New Venture Lab: Equipping Christian Entrepreneurs

Question

I have a PC service business that I have operated in a small community for ten years, and two of my children are now old enough to work with me.  

I have a process oriented, TQM background, and I've developed effective methods for handling large volumes of repair with high quality.  This has provided me with an economy of scale and profitability.

Our town benefited from a real-estate boom over the last fifteen or so years, but that has come to a halt.  We have remained busy, but people are leaving the community and I don't expect the boom to recover soon.  I would like to duplicate my shop in a much larger community, an hour and a half away.  I'm sure the same model would be profitable in a larger market, and I even have a former employee there to help me get it started.

I would greatly appreciate any advice you would offer.

Answer

If you know and trust your former employee and he has the skills to do what is necessary, you are already well down the road to a successful branch office for your business.  I would suggest that there remains three key items: 1) structuring the agreement with your former employee, 2) preparing the launch plan, and 3) building your customer pipeline in the new location, all of which are interrelated.

1. Structuring the agreement - The compensation plan needs to be fine-tuned to properly align the employee with your interests.  I would suggest a share of the profits from the branch office that he runs, rather than simply an hourly wage.  (See our other posts in our Employees section for some helpful advice.)  A simple, but well-written and clear agreement are a must prior to starting the relationship to make sure everyone's expectations are properly set and managed.  Given the fact that the repair process is your Intellectual Property (IP) that you are contributing to the new branch office and that you will likely be investing in the sales and marketing process, the compensation plan or profit sharing, needs to properly account for and compensate for the contributions that each of you are making.  If your former employee is very entrepreneurial, you may want to structure the agreement more like a franchise if you will, so that he feels like an owner, but you get a revenue royalty for your contributions.  If he is more like an employee and needs lots of care and feeding, then you should get more of the revenue and profits, and he should get less.
2. Preparing the launch plan - The launch plan should be fairly easy to put together in a spreadsheet because of your real market experience in your current market.  I would suggest using an Excel spreadsheet and build the plan up month-to-month with pipeline activity that includes marketing and sales activity and finally, customers, average price per engagement, the buildup of engagements over time, and of course the expenses.  Careful and accurate construction of this plan will allow you and your former employee to see and manage the necessary investment and effort to build another branch business.  This will relate back to the agreement: who pays for that investment?, how much does the employee get paid in the initial stages vs. later, more successful stages?, what kind of contributions are made by both parties along the way?, and how do they get compensated for those contributions?
3. Building your customer pipeline – The pipeline plan should include all of the various marketing initiatives you used in your current market, laying out the costs, expected results, types of campaigns, etc. in order to drive customers.  You may find that the larger market will require a more sophisticated marketing message and that the competition may be much more established, larger and well marketed compared to what your experience has been in the smaller market.  You may want to test the entire thesis of the new market by marketing first and only launching and hiring the former employee if you can get customers.  It would be a real shame to have him quit his job and join you, only to find out that you cannot get any customers due to market conditions.  Test as much as you can prior to pulling the trigger on the agreement, but have everything figured out up front.

A few key questions for you to consider:

1. What have you experienced in terms of the sales pipeline process in your current market and how would that apply to the new market?
2. How would you measure the contributions of each party and fairly compensate for those contributions?
3. Who is going to shoulder the time and money investment of the new office?
4. How long will it take to get to breakeven in the new office and what happens if you are off by 2x or 3x in your timing estimates?
5. Are there any ways to test the idea prior to a full-scale launch, such as doing some initial marketing and doing the work yourself while you build up your customer base large enough to hire your former employee?