, now a $12 million company, reached $6 million to $8 million, things changed. For Miller, there was "a big jump in complexity of the business from that point on. You need systems, you need processes, you need computers. If you double the size of the company, the number of bills you have goes up by a factor of six."

Miller says he also found the need to be strategic. "When you're a $1.5 million company," he says, "you don't need to have strategy. When you're $8 million, you'd better have strategy. You'd better be thinking down the road a little bit."

Moments Of Panic

Many entrepreneurs find they know as little about managing a larger company as they did about starting a business. Patricia D. Creedon, president of Creedon Controls Inc., an electrical contractor in Wilmington, Del., says: "There are times I have moments of just sheer panic. Where am I going to get the money? How am I going to cover the payroll on that? How am I going to get the job done?"

But they gather the courage -- and often some outside help -- to see them through.

Creedon, for example, almost gave up on her fast-growing business when it hit the five-year mark in 1994. She was working out of the basement of her home, she says, and "I was very isolated. I was plodding away on the day-to-day grind of the business, and I was worn down. I was tired. I was cash-poor. I had a lot of receivables due me but not coming to me. I really thought I might have to close the doors."

But she was persuaded to persevere by Edward H. Schneider, a Wilmington College business teacher and volunteer consultant with the U.S. Small Business Administration's SCORE (Service Corps of Retired Executives') program. He talked Creedon into writing a business plan, and he used it to show her the progress she was making: gross receipts that were doubling or tripling every year, improved debt-to-equity and other ratios, and positive comparisons of her company with other businesses.