Rich Jepsen

Sailing Beyond the Small Business Mindset

May 06, 2005

Case categories include: Entrepreneurship   Strategy & Planning   


By Robert Sher
A parable: Sam took some friends sailing on his new 23 foot sailboat.  He and his buddies wanted to sail under the Golden Gate Bridge.  They impressed themselves with the speed they made going under the Gate, headed toward Japan, being pushed along by a mild wind and a strong ebb (outgoing) tide.  “Who needs sailing school?” they joked.

Then they turned around.

Their sails were well trimmed, the boat was cutting through the water, yet toward Japan they continued (going backwards), as the outgoing current was faster than the boat could sail.  They knew how to trim their sails, but they couldn’t get ahead.

A few hours later and a mile closer to Japan, they began to recover.  The changing tide eased the speed of the current, then reversed, pulling them back toward the Golden Gate.  But evening came and the wind lightened, then died.  Still, they were floating toward home, for a while.  But then the current reversed again, taking them back out toward Japan.  Hardly celebrating, they spent their first night at sea, unintentionally and unprepared.

A windy morning, together with a fresh incoming flood (incoming) tide finally brought Sam back into San Francisco Bay, and back to port, hungry, tired and embarrassed. 

So too it can be for small business owners.  They often dive into a business out of passion for the activity, with just enough knowledge and passion to avoid failure, but not enough to really succeed.  The owners of OCSC Sailing were held in that position for a long time, until five years ago, when they realized they needed to break out of the invisible cage that held them back from growing to the next level.

A Case In Point
Anthony Sandberg, OCSC’s founder, has always loved sailing.  The business began in 1979, and Rich Jepsen, CEO, became involved in 1980.  They moved to their current location in 1982 and invested heavily by building the clubhouse.  Growth was steady, but cash flow and profits were low – the partners took little out for themselves.  Rich’s nature made him very conservative in business, while Anthony was more adventuresome – a natural risk-taking entrepreneur.

After years of building the business, they began to wonder if the business model supported two equity partners and, in 1993, Rich took a year sabbatical abroad since his wife was transferred.  Both men agreed that it might mean the end of their partnership, and agreed to make a decision upon Rich’s return.  Anthony managed the business well, but the pace of work and pressure of running it solo took much of the fun away.  They both recommitted to the partnership and the business, but with a renewed determination to grow the financial strength of the business, as well as to creating a business that could thrive once they retired.  One of their most valued employees, Max Fancher, was soon brought into the firm as an equity partner.

By 1995, their annual revenues reached 1.3 million, and for the next six years, grew at an accelerated pace to $2 million revenues in 2001.  Anthony says, “Those years were great.  We felt that we had figured out the business, knew all that we needed to know.  It seemed to prove that this sailing bum had learned all he needed about business.”  But the six-year run of growth came to an abrupt halt after September 11, 2001, and the partners came to the depressing conclusion that their good years were more a function of a heady economy than business acumen.

Back to School
After a year of grappling with the decline in revenues and reflecting on their age and stage in life, they decided they needed to “go to school” to learn more about business.  Again, they re-committed to the business, and decided that Rich should be the leader of the business and hold the title of CEO.  Anthony was to focus on marketing, public relations and the corporate sailing program, as well as leading international sailing adventures and being the sailor icon for the business.  They knew they had to change the formula of OCSC if they were to build an “all-weather” business that could pay market wages to employees and steady, comfortable salaries to its owners.  They were tired of being a small, struggling business.  They decided, as a three-partner team, to take on mandatory professional training in their areas of responsibility.  Business seminars, books, consultants were employed in increasing numbers.

For Rich’s school of business, he chose the Alliance of Chief Executives.  Joining in 2003, he quickly learned to be more comfortable with taking business risks and the inevitable mistakes.  Rich, Max and Anthony began to create a vision of a new, improved OCSC.  Business consultant and friend Larry Ledgerwood helped all three grapple with interpersonal issues that would hinder growth, and together they tackled longstanding issues.  The bond between the men strengthened still further.

Anthony enlisted coaches from speaking coaches to efficiency coaches.  He read business books, from Lencioni's books to in-depth marketing and sales training programs like Jay Abraham and Brian Tracy's programmed learning products.  He worked with a marketing and strategic planning consultant, Clark Kellogg, of Kellogg Consulting about branding, public relations, product identity, etc.  At the time of our interview, Anthony had just returned from an intensive weeklong course at Wharton Executive Leadership School, where he and 20 other executives developed leadership skills. 

