“Wherever something is wrong," wrote the economist Leopold Kohr, "something is too big."
At a small scale, he observed, things are "flexible, healthy, manageable and delightful, even a baby's ferocious bite". Conversely, at a large scale, things become unstable and easily assume the "proportions of terror". A firework is fun, a cluster bomb is not.” (The Guardian)
Many businesses succeed in their early days when their founding entrepreneur is working “at the coal face”. Then he gets tired of that, and grows the business, gets away from the coal face, and everything starts to stutter. The business does not function as well as it used to. The founding entrepreneur gets disheartened, and casts around for grasses greener, so the business falters further.
So two big mistakes of small companies:
- Letting the founder stop doing what (s)he does best – and the most common example of that is stopping meeting customers and clients, and stopping providing solutions her/himself for them. Delegation is necessary, but only when you have “cloned” (or trained) other people to be as good. (The problem is that most people don’t know why they are “good with customers”, so don’t know how to identify potential staff or train them)
- Thinking that success means growing the company. Staying small and profitable may mean more satisfaction, better life-work balance, and a more sustainable (recession proof) business. We are obsessed with growth because of the example the media presents of “successful” people.
Staying small and staying close to the coal face may be the smartest things to do. Getting bigger should not be assumed to be the right strategy for every company.
That creates other problems – like succession and small scale expansion – and that needs outside help from other people who have already been-there-and-done-that.
Everyday Entrepreneurs need to be at the coal face at some time everyday. Lose that and you can lose what made the company originally successful.
RELEVANT LINKS
- The Guardian - Ideas For Modern living: Scale
- Trying harder is over-rated: Why taking time out can benefit your business
- Real Entrepreneurs Unimpressed By The Celeb E/ps - any wonder? The truth is out...
99 comments:
So you are saying that staying small is a good thing?
What you are saying here goes so much against the myths and traditions of how it is meant to be.
You can't simply stick tweo fingers up at the status quo model of biz dev and expect to get away with it.
There is a reason why the model exists and is perpetuated.
Have you thought for one moment that you might have got it all a little bit wrong.
Have you never been to any start-up or biz growth programme.
Attend and you will hear that your version is simply not right.
Coal face, coal face. What's that all about. We are not talking about miners.
Trevor
Looking at the comments on your blog you have certainly rattled a few cages with this post!
Being small certainly gives you the flexibility to maneuver that bigger corporations can only dream of - whether it's a small change or big change --- it doesn't require red tape, full consensus or a week long review by the legal team. Some companies are intentionally small and I admire that a lot, the best example I could think of is 37 Signals. http://37signals.com/
You are right, Robert. But I would encourage business owners to sweat over a clear vision and set of values for themselves and their business right from the off.
Growing is all about growth towards that vision while remaining 100% true at all times to those values. The cost of growth also needs to be honestly assessed in terms of impact on those values. If you cannot set those values deep in stone from day one, or think you might have to adjust them down the line, they are not your true values.
As your business grows there will need to be a lot of hard work in making sure you recruit to the right competencies and aligned to those values. If you start accepting second best, you have to accept the increased risk to how you are going to get to your vision.
All businesses and business leaders need to grow continually and standing still is never, ever an option. It is the nature of that growth, and accepting that growth can be measured emotionally, intellectually and functionally as well as in terms of size. A corner shop that never reviews and refreshes its product range in line with demographic moves over time increases its risk of demise. Even then other environmental factors can cause your business to shrink when you don't want it too. This is why the vision must be personal first, and not necessarily tied to the business. Entrepreneurs earn that title by having visions which are not dependent on a single business model and reacting nimbly when they see the ground rules changing to keep their vision on track.
So small is bad, when you are small minded about opportunities to meet your vision. Big is bad when you become big-headed about your ability to achieve a vision regardless of any values.
I couldn't agree with you more - I once did a presentation entitled “Why Growth is a four letter word”
The concept of growth is based on far too many assumptions which are incorrect - for example can you have growth and sustainability simultaneously? Is it really true that organisation which don't grow die? Is growth in volume or growth in revenue equivalent to growth in margins or profitability? Is the growth in food manufacturers and retailers at our expense can it be good if their volume growth simply means that we end up with bigger portions and overeat? This needs more discussion....
