Small Business Special Report Big Fish, Small Ponds

When Cheryl Collins joined Ninkasi Brewing Co. in December 2011 as its first HR director, it was hard for the 55 employees and countless customers of the Eugene, Ore., microbrewery to swallow the news. As word spread of Collins' pending arrival at the 7-year-old company, a few locals penned angry letters to company officials.

"HR is evil … it will ruin the company," predicted one. "Congratulations on the corporatization of Ninkasi," said another. Employees, some of whom had worked for manufacturing companies where HR handed out pink slips and pay cuts, worried that they might face similar situations at Ninkasi.

Collins clearly had her work cut out for her. "When I walked in the door on the first day of the job, there was a desk but no chair, no pen and no job description," she recalls. She thought, "Aha, this is why they hired me!"

Starting from scratch, she's spent the past year and a half building trust and an HR function from the ground up. Among her tasks: updating compliance policies, outsourcing payroll, writing a basic procedures manual, creating an onboarding initiative, adding a human resource information system, creating formal compensation and benefits programs, recruiting 30 employees, building core values, and boosting employee engagement.

As she and the chief executive officer worked to define her role and link it to business goals, overcoming misperceptions about HR remained her biggest challenge. As she put plans into action, she got crafty:

"When we make specialty beer, we allocate some for our employees to enjoy," she explains. "We made it available only in my office so that employees would have to come by, talk and spend some time." And she changed her title from HR director to vice president of organizational development, another step in "combating that old, negative attitude about HR."

Fast-forward to today, and Collins reports that the company has an 85 percent employee engagement measure, annual turnover near zero and statewide recognition as a great place to work.Ambitious growth plans call for hiring 40 more employees in the next five years as production capacity increases from 100,000 barrels to 250,000. As for those anti-HR letters? Collins has them framed and hanging in her office, as a reminder of where she started.

Enter Human Resources

The path taken by Ninkasi is a common route to a more formal HR management structure as small businesses grow, says Donald F. Kuratko, a professor of entrepreneurship at Indiana University.

"The 50-employee threshold—when worries of regulatory compliance with labor laws kick in—is often a critical stage of development," he says. "In the early days of a small business, employees come for the passion and excitement of building a new company. Later, they may come for different reasons." At that point, Kuratko says, owners must ask themselves if they are "really building the company to retain that level of drive, satisfaction and accomplishment."

That's often when HR professionals arrive on the scene.

Although few scholars explore how HR practices change as small businesses grow, Kuratko and Jeff S. Hornsby, SPHR, a professor of management at Kansas State University, examined the question in 1990 and again a decade later.

In a study of about 350 small businesses in various industries published in October 2001 by the Journal of Small Business Management, they found that in companieswithfewer than 50 employees, owners assume the role of HR manager. Companies with 50-100 and 101-150 employees shared similar HR practices, with specific strategies for job analysis, recruitment, compensation, benefits and incentive plans, for instance. Companies with more than 100 employees were twice as likely as their smaller counterparts to have an HR professional.

The findings were similar in both the 1990 and 2000 surveys. So, the tipping point at which small businesses hire an HR professional, and the HR practices employed by small businesses, "apparently don't change with time. They're endemic to small businesses and entrepreneurial concerns," Kuratko points out.

Reach the Critical Point

In fact, for many small-business owners,an awareness of and need for HR come later—usually after a learning curve, observes Matt Allen, an assistant professor of entrepreneurship at Babson College in Babson Park, Mass.

"Unless the founders of a small business have a background in HR, they would typically never start out with an HR manager," he says. "The flexibility involved with starting a small company doesn't fit well with the bureaucracy of formal HR management."

Allen, along with Jeff Ericksen, an assistant professor of human resources and labor relations at Michigan State University, and Christopher J. Collins, an associate professor of human resource management at Cornell University, examined 270 small businesses with 200 or fewer employees for a study published in the March-April issue of Human Resource Management.

From 2004 to 2007, the researchers sought to discover how small businesses were using specific HR practices. They found early on that owners or managers weren't familiar with many HR terms. In fact, most owners or managers they interviewed didn't feel comfortable talking about HR practices, as they weren't even sure what, if any, such practices their company followed, Allen says.