The Building Begins
OCSC kept what they had done right and added on.  In addition to being a sailing school and sailing club, they envisioned OCSC as a sailing resort – an upscale, friendly destination ideal for corporate events and adventure vacations.  They embarked on new marketing campaigns, facilities overhaul, fleet adjustments and new programs all designed to reinforce the new brand identity.

Their re-branding is beginning to work.  OCSC has seen improvement in many areas of the business from the 2001-2002 days, especially in membership (over 1,000 members, up 20% from 2001), corporate event business (up 75% from 2004, YTD), and creation of new adventure travel products that generated more net profit that the previous two years of international adventures combined.  OCSC has created a product with a nearby hotel to make it easier for vacationers to take sail training while in the Bay Area.  More innovations are in the planning stages. 

The Analysis
Running a small business can be all absorbing and isolating.  Just getting to the point of being stable and fully functioning can take years, and the memories of uncertainty and struggle can be painful and limiting.  Those businesses that do survive can either stay small and tick along, or grow to the next level.  Both choices have risks and rewards.

Sometimes the choice is not made at all.  Often, the entrepreneur desperately wants to take the next step, but is trapped by the small business mindset, just as our hapless sailor Sam was trapped by the currents.  The heart of the problem can lie in the balance of confidence and humility.

Confidence
The entrepreneur must have the confidence that they have (or can learn) what it takes to bring the business to the next level.  There is a big difference between Anthony seeing himself as a “sailing bum” who got lucky and has this business, versus seeing himself as a business executive who leads a business in a sport he loves.

Likewise, it takes a confident person to be able to admit that they need to learn from others, and to put themselves in the presence of more knowledgeable peers.  I suspect it took courage for Rich Jepsen (and many other new ACE members) to step into that first ACE meeting, perhaps feeling like he would be the least sophisticated and least knowledgeable member.  Of course this is rarely true, but the fear is often there.  Anthony commented, “When I arrived at the intensive Wharton Executive Leadership School, I couldn’t believe the level of CEOs in the room.  I felt out of place in a room of accomplished executives.  Yet by the end, there was mutual respect, and it was very beneficial all around.”

Confidence is critical in granting yourself permission to take risks, and accepting the inevitable mistakes.  If you really believe in yourself, when you try things that fail, you won’t lose your confidence.  Rich Jepsen said, “I’m the conservative one on the management team at OCSC, and Anthony is the natural entrepreneur.  So he used to say yes, and I used to say no.  But being in the Alliance, I saw CEOs that tried things that failed, learned the lesson, and moved on.  They weren’t so self-critical and judgmental that it stymied them.  It didn’t mean that they were a bad CEO.  I also saw the other side of risk taking – the successes, and how it helped grow their businesses.  So I loosened up a bit, and let some of the best ideas roll.”

Often small business needs the expertise of consultants, lawyers, and other specialists to grow.  But it takes confidence to know that you can choose the right consultants, and assess their recommendations properly.  Without this confidence, entrepreneurs tend to avoid using any outside help, with a justification that, “They cost too much anyway.”  But choosing between experts and then controlling them is a learned skill and necessary for growth.  Keys to successfully using experts include gut checks with peer CEOs and requiring experts to help you fully understand the choices they present.

Humility
While confidence is essential to providing the courage to forge ahead, humility is just as important to avoid recklessness and waste.  Entrepreneurs that have built a business usually are experts in their industry or trade.  That doesn’t mean that they are experts at business.  Operating and growing a business is very complex and challenging, and admitting that there is much to be learned about the world of business is the first step to growth.  In fact, most of the best business executives I know are still learning the game of business – and always will be.

While we are thinking humbly, it’s important to acknowledge that no matter how skilled a CEO or entrepreneur, or how ingenious his moves are, the business environment is more powerful, and can hammer anyone.  And it’s also humbling to know that there are other executives that are smarter and better than you, so when you find them, you might as well learn from them.

This attitude leads us to look outside our business, at our industry and at other CEOs and businesses in other industries.  Those outside our own business have fresh ideas and different perspectives, and will appear ingenious and innovative when adopted. 

But what exactly is the small business mindset?  What are the signs?  How does it contrast with the mindset of a CEO dedicated to growing a business?

Gripping the Purse Strings.  Is your lock on spending so tight that no risks are being taken?  Are you still super-tight, even though the cash flow has eased up a bit?  This is a hallmark of the small business mindset.  Granted, business is a game of keeping as many nickels as you can, and waste or wild ideas have no place in a well-run business.  But well placed “bets,” whether on people or projects, are essential.

