(MONEY Magazine) – Even naturally optimistic entrepreneurs feel vulnerable at times -- like every night, when they watch their assets walk out the door. How do you make sure those indispensable resources -- your employees -- come back again the next morning, motivated to keep giving you 100%? Entrepreneurs worry a lot about the answer to that question these days. Faced with growing competition at home and abroad from lean, mean corporations that often can tap low-cost foreign labor, U.S. business owners know that they must find ways to boost their workers' productivity and creativity if they are to survive and prosper. Successful entrepreneurs across the country are tackling this challenge with the passion and pioneering spirit they apply to everything else. Whether they own manufacturing plants, beauty salons, employment agencies or software companies, they are experimenting with gutsy new incentives to inspire people to work harder and smarter -- from opening up the books to employees to rewarding top producers with all-expense-paid personal-shopping trips. It should therefore come as no surprise that a July study of 747 small and medium-size businesses by Arthur Andersen's Enterprise Group and National Small Business United, an advocacy organization, found that 45% had improved their companies' productivity in the previous 12 months, vs. 31% in a similar survey two years earlier. Says Douglas Jobling, director of the Rhode Island Small Business Development Center at Bryant College in Smithfield, R.I.: "Small companies don't have the resources that big companies do, so they must find ways to get more out of their people." As with any big change, introducing new work incentives can be risky. Whether you have five employees or 500, you may encounter skepticism, even hostility, from those who are afraid or unwilling to try new ways to do business. But remember this: Most employees want to do a good job and be rewarded accordingly. Your task as boss is to provide them with the training and resources they need. And you can make that happen even if you're operating on a shoestring budget, as the owners of the following four companies have demonstrated.

Wirco: Spreading the Wealth Among the Workers

YOU THINK A SWELTERING, sooty iron foundry is the last place to find leading- edge management techniques? Then you don't know Wirco Castings, a $5.2 million New Athens, Ill. maker of iron castings for pumps, engines and heavy machinery. Since Wirco started sharing a portion of its profits with its 75 employees in 1990, cost per man-hour has dropped 21%, from $31.76 to $25.15. At the same time, company scrap has been cut nearly in half, to 4% of annual output, and customer returns of defective products have fallen 56%. As a result, president Bud Wirth, 63, says that sales have risen by 24% and profits by 78% over the past five years. Wirco's management set up the incentive program as part of a last-ditch & effort to save the 27-year-old, family-owned company. Between 1980 and 1987, demand for Wirco's products plummeted by two-thirds, largely because of a recession in the agriculture and construction industries that the company serves. To help cut costs, Wirth and his top managers installed new, more efficient manufacturing processes. At the same time, Wirth recognized that his mostly unionized employees would have to perform new tasks. For example, some would have to monitor, test and chart product quality daily. Others would keep watch on manufacturing procedures and investigate problems. "If employees were going to do all these things, they needed to know, 'What's in it for me?'" he says. "The answer: 'If you do your work right, you'll get a bonus.'" In 1990, Wirth challenged his workers to hold labor costs below 27% of sales, down from as high as 32% previously. Every four-week period that labor costs dip below that target, the extra savings are paid out as bonuses to all employees, including Wirth. The bonuses have run as high as 18% of regular pay, or $200 on top of the workers' average wages of $8 an hour. The result: highly energized employees. "Before, we had no motivation to report problems. No one would have listened to us anyway," says Dawn Linkey, 38, a 17-year veteran of the Wirco production line and the union shop steward. "Today we realize that the better the quality of our work, the better off we'll be." For example, workers formerly didn't much care if a machine broke down, because they'd get paid anyway; today, Linkey says, they make sure that all the machines are operating properly to protect their bonuses. Indeed, every day employees eagerly pore over factory productivity reports, posted, on a bulletin board, to see how close they are to earning extra pay that month. Wirth also gave his employees a lot more say about how they do their jobs. Three years ago, for instance, Linkey decided to spray paint the mold for a casting rather than do the task the traditional way -- by hand. The result: She tripled the speed at which she paints a mold to less than a minute. The change saved the company only about $1,000 a year, but as Wirth notes, such small savings, combined with those from other employees, can add up to real money over a year. With his company's profits at an all-time high, Wirth has bought more new equipment and continued to upgrade old machinery. Best of all, workers are still seeking ways to do their jobs more efficiently. Says Willie Jones, a 10- < year veteran machine operator: "Now when we come to work, we have something to look forward to."

