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In Hard Times, Increasing Efficiency Can Be the Key To Growth-or Survival

Wall Street Journal
Jeff Bailey

The next time you're grousing with a fellow entrepreneur about ungrateful employees, chiseling Customers and high tax rates, take a moment to share a happier bit of news: how you recently made your business more efficient.

In this nasty economy, with price increases so difficult to pass along, lifting productivity is often the only path to higher profits, or just plain survival if you're in an industry in which the competition is getting more efficient.

But smaller companies are at a disadvantage . They typically lack the scale to operate in the most efficient manner. And measuring productivity-collecting detailed data on labor and other elements of production is a complex and time-consuming task for entrepreneurs. Getting the next shipment out comes first.

In the daily efforts of other small-company owners, however, there are lessons to be learned. Few blockbusters, to be sure, but a bit of common sense here and there that perhaps can help make your company operate just a bit more efficiently. So, some examples follow. And you're invited to suggest your own for a future column, using the e-mail address listed below.

Want more work, not more workers? Ask for it. Mike Faith, 37 years old, founded Inc. four years ago to sell telephone headsets used in telemarketing and other office settings. Sales, via his Web site and from catalogs he sends out, came rapidly, reaching $650,000 a month recently, he says.

But his payroll was rising, and he felt the San Francisco business wasn't becoming more efficient as it grew. A profit-sharing plan for his sales crew was too complicated, he realized, to spur them to learn how to handle more volume per worker. So he made it simple: A set percentage of gross sales would be paid out to employees, meaning each worker's piece of the pie would shrink with every new hire.

"Now, they say," We don't need another person," Mr. Faith says. The revenue bonus is paid to all 11 workers, based on the hours they put in and not on individual performance, so there is a built-in incentive to help each other be more productive.

Mr. Faith's compensation system might not be right for your business. But thinking conceptually about what you really want to achieve and how to provide an incentive for employees to get there could help you find a better pay approach.

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