SPECIAL REPORT ENTERPRISE: Management: Learning
LOOK WHO'S SHOWING SMALL FRY THE ROPES
On the surface, Janice Flynn's tiny marketing firm appears to have little in common with a corporate titan such as General Electric Co. For starters, Flynn's CC&P, based in Westport, Conn., does a mere $1.4 million in sales a year--nowhere near the $60.1 billion in 1994 revenues raked in by GE. And the management challenges faced by Flynn and her counterpart at GE, Jack Welch, seem worlds apart. Catering to customers from Budapest to Bahrain, GE has 220,000 employees deployed around the world. By contrast, Flynn, with eight employees, runs her business out of a 2,500-square-foot addition she built onto her house.
But look again and the differences may not be so great. Like any business, both CC&P and GE must keep a lid on escalating costs and compete daily for customers--all with an eye toward a healthier bottom line. And something else unites the two businesses: Both are partners in an unusual educational experiment, the Small Business College.
The course is sponsored by GE Capital Services, a unit that provides a wide menu of financial services, from credit cards to business loans. It helps entrepreneurs, often urban-based, gain skills needed to run successful businesses.
WONDER YEARS. Participants attend three hours of classes every Thursday morning for 10 weeks at GE Capital's Stamford (Conn.) headquarters. The subjects, which are taught by consultants and academics, range from marketing to financial planning. Another popular feature for students: individual counseling sessions with GE Capital managers, who visit businesses to offer hands-on practical advice. "GE has the resources we need," says Flynn, 48, one of a total of 34 graduates of the program, which GE may expand to other regions of the country.
Though hardly a substitute for a full-fledged MBA, the course is designed to help small businesses survive the tenuous early years, when most collapse. "There's a lot of advice on getting started," says Deborah J. Polydys, a management consultant in Southington, Conn., who is one of the GE instructors. "But there's a big lack of resources once you get started." The GE program, which costs $500, is open to businesses that have been established at least two years, have a minimum of four employees, and whose annual sales are at least $250,000.
GE Capital's program is part of a broader trend by Big Business to educate its smaller cousins. In recent years, a growing number of large companies have begun to offer counseling, management classes, and mentor programs to upgrade the skills of small-business managers. Altruism has little to do with the trend. In their drive to lower costs, many corporate giants, such as AlliedSignal Inc. and Eastman Kodak Co., are using such programs to eliminate waste and improve the overall efficiency of smaller suppliers that don't have the acumen or experience of their bigger customers. For example, roughly a third of AlliedSignal's 3,000 suppliers have annual sales of $10 million or less.
Others, such as NationsBank Corp., are using educational courses to tap the small-business market and its appetite for services, notably financing. In partnership with federal agencies, BellSouth Corp., and Bell Atlantic Corp., the Charlotte (N.C.) superregional has opened small-business resource centers in Nashville, Baltimore, and Charleston, S.C. Six more are planned. The centers offer counseling, computer time, and classes for small-business owners. NationsBank hopes a wiser entrepreneur is a creditworthy one. "Ideally, we would like to have a more qualified and a more knowledgeable business owner in the marketplace," says Beverly Lyle, who heads NationsBank's program.
BABY BORROWERS. GE, too, has solid business reasons for helping entrepreneurs--the first being the hope of drumming up new business. GE Capital is a major lessor of office and other business equipment to small businesses, and it wants to capture a greater share of the small-business loan market. Some of the company's students have already received or have applied for GE Capital loans. And there are less tangible benefits. Working closely with small-business owners provides needed training to young GEers, who may have a wealth of academic credentials but limited practical experience. "I think it gives you a real hands-on feel," says Lisa K. Hinds, 24, a financial analyst for GE Capital's Community Small Business Development unit, which offers credit and consulting services to entrepreneurs. Hinds volunteers a few hours a week as an adviser in the program.
GE Capital's course begins with a heavy dose of accounting. All too often, entrepreneurs get into business because they have a unique idea or talent. But many don't understand the basics of cash flow and other balance-sheet issues. Even Flynn, who says she knew a lot about accounting, found the class surprisingly rewarding. "I sat down with the GE advisers, and we started looking at the financials and how best I could benefit," she recalls. She soon discovered she was entitled to a much larger tax deduction for the business-specific addition she made to her home. Flynn also found that her accountant wasn't fully depreciating the cost and insurance for the Dodge van and Cadillac she uses for her business. The upshot: Flynn fired her accountant and estimates she has reduced her annual tax bill by as much as $20,000.
Time management is another crucial factor often overlooked by entrepreneurs, who may unwisely fill their days with answering phones and making deliveries. Gary D. Bacon, who owns Corporate Condominiums, which rents apartments to visiting business executives, credits the GE program with making him--and ultimately his business--more efficient. As part of a class assignment, Bacon wrote down everything he did at his company, based in Stamford, over a three-day period.