Creative Staffing: Limos and Fun for a Job Well Done

IF CASH-FLOW PROBLEMS make bonuses impractical, there are other performance incentives worth considering. You might, for example, dole out a constant stream of noncash rewards to employees who excel, such as dinner at a first- class restaurant or a trip to a luxurious resort. Since Ann Machado, the 47-year-old founder of Creative Staffing, an employment agency in Miami, set up that type of program eight years ago, her average annual revenues have soared 20%, to $9.7 million in 1993. While she won't divulge profits, she says they will grow 42% in 1994. Moreover, she's achieved an impressively low 3% annual turnover rate among the 35 employees of her main office and three branches in South Florida. "When it comes to rewards, our philosophy is little and often," says Machado, with a raucous laugh. "You've got to give people instant gratification." Consider a bonus program that she calls, for no particular reason, Spiffs. Machado created it to reward workers who achieve particularly ambitious goals they often set for themselves. Recently, for example, six employees of the south Miami branch offered to boost weekly revenues $15,000 if Machado would take them to dinner at Christy's, one of the priciest restaurants in town. To achieve that goal, the customer service staff took on more client responsibilities, giving sales reps time to drum up new business. In just three weeks, they hiked revenues from $104,000 to $120,000, and their boss treated them to a $600 dinner. How can such simple rewards produce permanent change? The answer, according to Machado: Constant positive reinforcement creates a culture of achievement, in which employees continually try to reach higher goals. "When the contest ends, the new way of doing things doesn't stop," she says. "It's behavior modification." As evidence, Machado points to her "ugly duckling" branch, which until recently had the company's lowest profit margin (19%, vs. Creative Staffing's 25% average). Urged by Machado to improve results, branch manager Theresa Bender and three subordinates proposed switching their focus from filling low-wage, low-skill industrial jobs, such as fish filleter, which pay Creative Staffing small commissions, to higher-salaried technical positions, such as industrial engineer or chemist. In three months, the branch went from losing roughly $5,000 a month to earning $9,000 on revenues of $137,000, and Machado took the gang out for dinner and champagne at Mark's Place, another swank restaurant in Miami. Since then, the branch's monthly sales have continued to improve, nearly doubling from January to July to $180,000. Profit margins have risen 55% over the same seven months, to 30% in July, making Bender's branch the most improved of the bunch. That puts the branch's employees in excellent position to win Machado's reward to all staffers whose branches achieve their profit targets this year: an all-expense-paid trip to Key Largo, Fla. for three days of snorkeling and riverboat gambling. Estimated cost: $12,000 to $15,000. While nights on the town and trips to resorts might sound frivolous, don't be fooled. About two years ago, to give the company a more professional atmosphere, Machado introduced traditional benefits, including disability insurance and a pension plan, and cut back on Spiffs and the like. "They seemed hokey," she says. Maybe so, but without such incentives, employees lost their spark: Revenue increased only 9% in 1993. "We got too serious," says Bender. So last winter, Machado revved up the rewards machine. She kept the traditional benefits and brought back the oldies like Spiffs, as well as some new goodies. For instance, high-achieving managers win trips by limo to local malls and $400 to splurge on themselves. Because of such rewards, says Machado, Creative Staffing is headed for a hefty sales increase of more than 20% by the end of the year, to $12 million. "There's a long waiting list of people who want to work for this company," says Bender. "This is a place where employees get charged up. If you don't like to have fun, you won't fit in."

