C9 The organizational plan

 Learning Objectives

1. To understand the importance of the management team in launching a new venture.
2. to understand the advantage and disadvantages of the alternative legal forms for organizing a new venture.
3. To compare the s-corporation and limited liability company as alternative forms of incorporation for us-based start-ups.
4. To appreciate the importance of both the formal and the informal organization.
5. To learn how the board of directors or board of advisors can be used to support the management of a new venture.
6. To understand what difficulties may arise when owners are reluctant to delegate or give up responsibility.

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Opening Profile 9.1

Eric Ryan and Adan Lowry

We have learned in the text that begin a successful entrepreneur involves effective analysis, planning and strategy. Growth of a new venture also requires a commitment of not only the founders but also the employees in order to sustain growth and profitability over an extended period of time. No one respects the importance of creating and nurturing a vibrant corporate culture more than Eric Ryan and Adam Lowry co-founders of method products inc, a san francisco manufacturer if eco-friendly cleaning products.

     Ryan, a former adman and lowry a former climate scientist recognized the relevance of corporate culture after embarking on their launch of their first cleaning products. According to Ryan since their business involves cleaning products which are not the most exciting products, it is important to maintain employee excitement.

   Their beginning as entrepreneurs started in 2000 because both were unhappy in their jobs and both wanted to create something that was their own. After spending many hours dreaming about ideas in 2000 they came up with a plan to revolutionize the cleaning worlds with eco-friendly products that would be made from nontoxic ingredients, would be just as effective as existing products, and would also have very pleasant odors. They both believed that the green cleaning sector had huge potential but any innovations had to be just as effective as existing products.

Lowry began their quest by looking at alternatives for the common chemicals that were contained in laundry detergents. Most cleaning products required solvents to remove any stubborn stains that were made from petroleum and were likely to be harmful to the environment. With his background as a scientist lowry discovered a natural solvent that was made from corn stover, a waste product of maize production. In addition he found other biodegradables alternatives to water softening agents that included phosphate and a way to extract detergents from coconut oil. After these discoveries they realized that they needed more than just natural ingredients since packaging also had to meet their green definition. This is where Ryan's experience as an admin came in as he designed packages made with PET plastic, which is one of the most recyclable and sustainable forms of plastic. Finally, they discovered that in the northern part of the pacific Ocean, where currents create a large garbage area of plastic about the size of Texas, they could collect waste plastic and convert it into bottles for their products.

     In 2001 they produced their first four cleaning items and convinced the managers of 20 independent 

grocers to try them. In September 2001 they received $ 1 million in venture capital financing. with this financing they then set their signts on national retailers and eventually landed target, where one of the buyers was intrigued by the fact that such a small company was able to sustain a profit. The  company then began to grow as more and more interest was created in their natural eco-friendly products. It was at this point that both Ryan and Lowry realized that they must be sure to create a friendly and positive culture among their employees that would keep them motivated and effective during this growth period.

    Ryan and Lowry feel that employee morale is a key to enjoying continued growth and success. They feel that the more that you employ efforts to formalize employee rules and regulations that faster any positive  culture slips away. The challenge was keeping the morals that came with early success alive as the company grew into a larger organization. As a small company Method was closely integrated; if any employee felt something was needed, all he or she needed to do was to walk over to the right person and ask them to take care of it. As the company grew, however, this become more difficult and as a result they needed to introduce more process but without smothering their vibrant culture.

     Given their concerns they thought about ways to maintain the positive and vibrant culture at method by establishing what they called a "ministry of culture." Initially they defined this ministry of culture as a means to maintain qualities that you might envision in an ideal workplace where employees were not overwhelmed with rules and regulations.

    In search of the right model they consulted with some exemplary companies such as Apple, Google, Pixar, Nike, Starbucks, and innocent that they respected as having that kind of culture they sought, As a result Ryan and Lowry came up with three themes for their organizations. First of all it was necessary to hire great people. Rather than focusing just on expertise it was imperative to make sure the person had the attitude that matched the company.

   Second it was important to emphasize their culture to new hires from the very beginning and make it clear to new hires that they were being employed because they fit in. Third, employees deserved lots of feedback as to how they were doing their jobs in terms of the company's values and culture. Employees needed a sense of purpose at their jobs that was more a shared value than a rule.

       In the end, they recruited a handful of team members from various departments to work with the company's leadership to try to distil their culture into a few core values. The team was defined as the values pod. The values they arrived at came from the bottom up and were embraced by the entire organization. The final list was as follows:

• Keep Method Weirid.
• What would MacGyver do?
• Innovate, don't  imitate.
• Collaborate like crazy.
• Care.

     Now known as their Methodology, these values have become instilled in the organization and are the backbone of its culture. To integrate them into the day to day operations there values were printed on cards that illustrate how each value translates into decision making and behavior.

     With its vibrant culture and core values established, the company has grown into one of the largest green cleaning firms, It is expected to surpass $110 millions in sales in 2011. The company's list of products has grown to include laundry products, general cleaning items, and hand washes marketed in eight countries. Ryan and lowry are very selective in their retail distribution given their focus on green products. Although their products are about 5 to 10 percent more expensive than environmentally unfriendly brands, Ryan and lowry are confident that their sales will grow as consumers continue to be concerned  about the environment and use more and more eco-friendly products.

Building The Management Team and A Successful Organization Culture

In conjunction with the design of the organization the entrepreneur will need to assemble the right mix of people to assume the responsibilities outlined in the organization structure. Some of the issues identified in the organization design will be revisited here since they are not only critical to the building of the team but are just as important in establishing a positive and successful organization culture. Recall in our opening profit how important culture in the organization was to Eric Ryan and Adam Lowry at Method Inc. They maintain that a vibrant culture is a critical factor in the successful growth of any new venture. This strategy must be maintained through the stages of start-up  and growth of the enterprise. There are some important issues to address before assembling and building the management team. In essence the team must be able to accomplish three functions:

• Execute the business plan.
• Identify fundamental changes in the business as they occur.
• Make adjustments to the plan based on changes in the environment and market so as to maintain profitability.

    Although these functions may seem simple and easy to achieve, the people engaged and the culture promoted by the entrepreneur are critical in accomplishing these functions. As we discussed in the organization design section previously, the entrepreneur will first need to assume the responsibility of determining what skills and abilities are needed to meet the goals in the business plan.