Outgrowing Yourself in the New Europe - HappyFloors: (A) (B) (C) (D)

Self-made businessmen from the former Soviet bloc can easily become victims of their own success. Adjunct Professor of Entrepreneurship Stanislav Shekshnia considers the case of two young entrepreneurs and friends who offered a very receptive Polish public choice, affordability and attentive service. But their initial business model - centred on one-off contracts and full down-payments - couldn't last as business took off. Calling in an independent consultant had interesting and unforeseen results.

by Stanislav Shekshnia
Last Updated: 23 Jul 2013

(A) Case: Victims of Their Own Success

Western entrepreneurs have their share of challenges when faced with company growth that exceeds their business models' capacity to adapt to new conditions. For a generation of independent businessmen from the former Soviet bloc, the challenges of trying to nurture the spirit of enterprise in societies that had heard for decades that such notions were heresy have been daunting, to say the least.

Adjunct Professor of Entrepreneurship Stanislav Shekshnia considers the case of two young entrepreneurs (portrayed under the pseudonyms of "Alexander Winner" and "Tadeusz Rokicki"), founders of Happy Floors, a Polish chain of parquet and floor covering outlets that caught on quickly with the public. Their offerings to the consumer were unheard of in early 90s Poland - a wide choice of attractively priced goods and attentive sales staff top among them. Just as importantly, Winner and Rokicki had taken great pains to build a reputation as reliable partners to local and foreign suppliers. (All too typically, however, their wholesale supply business was largely conducted through "grey", or even "black" transactions, which meant huge tax savings for all concerned.)

But by 2002, HappyFloors was being battered by both internal and external troubles. Growth was still very strong, but margins were way down. Their initial business model had been as simple as it was successful: secure a deal; get a 100% down payment; buy supplies abroad; install the floorings, then move on to the next one-off contract. Growth had now made this completely untenable, and the strain was affecting the partners' personal relations. As the situation worsened, they decided to put personal pride aside and call in independent consultants from a leading international agency.

Shekshnia opens the reader's eyes to just how uncomfortable the experience of outside intervention could be to such young, self-made executives. Being asked not only to provide every detail imaginable regarding your operations, but also to define your contribution to your own business in the present and foreseeable future, was excruciating for the pair. After extensive consultation, the consultants presented Winner and Tadeusz with three options:

1) Winner allows Tadeusz to become CEO, in exchange for a fixed annual dividend. A COO is hired to restructure the managerial system and oversee daily operations.

2) Both partners step down, become members of a large board of directors. The board hires a CEO, who initially has limited authority. All directors have equal voting rights and a veto over any key decisions.

3) They hire a professional CEO, and agree to serve as senior managers under him.

(B) Case: The Decision

After difficult deliberation, the partners decide and preparations are made.

(C) Case: The Results

The partners are happy at first with the course of events, how it was affecting their work and home lives. The consultants stay on to help with Happy Floor's restructuring. But very negative consequences quickly arise. The partners are forced to consider three more options, with everything at stake.

(D) Case: Forced to Rethink the Future

A very tough decision is made, and the company embarks in a new direction.


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