Studio 904: Beauty and the New-Age Boss

WHO KNOWS BETTER than your employees how to improve your business? That simple idea has caught on, causing managers across America to delegate many critical decisions to employees. As hair salon owner Kay Hirai, 54, learned, however, that strategy works best if your workers feel part of a team -- a tough trick in the beauty business. Reason: Stylists typically are highly individualistic, jealously guarding their clients and trade secrets, because they are paid in commissions and tips. When Hirai opened Studio 904 in Seattle seven years ago, she set out to weld her five stylists into a team. First, she put them on salary, with no tips allowed, and provided benefits such as medical and dental coverage, paid vacation and sick days. According to Hirai, the staff was much better compensated -- she won't be more specific -- than they would have been on normal commissions and tips. The payoff for the boss, she says: Stylists don't pass through Studio 904 "like it was a revolving door." Client turnover was trimmed too, since customers are often loyal to their stylists. Soon after Hirai opened her second Seattle salon, she took another team- building step by setting up an extensive staff training program that is unique in the beauty business. "I realized that unless you have a staff that buys into the philosophy of the company, you won't be able to deliver exceptional service," she says. Today both salons close for business every Monday, costing Hirai $3,000 a month in revenues. She uses the time to teach her 13 employees new styles and techniques, as well as how to work in teams. That way they can easily substitute for each other -- or double up, if need be. Two stylists, for example, now need only 30 minutes for a foil highlight, a hair coloring process that used to take one person as long as two hours. The benefit: Hirai charges $44 for a treatment that would cost $80 to $120 at other salons and saves a customer 90 minutes of her time. Next, to capitalize on her employees' knowledge and ideas, Hirai organized them into committees, including hair color, permanents and customer service. The color committee, for example, recently decided the salons should stop using a particular line of hair-color products. The committee picked a replacement and negotiated a 15% discount with the manufacturer, thereby saving about $1,300 a year. Only then was Hirai told of the change. While delegating decisions to employees, Hirai helps keep them from going overboard on expenses by posting the salons' daily, weekly and monthly financial results. At the end of each workday, the staff gathers to learn how business went. "Everyone is very excited when they see the day's results," says salon manager Naomi Hara, a nine-year veteran of Studio 904. "If we didn't do well, then we try to figure out why." One reason they get so excited: Every two weeks Hirai distributes 25% of her profits to employees as bonuses. For stylists who enjoy teamwork, Studio 904's cooperative atmosphere offers a unique opportunity. "This is a better environment to work in than the usual salon," says Heidi Carpenter, who joined Hirai's business in January. "You're not competing with your fellow employees, and every day you learn something new." Hirai is happy too. Sales for the second quarter of this year were up 18% over the same quarter last year, and she projects 22% sales growth by year-end to $500,000. What's more, her base of 4,500 clients is expanding by 170 a month. Says Hirai: "Education and self-empowerment are the greatest gifts you can give to employees." And, it seems, to your company as well.

CrossCheck Technology: Reality Checks From the Customer

CAN WE TALK? Something like comedienne Joan Rivers' trademark opener helped managers at CrossCheck Technology in San Jose revamp their sales strategy and boost revenues 36% to a projected $8 million for 1994. Last fall, the six-year-old company faced a marketing crisis. CrossCheck originally built its business by selling $1 million software to computer chipmakers for testing integrated circuits. But with just 30 or so such manufacturers in the world, CrossCheck's sales eventually begun to flatten. To revive revenue growth, in 1993 the company introduced two less expensive chip- testing programs aimed at a much bigger group of customers -- more than 6,000 manufacturers of electronic equipment such as pacemakers and personal computers. New sales did not materialize, however, because CrossCheck's three salespeople had no idea how to approach potential buyers, whose needs were quite different from those of the company's old customers. Worse, sales reps who did manage to find out what a customer wanted failed to report the information to headquarters. Finally, CrossCheck's top managers realized that they were dangerously out of touch with their market. To solve the communications problem, CrossCheck's founder and CEO, Tushar Gheewala, 45, recruited a new president, Terry Paullin, 49, a 20-year veteran computer industry sales and marketing executive. Paullin doubled the number of sales reps to six and gave them a new mission: Besides selling, they were "to learn what customers think about our products, what they like and don't like, and how we should respond." To do that, each salesperson must now submit monthly three- to four-page reports on all customer visits. Every report has to address: 1) how customers like CrossCheck's products; 2) the prospects for new sales within 90 days and what extra effort is needed to close the deals (for example, more information from marketing or a call from Paullin); and 3) what the salesperson needs to work more efficiently. The reports quickly gave CrossCheck's seven top executives some surprising insights into everything from product problems to defects in marketing strategy. One month, after encountering a number of skeptical prospective customers, several salespeople strongly recommended that the company sign up major manufacturers of integrated circuits to endorse CrossCheck's chip- testing software. The move, the employees argued, would give CrossCheck more credibility in the market. The company soon negotiated two deals, with Texas Instruments and SGS-Thompson Microelectronics, a chip manufacturer, that could mean up to $4 million in additional revenues over the next two years. Customers appreciate the extra attention from CrossCheck's salespeople. "I've seen them come up with new ideas that we wanted without our actually talking about them first," says James Matthews, who manages the chip-testing department at Digital Equipment Corp. "Maybe it's because salespeople are keeping better tabs of their conversations with customers." For CrossCheck, the payoff has quickly showed up on the bottom line. Revenues for the first half of 1994 were up 22% from the year before, to $3 million, boosted by stronger demand for their new software. Though profits were flat through June, owing to the heavy investment in its sales organization, CrossCheck expects to eke out a small profit for the full year. Next year Paullin forecasts that the company will earn $900,000 on revenues of $10 million. The lesson? The next time your customer -- or employee -- wants to talk, make sure you listen. It doesn't cost money to pay time and attention, and, as our four companies illustrate, the returns can be enormous.