`Intrapreneurs': sprouting new ventures within. How a software wrinkle used to streamline a fine old firm in South Carolina sparked a fresh new product line
THE word ``entrepreneur'' is on the lips of multitudes nowadays, even those who have trouble spelling it. Steven Jobs, the brash young chairman of Apple Computer, and other high-tech corporate founders are virtual folk heroes. Some, like Mr. Jobs or Frederick Smith of Federal Express, are remarkable success stories. Others such as Nolan Bushnell of Atari and Sir Freddie Laker are just as bold if less clearly successful.
Their examples have led great numbers of people to break away from the comfort of job security and a steady paycheck and go into business for themselves -- a trend that persisted, surprisingly, even through the last recession.
Now observers of the business scene are beginning to look at the entrepreneurial spirit within established companies -- at corporate entrepreneurialism, if you will, or ``intrapreneurship.'' That is a term coined by inventor and consultant Gifford Pinchot III.
He defines ``intrapreneuring'' -- another term he finds useful -- rather loosely and doesn't object if you point out that it's something that has been occurring for years. ``Intrapreneuring means people going way beyond their job description to make something new happen because they believe passionately in it and will stick with it despite the disappointments and setbacks.''
Mr. Pinchot also observes, ``Every large company has a system so bureaucratic that if you did it by the book it wouldn't work.''
Can an established company in a mature industry renew itself, keep itself vital, by launching forth new ventures within the corporate fold? Or is it all but inevitable that a company's entrepreneurial employees will eventually pull out to form their own firm?
The experience at the Cameron & Barkley Company in Charleston suggests that the answers to these questions may be yes and no, respectively.
Cameron & Barkley is an established company, founded the year the Civil War ended, in a mature business, industrial distribution. But the exercise of intrapreneurship has revitalized CamBar and brought it into a new business as a software producer.
First, a word to explain just what an industrial distribution company is: It is to businesses something like what a hardware store is to individuals. A look around the Cameron & Barkley warehouse here, not far from the Charleston Naval Base, reveals handtools, fluorescent tubes, Windex by the 30-gallon drum, and all manner of general supplies needed in an office building, a factory, or perhaps a new housing complex. There is also an electrical supply division. The company has 24 branches across the Carolinas, Georgia, and Florida, and annual sales are about $135 million.
There were only six locations last year, though, and about $25 million in annual sales, when Roger K. Davis, a longtime employee, was named chief operating officer.
``My first objective was to completely computerize Cameron & Barkley,'' he says.
But it became clear that there wasn't an adequate software package available -- so the thing to do was to hire programmers and develop one in house.
By 1975, C&B had a state-of-the-art computer system, and the company then ``entered a period of greatly enhanced profitability,'' Mr. Davis says. With those profits, it was able to start acquiring competitors. At this point, the rest of the industry sat up and began to take notice.
``We started to receive inquiries from other large distributors as to whether we would consider licensing our software to them,'' Davis says. ``We decided not to share our competitive edge. But we continued to get inquiries.''
In 1980, IBM introduced its 4300 series mainframe computers, with their greatly reduced processing costs. Suddenly, ``thousands of companies,'' and not just other industrial distributors, ``could now afford a computer large enough to run our program,'' Davis explains.
A Harvard Business School consultant was called in; he pronounced the market potential of the new software ``significant,'' but also advised that software was different enough from industrial distribution that the two businesses should be separated.
On Jan. 2, 1981, a new entity, CamBar Business Systems Inc., or CBS, was launched, with Davis as president.
CamBar has sold its distribution software package (price tag for the basic package: $375,000) to 22 customers so far. It was profitable after the first, ``developmental'' year, and 1984 sales topped $3 million. Mr. Davis projects substantial growth just ahead and explains how the company has put its advertising money where its mouth is: ``We spent $2,500 in classified ads in the papers all over the Southeast [recently] looking for programmers, writers, all kinds of people.''