Nothing New.   Does every new idea have to be such a guaranteed win that they never get approved?  Does the thought of making a mistake on a new idea and wasting a few thousand dollars make you cringe?  Trying new things that can foster growth is critical, and prudent ideas must be constantly attempted if the business is to develop over time.

Never any Cash.  Are you always tight on cash, year after year?  Does it seem like you’ll never pay off the loan, or forever worry about making payroll?  Some small businesses get stuck.  So many years of being conservative stagnates the business, and then it’s in survival mode.  The owners take out less when it’s slow, and the business survives, but not easily. Often, a downward spiral of decreasing sales, then decreasing cash flow, followed by cost-cutting, takes hold.  A growth-oriented CEO who senses this decline on the horizon will seek to change the business or situation with a well placed change initiative.  If successful, growth will return, and the spiral will be upwards.

Insulated Leadership.  Never have the time to get out?  To go to trade shows?  To talk to your customers and hear about your competitors?  To read business books?  To meet with other business executives?  To take classes?  Overly focusing inwardly (like China and its Great Wall) is a sign of the small business mindset.  Most businesses grow by looking outward – to customers, to competitors, to peers, and more.

Mistrust of outsiders.  Its true, everybody is out for a buck.  Everybody has their own agenda.  Few have only your best interests at heart.  But outsiders have a lot to offer, and growing businesses look for good trades – giving them what they want in exchange for getting what they want.  If some advisor shows up and the proposal doesn’t look good, send them home, and look for someone else.  But good trading with outsiders is good business.

Suffering with People Problems.  The small business mindset often means feeling stuck and powerless to resolve interpersonal issues between key personnel.  It all festers along, year after year.  But to grow, you’ll need a well-oiled machine, with people pulling each other forward, not holding each other back.  The use of interpersonal coaches or consultants can be very powerful, and can knock down years of “emotional junk.”

Running the Business.  This sounds OK, but it implies that the leader is doing much of the work and is driving the business forward.  For growth, it is much better to lead a business forward.  It’s a stylistic difference, but it makes all the difference to the team that must really do the work.

Change seems bad and hard.  Certainly this attitude is good way to stay the same.  Who wants growth when that means more heartburn and headache?  Too often the small business mindset gives lip service to growth, but resists the change that growth, by definition must bring.  Without change, you have stagnation.  The growth attitude finds change exciting and promising to offset the inevitable hard work.

Don’t get me wrong.  The small business mindset isn’t bad if you want to stay small and enjoy the lifestyle.  And some businesses aren’t meant to grow – and if you try to make them grow, you just lose money.  If you figure out that you really want to grow, but have the wrong business, sell it and find a business more suited to growth.  Sailing Schools and sailing clubs are generally small, and few ever really grow much.  But since the owners of OCSC want to grow, they are redefining and re-branding OCSC into a sailing/sports resort, and resorts are much bigger businesses.

Changing from the small business mindset and then building a bigger business takes time, energy and dedication.  The ramp up includes the challenges of matching big new ideas with small budgets, tight cash flow and bank covenants. 

The instructors at OCSC could help sailor Sam understand tidal flow, hull speed, wind conditions, and how and when to read t e tide book.  Sam would never have to relive his frustrating night at sea.  The leaders at OCSC have taken the steps they needed to move the business to the next level, and have shed the small business mindset.  Stop by and see for yourself.  You’ll feel the energy.

Takeaways:
• Staying small is fine, if that’s what you want.  If not, you must make a major commitment to growing yourself before you can grow your business.
• Business is a profession in itself, and you’ll need new skills and abilities to successfully grow and operate your business at the next level.
• You must be willing to take some personal and professional risks to grow.

Robert Sher is principal of CEO to CEO, specializing in assisting CEOs and business leaders as they navigate critical passages.  He is the author of The Feel of the Deal; How I Built a Business through Acquisitions.  He may be reached at Robert@ceotoceo.biz.

Company and Case Facts:

Company: OCSC Sailing
Persons: Rich Jepsen, CEO; Anthony Sandberg, Founder and President; Max Fancher, COO
Alliance Member since: 2003
Business Founded: 1972
Annual Sales Volume: $3 million
Growth Rate: 8 to 10 percent
Product: Sailing instruction, sailing club, sailing resort, corporate training, facilities rental
Typical Customer: Individuals, corporations
Written: July, 2005