Great article by Craven.
The key question is knowing WHEN growing big would be a BIG MISTAKE. Is hindsight the only measurement?
How does a business owner make the decision on whether to go for 'big time' growth? An effective decision to go ahead must depend on the strength and depth of the management team. The scenario Craven depicts is surely when an SME faces a market opportunity, can't resist it, but doesn't have the 'people in his corner' that he needs.
I think the underlying moral to the discussion is always seek outside help (a) to properly determine the business opportunity and (b) don't go it alone. Use outside expertise to make sure you get where you are going.
I suppose another truth is that, in the scenario Craven is painting, oftentimes the management that got the business (from start up) to its current position, is not best suited to successfully take it to the next level.
[Business Consultant Now]
I think this is too simplistic. "Not staying in control" might be a better comment. "Staying small" works for actors/singers/orchestra conductors etc or specialist industries maybe, but a builder, accountant or letting agent for example would generally do well to expand and grow, provided they retain control. I think this comment is very misleading.
Small business = small paycheck
Some business owners see their job as making widgets. Some business owners see their job as building a business.
The latter are creating something that will generate value for others and keep doing this when they, the founder, are no longer involved. To succeed, they have to stop actually making widgets and devote their time to systemising the way they sell and deliver their product. They have to learn how to achieve results through others. They have to gain the passion and skills for management and organisation and leadership which replaces or augments their original passion and skills. Then they become business owners.
I don't think there's a right or wrong here, but I don't think many people take the latter route. ONS stats suggest less than 0.5% of startups have 20+ employees after 10 years.
Great post, Robert. I'm a firm believer in staying small but channelling all our growth into improving the quality of our work. It's always worked for us and makes us much better able to weather the current economic storm.
I also think that approach is much more congruent with the movement to value-based marketing that is being supported by the growth in social media.
What does everyone else think about this? Does growth always have to mean getting bigger, or can it mean getting better?
"Small business = small paycheck"
I disagree, we are a small virtual business with independant contractors, very low cost, with a high profit margin for our shareholders, which are myself and my co founder. We're pretty happy with it...
You sound like an exception to the rule then. I'm going by the stats that show that most small business owners don't do all that well in terms of income.
Bo Burlingham - Small Giants makes the same points in a book.
Inspiring and very much in tune with a lot of entrepreneurs who love what they are doing.
And a lot of entrepreneurs when they sell out are pretty miserable after they sell out....
i was talking about this just yesterday ... if you own and run a retail unit then you can have a healthy business ... if you go to 2 units then you need a manager and this is when things may go wrong ... to step up you need to go from 1 to 10 to make it all work ... and that was from a horse's mouth ... a chap who had 2 units and now has a warehouse and a website instead ...
Jon - this is the dip
see
http://robert-craven.blogspot.com/2007/12/law-of-diminishing-customer-returns.html
Interesting, but costs often scale DOWN as size goes bigger. You CAN be more efficient bigger than smaller.
Whilst a lot of family businesses would like to stay small the reality is that in order to simply stand still they have to grow. To explain that comment further the impact of inflation forces businesses to grow and then there is the simple fact that if you simply rely upon the same customers, at some point one or more of them will fail or move elsewhere and at that point if you have not been growing the business you will have to downsize.
You can only downsize so far, consequently you need to grow or at least have the ability to attract new business simply to stand still.
So what is the impact of growing your business. Well if you want to stay still you may be lucky enough to replace business as you lose it. However the reality is that in gowing they need to take on more overheads to satisfy the additional business you have won and so the vicious (for some businesses looking at staying the same size) cycle begins.
It is in this situation where you need to understand the interaction of the Family with the Businesss and vice versa. In addition you will need both a robust business plan and a strong and committed family. Without this the business will fail and in reality the family itself may also fail.
If that happens then this is the worst of all situations. Family businesses need to recognise that the family and the business are inseperable and that one affects the other. The balance of one with the other is without doubt one of the most difficult tasks around and it needs understanding from all parties.
It is vital that Family businesses whether they are just starting out or have been going for many years realise that communication and planning is vital to their survival and success. If this is beyond the family members and to be honest I would be amazed if it wasn't then external guidance is vital.