HR professionals "may only become necessary when a certain level of firm stability, size and complexity comes into play," he explains, "and that level can vary from company to company and industry to industry."

Additionally, the researchers concluded that small businesses perform best—that is, increase employee involvement and reduce turnover—when they focus on HR practices that emphasize employee commitment and leadership involvement, Allen says.

These practicesgenerally include:

• Offering employees high pay contingent on performance.
• Giving employees greater autonomy in work assignments.
• Forming and using teams.
• Enhancing opportunities for training and development.
• Selecting candidates who fit the organizational culture.

"The opportunity to create and harness a family feel and personal accountability is there if you're a small business," Allen says. When business leaders encourage such personal relationships, "they deliberately do better. It could be a latent factor in every small business."

Strategies in Action

Not surprisingly, then, HR management in small businesses often differs greatly from that in large companies. While large organizations may have full-scale HR departments with teams of specialists and outside consultants, small businesses often rely on the skills of a solo HR practitioner or two, coupled with some outsourcing.

HR professionals from companies with 100 or fewer employees interviewed for this article agree that they generally face less bureaucracy and more autonomy but must deal with limited resources and rapid change. They enjoy their generalist roles, which allow for a variety of responsibilities, fast decision-making and the ability to see the effect of their efforts more directly.

Below are a few of their stories, illustrating some of the ways they make a difference at their small companies.

Develop Leadership Ranks

Recruiting and retaining a highly educated workforce has become one of Dave Morante's top priorities as vice president of business operations for Numerica Corp. Ninety-five percent of the defense technology company's technical staff has advanced degrees.

"We compete with the Googles of the world for the same people," he says. "It's a constant challenge."

The 50-employee company uses its scenic Loveland location in northern Colorado as a selling point, along with the opportunity to work for "all-stars" in the field and become national leaders. Numerica maintains relationships with faculty from top universities, including California Institute of Technology, Harvard, MIT and Princeton; the company's staff members give technical talks on campuses to spot and lure promising graduates.

Since joining the company four years ago, Morante has paid special attention to retention, advancement and professional development. Last October, for instance, five research scientists were promoted to program manager roles. Two of them completed a leadership program at the University of Denver's Daniels College of Business in June, and the other three are expected to attend in the fall. Numerica pays the cost.

"We consider this program as foundational for managing and leading at Numerica and as a step in developing a common language for our current and emerging leaders," Morante says. "I'm really proud of how we've been able to promote from within."

Support Family values

At Lone Rock Timber Management Co. in Roseburg, Ore., managers focus on staying true to family ownership and building strong connections with their 100 employees through personal and professional support. Many employees have long tenures, with a number of them having been on board for three decades.

The company, founded in 1950, has 120,000 acres under management in Oregon. From tree planting to road building to logging, employees are directly involved with each step in land management, says Julie Shoufler, Lone Rock's 15-year veteran HR administrator.

"Relying mainly on company employees, rather than contractors, not only capitalizes on the expertise and skill of each person; it harbors a sense of ownership and pride in their work," Shoufler says. When the housing market crashed in 2008-09, that concept was tested. As the demand for lumber decreased and timber prices dropped, business slowed. While competitors and other area companies resorted to layoffs, Lone Rock stood firm.

"We didn't lay off anyone," Shoufler recalls. "We didn't want to lose any employees, and we wanted them to be able to work and support their families." So she got creative and found projects—working in the shop or on firebreaks, for example—to keep employees busy.

CEO Toby Lutherheld many meetings to keep employees informed on the market and company projections. He took a hands-on approach, often going out with crews.

"We worked to keep them in the loop and to reassure them," Shoufler says, adding that the sense of family culture was preserved, even though Luther is the first CEO outside of the founding family.

Practice Eudaemonism

At Widen Enterprises Inc., a digital asset management company with 85 employees in Madison, Wis., employees are encouraged to "be eudaemonious" In a video, CEO Matthew Gonnering promotes Aristotle's concept of eudaemonism, loosely defined as sustainable happiness. The concept was chosen as Widen's ethical framework to allow employees to recognize that all choices are made with a bigger sense of purpose.

