Joseph P. Kalt: The Practical Issues of Business Development - Some Things to Consider: Dealing with Growth
Kalt, Joseph P. "The Practical Issues of Business Development - Some Things to Consider: Dealing with Growth." Building and Sustaining Tribal Enterprises seminar. Native Nations Institute for Leadership, Management, and Policy, Udall Center for Studies in Public Policy, University of Arizona. Tucson, Arizona. March 29, 2007. Presentation.
"Ian [Record] asked me to talk about how to handle growth and manage growth. And I thought, 'What a cool question?' Actually sit at a conference on economic development in Indian Country and the problem now is growth. How do you handle the problem that everyone's growing so fast? It's a wonderful problem to have. And it's a sign of the times that tribes are now facing the reality of dealing with the fact that their enterprises are stable and sustained and they are growing and so forth. I tried to think about what I see out on the ground in terms of dealing with growth and let me phrase it this way. I think the growth that's being experienced, as tribes succeed in sustaining enterprises and succeed in building the environment for their own members and their own businesses -- in other words, both private and tribally-owned enterprises -- much of what is going on, and when I see it on the ground, it's like being forced through a transition. There's a little hole and a big something being forced through it and what are the transitions? Many of the transitions of growth that tribes experience in their enterprises is those enterprises really get going are really the transition issues for any business that grows rapidly. How do you keep your management up to speed, how do you keep the enthusiasm among the employees, how do you keep everybody on the same team? And so forth. But let me talk about what I see that seems sort of, if you will, new and special in Indian Country. And these are transitions that I see tribes struggling with and getting, most of them are getting through.
The first is learning what it means to do capital budgeting. For many, many tribes as tribal enterprises get going; they've started with sort of a hope. Wouldn't it be cool if this business actually survived? But the source of survival, in fact as my Hopi friend has taught me, this year's profits are next year's seed corn and the notion of doing capital budgeting for a business as opposed to a tribal program is a new arena for many tribal, the shareholders, the tribal councils, for example. It's a new arena. What does it mean to do capital budgeting? And here, I won't go into detail, but it is developing some of the things that Joan [Timeche] touched on, expecting the board to come in every October 1st or whatever date you want to pick. Here is my capital budgeting plan for the next year or the next three years. 'I need your approval and after I get your approval, you're not going to pull it back for political reasons,' and so forth. So there's a whole transition that goes on as you get particularly tribal leaders to understand that capital budgeting for an enterprise is different than just budgeting for a program. And there's the sense of course in that process in which the notion of the retention or reinvestment of capital becomes a critical aspect. Many tribal governments have run off the tribal programs where the program never makes any money, so there's never any of its own capital to reinvest in next year. But if you have a sustained enterprise, hopefully a substantial portion of the funds that enterprise has generated can in fact serve as the seed corn for going forward in the reinvestment in buying next year's round of equipment or hire the next group of laborers that you need to hire. So this transition to a notion of capital budgeting as opposed to program budgeting is a critical change that I see tribes going through.
Next I wrote down from attorneys to professional management. Many of you are probably attorneys and at least the responsible ones that I meet confess that 'we know we're in trouble when I, the attorney, am running the enterprises.' I see many, many tribes where the attorneys are, some of them don't want to give up the power, but the smart ones say, "˜Thank god, we now have professional business managers,' who after their name have words like Joan's MBA as opposed to JD. It's not that attorneys are evil in the world. In fact, at the launching stages, bring an attorney with you. But that transition and getting used to this business enterprise is something we've got to take seriously. It's not just a set of legal fights, but real serious management.
Next in the transition is a transition around the issue of salaries. We deal a lot with former Harvard student Lance Morgan, CEO of Ho-Chunk Industries, which has gotten so famous for its business success. He was lecturing to my class recently and he was telling the story of salaries. When Ho Chunk, Inc. started to take off, they adopted as a board resolution of Ho-Chunk Inc. that there would be no more than a factor of three in their salaries meaning the highest-paid person wouldn't be paid more than three times the lowest-paid person. And what he said is we had to move, now I believe they're at 12-to-1, and there's a tension there and it's a real tension actually for every society. You sort of feel like, gosh, these U.S. CEOs that are making a billion dollars a year doesn't feel right. Tribes struggle with the same thing, and there's a tension there. There's just a balance point that each culture and each society has to find. Once you're running Ho-Chunk Industries from $150 million worth of private businesses essentially, they need very serious managers if they're going to be competitive in the world, both their tribal and non-members. It turns out that it's just reality that that CEO or that senior VP is going to make more money than the person who's restocking the soda machines in the hallways. And it's a tension you wish didn't exist in the world, but it's a reality that many tribes are having to deal with. I found it clever that the way Ho-Chunk handled it wasn't ad hoc. The next time we have to hire a good MBA she comes in and wants 15...they actually tried to set up policies, and they're aware that they have to modify them over time, but at least it made them focus on it as a conscious decision, so that it didn't just become ad hoc, that we're going to pay Joan 15 times more than we pay someone else. So I think the issue on salaries is important. It's just a sign of the times that these businesses are getting more successful, more professional management.