So should we stop expanding and taking on new staff??? What about the old adage 'Big is Beautiful' or does that just apply to voluptious bodies??
Many small businesses fail to reach their potential as they think like small businesses (see my interview with Alistair Barr -www.sfmconsulting.co.uk/blog/lessons-learned/think-like-a-small-business-and-you’ll-always-be-a-small-business/). Even larger ones fail to reach their potential as they have the wrong people doing the wrong things. If flexibility is key then perhaps an organisational structure and a culture of being flexible is the solution.
"small is bad, when you are small minded" beats 'Big is Beautiful' for me
I must admit that it irritates me when the assumptions from the gurus is that you must want to grow.
Get better yes, grow not necessarily.
So Schumacher was prophetic all those years ago - small is beautiful.
I agree with much of what you say here. I work with business owners and often they find themselves out of their comfort zone as the business grows. In addition many find that they are no longer getting what they wanted from being their own boss; flexibility, less hours at work, actually doing the task in hand.
It is essential new business owners plan from the start and have it very clear what they do and more importantly don't want from the business. This will help them make good clear and well considered decisions when opportunities for growth and development come along.
Re - small giants
go to
http://robert-craven.blogspot.com/2007/09/small-giants-companies-that-choose-to.html
One of the reasons why people become self employed is to gain control over their own lives. Alas, this need does not fit in with the idea of growth, which is why many small businesses do not grow. Growth in itself means employing more people and engaging with the competition and the market in a different way. Loss of control lies at the heart of this.
Growth is good to a certain level, the skill is determining when small becomes too big and being content to stop at a managable size.
On the whole, yes, to quote "small is beautiful" for flexibiity, control, etc as you say. as long as the business has several clients to spread the risk and is not depending for the majority of its income on one big one, especially in the current economic climate.
Secondly, there are a number of respected economists, including Amartya Sen, Ha-Joon Chang and Raj Patel (and I think Joseph Stiglitz) who have queried the model of continuous growth, partly because it has led to the current global economic nightmare and it makes no sense for economies to rely on more of the same to get us out of it, but also because it is unsustainable for a planet with finite resources if we're to successfuly tackle environmental and climate change issues.
Growth depends on many factors, but mainly how the decision makers of the company would like to progress. Personnally I have every intention of staying relatively small. By that I mean within manageable dimensions and offering services through trusted colleagues.
Unless you find someone who you can trust wholeheartedly to run part of your business for you you may find that the direction you want to go in changes due to other peoples perception of progress.
Small is beautiful as they say (and manageable).
What if Virgin, Ford, Ryan Aer,Most of the team on Dragons Den and many others had thought like that.
If your goal in life is to become rich, you may not want to become a small business owner - not that that may not happen. However, most small business owners have a passion that they are pursuing rather than a big paycheck. It is also a benefit to be able to make those important decisions without being told, "I'll have to consider that. Be back to you in a few weeks".
With endemic greed and a Darwinian Forex market driving the real economy, I wonder how we're ever going to reach a 'small' steady state economy, much less solve global warming problems. the problems are already way too big. Haiti is not the first nor likely the last example of the effects of unlimited (exponential) growth in a limited area. Back to my forest garden where the slugs eat the plants, the slowworms, birds and ducks eat the slugs, and I get to eat some of the plants most of the time!
My problem here is with the title: Why the Big Mistake is... not staying small!
Why not allow each individual to do decide what is right for them?
There is some big thinking going around transitional economics. I sense this more than just the intuitive feeling that there are natural limits to growth. GDP is a really clumsy measure yet we run world and national economies on it. In any business as vital as this we would measure other contributing metrics. In the thirties GDP was largely designed as a crude guide to how western economies could cope with the war effort. Lets put some great minds into generating the right metrics for the 21st century knowledge economy!
There is some big thinking going around transitional economics. I sense this more than just the intuitive feeling that there are natural limits to growth. GDP is a really clumsy measure yet we run world and national economies on it. In any business as vital as this we would measure other contributing metrics. In the thirties GDP was largely designed as a crude guide to how western economies could cope with the war effort. Lets put some great minds into generating the right metrics for the 21st century knowledge economy!
