Josh Margolis, ’73, offered a number of issues to consider when
forming a virtual corporation.
For example, How will revenue be distributed? How will partners or officers
be removed? Click here to learn more.
HOW CAN A GROUP of individuals or small companies with a common
goal work together to gain more business, provide better service
to clients in multiple locations, yet remain part of a small,
privately held organization?
Create a virtual corporation. Unlike a conventional organization,
virtual corporations typically have no shared physical space and
no employees. Rather, they are collections of business partners–individuals
or small firms–that work at remote locations as part of a legally
recognized entity. The perks and pitfalls of operating as a virtual
corporation was the topic of a marketing roundtable at Gleacher
Center in late January.
“Servicing clients with a bigger firm, more locations, and a wider
skill set is why I formed a virtual corporation,” Josh Margolis,
’73, told the crowd of more than fifty alumni and friends of the
school. Margolis is president of CI Consulting Inc., a member
of a virtual corporation specializing in sales automation of a
software product called SalesLogix. The corporation, an L.L.C.,
is composed of ten small SalesLogix business partners, each with
four to eight employees that each own a share of the virtual corporation.
The members share projects that require sales and support in multiple
locations. Partners are located in Australia, Connecticut, Georgia,
Illinois, Minnesota, North Carolina, and Texas and offer their
expertise to other members’ clients when needed. Margolis describes
the virtual corporation as a “loose band” of individuals and notes
that partners also work outside of the corporation.
Working as part of the virtual corporation has enabled the partners
to win bigger assignments, Margolis said, and in some cases perform
them more quickly. “If we’ve got a job in Denver and I’m in Chicago,
and I have to install software and train people personally, it
would take me a year. [With the virtual corporation] we can provide
local support and complete the project quickly and efficiently.”
Of course, many traditional companies have remote offices. However,
working as a partner in a virtual corporation, rather than as
a branch employee of a traditional company, gives the individual
more of a say in the business and more of a stake in its success.
On the down side, organizing and running a virtual corporation
can be a more harrowing experience than one would expect, according
to Margolis, who underscored the importance of strong leadership
from the corporation’s inception.
“Somebody’s got to be in charge,” he said, noting that it took
nearly eight months to form his virtual corporation and that after
a year they hired a manager to oversee general operations. Without
a manager, he said, “at least initially, someone will need to
give up his job while attempting to build a profitable corporation.”
Making money raises another key issue: distribution of equity.
When multiple partners service a single client or perform a single
job, who receives what percentage of the payment? While one person
might bring in a job or client, a different person might do the
work, and an additional person might offer limited assistance.
Or some partners may enter the virtual corporation with existing
clients but other partners may be assigned to service those clients.
Margolis’s corporation has an elaborate reimbursement scale that
offers percentages of gross margin to each person responsible
for lead generation, sales, and sales management. It also offers
revenue sharing of its professional services fee for the individuals
involved in sales management, project management, and lead generation.
Karl Buschmann, ’85, now a marketing manager for Cimnet Systems,
spent five years in a virtual corporation that disbanded in 1997.
His time with Midwest Executive Consultants, a consulting corporation
that he helped found and run, taught him several things about
working in a virtual organization. He stressed the importance
of personal compatibility between members, told attendees to brace
for overwhelming amounts of paperwork, and noted the importance
of the individual contribution to the corporation.
“There are hunters and skinners,” he said, characterizing working
styles. “Hunters are out there making the kill, closing the deal,
while skinners watch and wait for someone else to do most of the
job.”
In a lean organization, he said, everyone needs to be a hunter.Though
Buschmann said the virtual corporation presented the opportunity
for collaboration, work in new industries, and experience with
entrepreneurship, many of the corporation’s thirty founders began
to see less value in the organization as time went by. “Many of
us began to operate in our own orbits,” he explained, “and keeping
the corporation together was something we no longer wanted to
do. But there were many valuable lessons learned along the way.”–M.M.B.