Two more categories real quickly of this transition: a very interesting one and I've seen this now occur at three or four different tribal enterprises that I've been familiar with, working with, and that's the rise of racism. This is an uncomfortable issue. Increasingly, as the tribes have gotten more powerful and successful, a number of these CEOs, tribal members have come and told me privately, "˜Joe, we've got a problem with racism.' It's racism of our own tribal members against the non-Indians, and I know at least two tribal corporations that have had to have the kind of retreat and get our heads around this and start talking about the reality that we all need to be able to work together and so forth and so on. And so it's a very interesting time. It's really a sign of this increasing success and sustained professionalism, that you now have these kinds of issues arising. But it's something... and that's only one tip of a very large iceberg, because we're all aware of the racism that historically has gone the other direction. You hire the white senior manager and he doesn't trust the young Indian intern that he's supposed to be training to take his job. We know those stories, but it is a sign that one of the transitions that tribes have to be serious now that they're managing real enterprises. They've got to keep everybody happy and many of them are so large now, and many tribes as you know, all the tribal members have jobs. You have to go outside and hire non-Indians.
Two more transitions: one is the transition -- and Diane Enos said it beautifully today -- the transition to the reality that you're going to have to turn these enterprises loose to manage to one target, which is profits. It's not that profits are the end. My colleague Steve Cornell says a great line. The goal here of economic development really isn't to sort of make everybody filthy rich and drive around in Mercedes. It's actually freedom. It's to generate the revenue so the tribe as an entity has the ability to make its own decisions. We can rebuild that sewer system and not wait for the federal dollars. We can rebuild that high school tutoring system and not wait for the federal dollars. And the way you do it in a very competitive world out there is you manage for profit. That's a tough thing of course because it's very natural to say, "˜But wait a minute, why do we have to manage for profit? We have different values.' But more and more tribes are saying to us, 'It's because we have those values, we need this money to get the freedom to pursue our own objectives in this society.'
Last transition and a fascinating one to me: We run -- and Mike Taylor touched on -- as you know, some of you may know we run this program called Honoring Nations recognizing best practices among tribal governments. And I was out this summer at Citizen Potawatomi in Oklahoma. And they're this great success story. In 1976, they had 2.5 acres and $550 and now they basically own Shawnee, Oklahoma. And there's no question about their sovereignty; they run everything. All Potawatomis who want a job have a job. They're hiring thousands of black and white workers from Oklahoma in both private enterprises, tribal enterprises, tribal government. And we were working there with the head of their community development corporation, a very nice blonde, white woman, obviously not Potawatomi. And I listened to her talk and the whole time I'm talking, she's talking about 'us,' and what you're watching is as tribes sustain not only the economic development, the economic development that allows them to rebuild the ball fields, to rebuild the sewer system, to rebuild the schools, you start to change the definition of citizens. And it's an interesting transition that, I see it at Mississippi Choctaw as well, everybody at Mississippi Choctaw and they're not even aware of, the non-Indians are running around with this button that says 'Mississippi Choctaw, Sovereign and Proud of It,' and they're not even aware what they're doing. It's just like, oh, yeah. And if they go to a high school basketball game and it's Mississippi Choctaw High School versus Jackson, Mississippi, all the non-Indians go sit on the Choctaw side and it's because you're watching us as humans redefine what team we're on. And for all of us, no matter what race or ethnicity we're from, somewhere in our histories we sort of got an identity as Hopi or American or Navajo or Apache, whatever it is. And what's interesting, with the growth in Indian Country and the strength is starting to redefine the word "˜we,' and I know of a couple tribes now who are beginning to start to think about the reality, problem of growth, we may have to start giving people who are not Indian certain levels of citizenship rights partly because we're a good team, our schools are better than the Shawnee, Oklahoma schools, and now the non-Indian kids of our non-Indian employees want to go to our school instead of the State of Oklahoma school. And so it's a very interesting transition that's tough -- I'm not being a Pollyanna here -- but it's one of the signs of growth that like other successful nations in the world Indian nations are starting to have immigrants, immigrants who want certain rights to citizenship. And it's a sign of success, it's a healthy sign of success that you're building places where people can and want to live."