Interesting post, Robert.
At the same time, in my view, it's just as invalid to argue that every business should stay small as it is to argue the every business should grow aggressively.
In the owner managed business, you can't disentangle the business from the owner managers themselves. An owner managed business looks and feels the way it does today and has the opportunities and challenges it has today because it belongs to that individual owner manager. And the future of the business, including how much growth and how quickly, will be primarily driven by the owner manager themselves - their personal goals, their personal ambitions, their personal drivers and their ability to manage and lead the business.
So, if an owner manager has been working "at the coal face" to use your phrase, for a number of years, and their goal for the future is to stop doing that quite so much in order to make the business less reliant on them personally, then that seems to me like a perfectly valid personal goal. It also probably means that the business will need to grow in order to achieve that.
At the same time, there are other owner managers who went into business because they love doing a particular activity which then becomes the core activity of the business they set up. We call these people "Artisans" - plumbers who plumb, potters who pot, accountants who account and solicitors who solicit! This type of person is particularly common among the creative industries - designers, architects, software engineers. The most important aim for many of this type owner managers is often to continue to do the work that they live. Therefore, they will deliberately choose that their business will stay reasonably small.
Both of these sets of personal goals, and the implications of them on the future of the business, are perfectly valid choices in my view. The most important thing for any owner manager is to design and build a business which enables them to acheive what they want for themselves. That way, they'll be satisfied and contented and the business will flourish. If they end up building a business whihc delivers something that don't want (eg. doing a role that they don't want to do any more), then they're probably going to be discontent and that will affect the business.
So, neither growth or staying small is right for everyone. The important thing is to work out what you want for yourself and your business.
agree that pursuing revenue growth is often a very big mistake. One of the smartest business owners I know maxed out his manufacturing facility about 20 years ago and has kept his business at that size by raising prices and NOT expanding in facilities or equipment. By now everything is paid for, he has zero debt and can capture all the business he wants in the recession. Think of his pricing flexibility and cost structure.
Meanwhile, as a corporate turnaround specialist, probably half of my clients got in trouble through expansion - too much debt, too much complication, not enough margin or pricing control.
I have yet to meet an entrepreneur who wasn't happier with a smaller highly profitable and simple business than running that gauntlet of debt, risk and servitude. I can literally watch the tension release from my clients as we cut away the accumulated rubbish and focus back on their profitable core.
It really depends on what you want from your business and what type of person you are.
Yes attracting the right people to the business can be difficult, but many people set up their business for the challenge. Once they’ve achieved one goal they need to raise the bar and achieve the next goal which for many means developing a team. Maintaining the team spirit with the wrong people can be difficult but with the right people the sky's the limit!
I think Robert's observations are spot on. If you do wish to grow your company then you need to replicate the small business organisation by putting people in to small multi skilled teams - every one has their core skill but everyone is able to perform all the operations needed to take an activity from cradle to grave. Unfortunately most organisations start putting people in to departments which leads to peaks and troughs of work in each department as transactions are processed by the sausage machine. To resolve this the next mistake is that large organisations then employ a raft of managers to manage these peaks and troughs. Reversing this manner of organising people is often the key to revitalising under performing businesses.
Small is beautiful...and practical. We made the mistake in the late '80's to expand after a few hits (through Virgin) and, God, did we regret it! Back to a very manageable 5 with 2 part-timers!!
I suppose it depends on just what a business owner wants out of the business. More profit is better than more turnover (unless they are combined of course). A lifestyle business is what, I think, most small business owners want as they get the best of both worlds - a good business that pays what they want and time with the family (&the golf clubs) when they want.
For me the issue is not about whether a company stays small or grows big, it is more about how growth is managed.
Small/Medium businesses often find themselves in the difficult position of what I refer to as the 'One and a Half Lorries' scenario. They have more business than they can handle with their one lorry, but not enough for two. Do they invest in a second lorry or not?
If they stick with the one lorry there is a risk of under delivering to their existing customer base and therefore losing business, but if they invest the risk is that there is insufficient new business to fund it. The analogy is relevant for staff, equipment, premises, product and a whole host of business issues.