Both companies are 100 percent owned by the Cameron & Barkley Employee Stock Ownership Trust, which was set up in 1975.
This arrangement has been important in getting the new firm off the ground for two main reasons, says Lloyd A. Pearson, vice-president, secretary, and treasurer of the two companies. ``It's an equity resource,'' which is to say the contribution can be plowed back into the operating companies. Management isn't under pressure to distribute profits to a remote constellation of stockholders.
Second, there is the ``motivational factor,'' as Mr. Pearson calls it. ``There was acceptance from the employees of our going into a new venture. After all, they had put up much of the `sweat equity' involved in developing the initial system.''
Asked what his company's experience illustrates, Mr. Davis replies, ``There are still opportunities for companies who have become firmly entrenched'' to exercise the entrepeneurial spirit. He acknowledges that this kind of spinoff was easier at CamBar than it would have been at a publicly held company, with the focus on quarterly profits.
A ``corporate entrepreneur'' is someone on a high wire but with a safety net underneath. ``I gambled my future on this,'' Davis says. ``I didn't ask them to hold my [former] position for me.'' But had it not worked out, ``you sort of expect there'd be something for me in the company.''
Davis might have taken his team of programmers and left Cameron & Barkley to set up a company like CamBar on his own, but he notes that that ``would have taken a substantial investment.''
The employee trust was also a deterrent to a spinoff: ``Everyone here feels part of a team. You don't view yourself as an employee.''
Entrepreneurs always need venture capital, and a large corporation's ability to capitalize new projects is clearly one way it has to keep its entrepreneurial employees from jumping ship.
Keeping those employees isn't always easy, though.
Fran Jabara, founder and director of the Center for Entrepreneurship at Wichita State University, calls intrapreneurship ``one of the most encouraging things'' on the business scene today. ``But if employees have an idea, and there's a way to bring it to fruition, how do you reward them?'' he asks. ``The reward for an entrepreneur is the success of the idea.''
Mr. Pinchot expresses a similar concern. Although intrapreneuring is a widespread phenomenon, he says, ``I don't see intrapreneurial compensation systems widely in use, except in industries of interest to venture capitalists,'' e.g., high-tech industries. More mature industries have a tendency to be tighter on salaries. ``When a company has lost a lot of its good people to venture capitalists, then they start to look at their compensation systems.''
On the other hand, the ``safety net'' appeal of intrapreneurship is important, Mr. Jabara says. If an entrepreneur stumbles and falls within the corporate fold, there isn't the same concern about ``What am I going to tell the kids?''
But as for the prospect of losing prize employees who launch out on their own anyway, Jabara says, ``The believers [in entrepreneurialism] feel it's better to have those people for a little while than not at all.''
Consultant Harry Levinson, president of the Levinson Institute, in Cambridge, Mass., warns that companies that decentralize to encourage intrapreneurship need to be careful they don't lose control from the top. ``The issue is to encourage risk-taking and innovation without working against the value system of the organization,'' he says. Decentralizing can lead to the building of ``empires,'' as he calls them, and the duplication of staff functions such as legal services that probably ought to be kept centralized.
Another problem is that employees in an ``intrapreneurial'' unit or other decentralized division become so closely identified with that particular spot that their careers don't develop as they should, and the front office sometimes ``loses'' these people as candidates for promotion to higher posts.
And a company that wants to encourage entrepreneurialism among its employees needs to make sure the word filters all the way down.
Says John C. Crystal, another business consultant: ``The top people in an enterprise will say, `I need people with ideas,' but you don't hear this from middle management. While the middle managers are busy squelching the mavericks in an organization, the top people keep trying to urge them on.''
Mr. Pinchot warns against collecting a number of ``golden-haired boys'' into a ``venture group'' on which the corporation's hopes for being innovative are pinned. ``Every place that's been tried, it's failed miserably. It's too demeaning to the rest of the company. Intrapreneuring has to be widely distributed throughout the whole company.''