Money isn't the only thing the tiny business will need before it can become the next Tupperware or Pampered Chef, two titans of the direct sales world, says Eric G. Flamholtz, president and co-founder of Management Systems Consulting Corp. in Los Angeles. Gigi Hill will have to learn and apply the principles of professional management across six areas before it can reach each new stage of growth.
He met with the entrepreneurs in his Wilshire Boulevard office to determine how well they were prepared to handle growth, assessing their organizational and management strengths.
The management survey showed that they had a reasonable set of skills but weren't prepared to be senior leaders of a significantly larger enterprise, Flamholtz says. That can be solved in part by laying the groundwork now to hire the heavy hitters they will need to complement their strengths in the future.
His organizational assessment looked at the markets, products and infrastructure needed to expand a company. The infrastructure includes a company's resource management, operational and management systems and corporate culture.
Like most start-ups, the company is strongest in the markets, products and culture categories, he says. Here's a quick look at his take on how they fared in the six areas.
Markets and products
The owners have a good handle on their target market, which they define as women 18 to 60, Flamholtz says. And they've clearly defined their bags as functional lifestyle products that are fashionable but user-friendly.
He says they could do better by trying to be like companies such as Jamba Inc., parent of Jamba Juice, that gather details in order to paint sophisticated definitions of their customers -- "for example, an 18- to 25-year-old female with a disposable income of less than $50,000 who views the product as a disposable luxury," Flamholtz says.
Flamholtz breaks down the growth curve in several ways. At this point, Gigi Hill is in the first stage, where a company has sales of less than $1 million and is proving its concept. The next stage is a time of scaling up operations, and the last is achieving a professionally managed business, he says. That takes money.
The owners know they can't accomplish their goals with their cash flow alone and must turn to outsiders for funding. That quest requires a business plan and a strategic plan, says Flamholtz, who outlines strategic planning in his book "Growing Pains: Transitioning From an Entrepreneurship to a Professionally Managed Firm," written with Yvonne Randle.
Many entrepreneurs are confused over the difference between the two plans, he says.
It helps to think of a strategic plan as a detailed set of construction documents for your business, he says.
"We are building the architecture of your business," Flamholtz says.
"Most entrepreneurs are good at thinking about the product and the market, but they are not good at the other part of the business that will make them successful, which is the infrastructure," he says.
By comparison, using the construction metaphor, a business plan for funding sources such as banks or angel investors would emphasize certain information from the strategic plan such as what kind of building you want to build, to whom you will rent and what the business opportunity is, he says.
The strategic plan should be attached to a business plan submitted to potential lenders or investors.