This is where I agree that having a clear vision and a strong set of values will play a significant role, as it provides the direction and drive that will ultimately make the investment pay off. As long as they have a vision (for which read direction), business leaders can manage their growth and be flexible where and when they need to.
I would say that the Big Mistake is thinking small, rather than actually staying small.
I have had clients who have said that they aim for a certain level of income per year. They then continue by justifying this by telling the story that they are not materialistic and could never lead a rich and flashy lifestyle. This is interesting for the coach, as it shows up certain values that a client has and how they are played in their lives.
BUT if you think small - and cap your income potential in your mind, you are essentially capping your potential - why in the world would you want to do that? You are sending an instruction to your brain saying "you can come up with ideas, but don't make them toooooooo good!" Be realistic with your growth. Sure. But don't limit the possibilities in your life and the ideas, otherwise it may be an incredible difficult just to reach your previously stated income goal. One of the most powerful questions remains "What IF?"
We've expanded this year (!) with relatively good results. We are still small- I would describe us as a link of stores, rather than a chain ;-)- but 8 months on I can see pros and cons for our decision. Mostly pro's, so that's a positive.
The balancing act is growing enough to give your business flexibility, without over-growing and losing the personal touch, and struglling with cash flow.
If I want to stop working in my business then it needs to be big enough to run without me.
If I want my staff to stay with me for a long time, I need to offer them some form of career progression?
If I want to hire a manager or specialist staff then I need to grow my business.
That jump from being a business owner who can do every job and has fingers in all the pies to one of being able to stand back and even eventually walk away (sell) the business - makes growth a sensible goal?
Trying to take a business that is not ye fully formed and franchising it - crazy !
Just because all of the V, F, RA and DD team thought like that doesnt mean that it is the right way to think and one that we should all follow, even if you think that what they have/represent is the only signifier or model of success...
I think Nigel hit the nail on the head when he said that a business must "have the ability to attract new clients". This is not the same as chasing growth for growth's sake.
In fact, I get the feeling this is really what Jeff is saying about his client. If you have all the clients you can handle because your product or service is unique then you can charge a decent premium and still deliver real value to your customers.
When I started to design my ideal business I wanted to build the smallest business I possibly could that would allow me to support the life I desire for me and my family. I am still working towards it but the infrastructure is already in place so that any growth in new clients will not require further growth in overheads. In the meantime we are profitable and can tell the bank where to go as we don't owe them a penny. That's a very satisfying position to be in in today's climate.
Small remains beautifully formed however with growth things require greater maintenance.
The convention of growth isn't in itself wrong but the greed that drives growth warps and distresses the organisation
mark
We expanded to nearly 30 in the company this month. It all started with just 2. Boy do we have some growing pains. But you know it isn't all bad. We have learned lots of new skills and to trust and delegate. Cash flow is probably the really scary bit, but again with good management even this tiger can be tamed. The dynamics of the business have changed but it is still fun and with so many new personalities in the team you never know what the new day will bring to the table. The Friday evening at the pub slot is getting expensive when it is my round! :-)
The challenge for us is retaining our culture and values to ensure that we continue to deliver quality and personal services as we grow. As a service company this is all about people, hiring the right people people and then retaining and developing them to ensure consistency and continual improvement in what we do.
It comes down to aspirations, there is nothing wrong with staying small for the reasons you folks have outlined, we have managed our growth organically and whilst not risk averse we have not risked the business ethos to chase growth.
We are a dynamic and responsive family run business that have evolved to meet the challenges of growth and the market place but I feel has managed to retain those core values that attracted me to Agenda nearly 10 years ago. B
efore that I worked in large corporate organisations and agree that small is beautiful - until we become large of course!
In a previous business I battled hard with the investor to keep it small and manageable, but he wanted expansion – well you can imagine he ran out of cash very quickly. With our business we have made a conscious decision not to expand internally and employing contractors as and when required. This enables us to react quickly to market requirements.
Same as us: what we can't handle in-house, we out-source or we have a few peopleon retainers which make it easier to act quickly when needed!