The results were telling. Sure, he did strategic thinking and customer schmoozing, but he was also caught up in a number of trivial pursuits. "Maybe moving a dresser in the middle of the day is something I can hire someone to do," Bacon now says. He has since expanded his staff from three to five and spends more time scouting apartments and finding new business. He vows to hold the grunt work to a minimum.
GE's program doesn't just deal with white-collar office issues. Students also tackle the nitty-gritty details of manufacturing--a GE specialty. Concepts such as inventory control and product cycle times seem alien to small business. But they are no less important.
Consider Cynthia A Davis of Vitro Technology Ltd., which makes glass tubing. She was facing a big finished-goods inventory problem after her company's domestic sales slowed. But Davis, the company's sales and marketing manager, didn't want to offer deep discounts and take a loss to move the merchandise. That's when one of her teachers, Fred McKinney, a University of Connecticut B-school professor who also has a coffee-importing business, suggested she look abroad. By offering modest price breaks to overseas customers, who were used to paying a premium for specialty-glass products, Vitro Technology could sell its goods abroad at a discount and book the same profit. The company, based in Bridgeport, Conn., was able to quickly reduce its inventory from $40,000 to a more manageable $25,000.
The biggest challenge facing successful small businesses may be how to expand prudently. Small companies often fall into two categories: those that can't find enough customers and those that can't adequately service the ones they have. James W. Austin Jr., who started his Austin Telecommunications & Electrical Inc. in 1987 with $6,000 in savings, says that learning to grow profitably was among the biggest benefits of the GE program. Before expanding his $10 million phone installation and service company, the former Northern Telecom Inc. systems designer invested $100,000 in his operation, much of it in new financial software to track the growing business and make sure he could keep up. "We're so wrapped up in the daily wars and battles," he says. "By going there, I had a chance to reevaluate."
Financing is also critical to growth. Not surprisingly, GE Capital doesn't stint on this subject, which could mean new business. The course introduces entrepreneurs to various types of credit, from venture capital to federally guaranteed Small Business Administration loans. Instructors also help students develop a detailed business plan. Many entrepreneurs never bother to prepare such plans, even though it's one of the first documents scrutinized by potential lenders.
TAKEOVER TUTOR. The course touches on acquisitions as well. Mike Mears, whose day job is to help run the $40 billion GE pension fund and investment business, recalls how one of his students, Girish Gupta of Data Solutions Inc. in Easton, Conn., was eager to expand through an acquisition. Gupta thought that marrying the technological knowhow of his computer consulting and data processing company with an old-fashioned manufacturing concern would produce huge synergies.
But like many entrepreneurial aspirations, it sounded easier than it was. Data Solutions was strapped for cash. An entrepreneur who himself started 11 businesses, Mears provided Gupta with a list of business brokers and acquisition advisers, while cautioning him on the high risks involved. "He needed advice on how to structure a buyout with no or little cash," says Mears. "I told him he's got to go into a troubled business. He's going to have to work out an arrangement." Gupta, chastened but still determined, says he is still scouting around for potential targets.
Though limited for now, GE Capital CEO Gary C. Wendt says GE may set up other small-business colleges in the future, possibly in concert with banks or insurance companies. "We may have a template here," says Wendt. But GE first wants to gauge the interest of potential partners. Given the perils of small business, there'll be no shortage of students.
What the Giants Are Offering Small Business
GE CAPITAL Offers classroom training and on-site coaching to small urban-based businesses. Subjects range from accounting to human resources. GE Capital hopes to expand pilot program in Stamford, Conn., to other regions.
ALLIEDSIGNAL Suppliers receive courses and practical training aimed at improving manufacturing quality and efficiency. Almost a third of the company's 3,000 suppliers have annual sales of $10 million or less.
NATIONSBANK In partnership with BellSouth, Bell Atlantic, federal agencies, and local colleges, the bank offers counseling and a 14-hour management course at small-business resource centers in three cities. Six more centers are planned.
HUGHES ELECTRONICS Under a "mentor-protege" program funded by the Defense Dept., Hughes engineers help improve the technological expertise of small minority-owned companies to help them become eligible for government contracts.
KODAK Has almost 500 joint teams of Kodak managers and suppliers that focus on improving the quality, design, and cost of materials made by individual vendors. Kodak usually shares half of any cost savings with suppliers.
HONDA OF AMERICA Sends technicians to suppliers' plant sites to teach efficient manufacturing methods and help correct wasteful production practices, such as too much inventory and excessive downtime.
NORTHROP/GRUMMAN Engineers visit key suppliers at least once a month to monitor manufacturing procedures. The company also uses advanced computer technology so it can simultaneously work on part designs with suppliers.
PORTER GIFFORD/GAMMA-LIAISONBy Tim Smart in Stamford, with Katheryn Hayes in Atlanta and bureau reports