"A balanced lifestyle is really what enables employees to mix work and life successfully, and reaping the benefits of each also translates to being able to contribute even more to the company," says Amy Esry, PHR, HR manager.

It worked for her: After a long career in HR, she took time off for the birth of her son.She joined Widen in 2001 partly because it offers a four-day work schedule.

She is committed to serving workers as well as management. "Years ago, I had an executive tell me my role was only to support management, not employees, and that negative really stuck with me as I moved on to new HR roles," Esry says. "Here, I can always do both with no question of full commitment. HR is respected here."

And she found support for her goal of launching an employee wellness program once Gonnering took an interest in the plan as a family benefit and confidence builder. Half of the employees participate, and Gonnering was named "Fittest Male Under 50" in 2012 by the Madison area's InBusiness Magazine.

"I've been able to expand my HR skills in so many ways at smaller organizations," Esry says. "I wouldn't want to go back to a specialist role."

Make Connections

Debbie Horne, SPHR, has spent much of her career launching HR practices at small companies. She's gotten used to starting from scratch and being an inventor. "In a startup structure, you have to be a generalist; there's no room for specialists. And to then be effective, you have to be a strategist and business partner," Horne says. "Achieving that delicate but critical balance, I think, is the true calling and capability of HR."

As director of human resources since 2011 for CMC Rescue Inc., a Santa Barbara, Calif., manufacturer of search and rescue equipment, she helps 85 employees capitalize on their strengths to drive company growth. The company also operates a global Technical Rescue School.

One of Horne's HR inventions is an orientation program she established and has used at three small companies. Dubbed Quest, the online program provides a self-directed journey through a company's key areas, with one-on-one meetings and training in various departments along the way. An interactive map called the Compass identifies employees by name, desk location and phone number. A click of the mouse links users to a photo of a selected employee, along with his or her job title and an interesting tidbit of personal information. Free luncheons and other prizes motivate employees to complete the program in four weeks.

"At organizations that are growing rapidly, it's so important to get employees onboarded and productive quickly," Horne says. This program enabled them to make personal connections with everyone in the company, including the CEO."

Ensure a Sense of Pride

As a former U.S. Army officer, Jerry Reynolds understands the vital nature of the work at Chesapeake Testing, an independent lab for ballistics testing in Belcamp, Md.

With the federal government and commercial manufacturers as clients, Chesapeake's 54 employees ensure the safety and compliance of the protective armor and munitions used by military and law enforcement officers.

After a long career in HR management, Reynolds joined Chesapeake in 2011 as vice president of business operations. With responsibility for HR, finance, security and information technology, he helps the company keep pace with six years of double-digit growth in both revenue and head count.

The company has seven employees who are veterans or serving in the National Guard or Reserve, and, from time to time, it hosts visitors who are on active duty, have served on active duty, or are Guard or Reserve members. Some share personal stories about the protective armor they wore in combat.

One story in particular attracted workers' attention: A veteran of combat in Afghanistan recalled a friend's wounds after the explosion of a rocket-propelled grenade. The friend "had received many shrapnel wounds to his arms and legs, but he survived in good part due to the protection of his vital body parts by his personal body armor," Reynolds explains.

This anecdote inspired the creation of a recognition program that kicked off in May. Combat vets with a connection to the company are encouraged to relate similar stories, tour Chesapeake's facilities, and have their pictures and anecdotes posted on bulletin boards in the testing ranges.

Reynolds reflects, "When these stories are shared with our range personnel, they get a personal connection with the job they're doing and the purpose it serves in the big picture—so far away from Belcamp, Maryland."

Susan J. Wells, a contributing editor of HR Magazine, is a business journalist based in the Washington, D.C., area.

Web Extras

• SHRM toolkit:   Managing Human Resources in a Small Organization
• SHRM toolkit:   Starting an HR Department from the Ground Up
• SHRM article:   Small Business Guide to Human Resources: A California Perspective