Robert, I take your point when it comes to large organisations; one only has to look at the NHS. But I also agree with Gerard, it's horses for courses. A long time ago, I had a Mini Cooper S. It was such fun to drive, but I couldn't go long distances because of the hard suspension on bumpy roads. A business that's too small can be like that, fun but bumpy in the bad times. Unhappily, sometimes the suspension goes altogether, then you wish you'd had some padding. Could we then talk about OPTIMUM size for a business, rather than just small or large?
In any business it is necessary to have "Smart Growth". Growth for ego and taking on too much risk is often a recipe for insolvency. However, a company that is not growing stagnates and cannot hold onto its customers, employees or innovate.
Cash is definitely king, and on days like today, when the snow is thick on the ground and the customers aren't, it's a worry. Our range is made-to-measure, so not an online purchase.
However, the fact that people are thrilled when they contact us, and we are "here" helps build our reputation; and having a closer hold on the reigns than large companies means we can react faster.
There is a strong train of thought that 150 is the optimum maximum number of people in a business before it starts to lose it's way. With a team of five, a good business, great customer experience and an optimistic outlook, I think we're on course for success :-)
Generalizations are just that generalizations. The analysis has to be made in the context of a particular business.
Deloitte's fast growth index highlights just what I possible, take Mobile Interactive Group, (www.migcan.com) their growth in the last five years exceeds 26,000%. certainly, that's due to being in the right place at the right time, with the right products; but that sort of growth isn't to be sniffed at. It's not about the size of the company but the size of the opportunity, something that you can be both too big for or both too small for.
In short, it's about getting as much juice out of the fruit as possible. The choice of fruit can limit a small firm's potential, but an aspiration not to be small for the sake of it can actually be damaging to a business.
Rather than optimum I think I would go for appropriate size for a business, subject to "choice", "potential", "aspiration"!
I think that your last comment has put it into context for me, in entrepreneurial businesses the initial strategy is inextricably linked with the owner's aspiration and potential.
In my opinion, the clever entrepreneur knows when he/she is not the right person to lead the business through the next stage of growth and either stays small or, if the choice is growth, learns to delegate and recruits people who are better than themselves to delegate to.
In my industry, Design & Marketing, according to a highly-regarded industry analyst, the optimum size is somewhere in the mid teens. At that size, the company still retains its personality, creativity, flexibility and profitability. Much beyond that and the business needs to absorb additional 'cost', such as HR and IT, which of course reduces the margins.
The economies of scale begin to kick in beyond 30/40 people but then, of course, the fun often begins to disappear. Over the years I've watched many agencies lose their identity chasing growth and then fragment into breakaways as the staff (including, ironically, the founding partners), try to recreate what they used to have.
And that doesn't mean that the owners hadn't developed from Artisans to Strategists; they just didn't want to become paper-pushers or be constantly focusing on quarterly figures (that had to increase year on year). What's wrong with getting to a certain size and staying there, providing for a comfortable pension and enjoying your profession?
I guess it just depends on what you want from life – inexorable growth and profit for the sake of it (ie investment banks) or a reasonable amount of profit, happy staff and a great work/life balance.
Cash has always been king hence factoring!
When expansion is properly planned, it can give the business owner more time because there can be a supporting team taking operational decisions.
The business owner can then concentrate on strategy, but if a business owner is uncomfortable with delegating it's probably better to remain small,
I very much concur with all those who have already mentioned cashflow.
When we generate plans for growth for our clients, we stress the importance of balancing ambition with the ability to fund that ambition.
If they can't access enough funding, we reduce growth until we have a balance with cash projections. Then we run a sensitivity analysis to check the level of contingency.
If you want to grow, I really recommend you properly plan your growth and how you're going to fund it. Good luck.
Its a difficult balance. Small businesses are very vulnerable to cash flow starvation and as a consequence very few of them survive the start-up phase. And if they do survive, cash is needed to fuel growth. The trick is balancing growth against cash and finding sources of support which may include investors (Friends Family and Fools as the bankers will tell you), banks themselves and alternative funding sources such as spot factoring. The mix will depend on the nature of the business and the strategy of the director(s).
Robert above seems to have asked the right question in terms of delegating. Often the small business owner is unemployable, by that I mean that they NEED to be in control at all times and in everything!
If you are honest with yourself and accept that having your own business allows you to exercise that need, then you must manage your growth carefully. In my experience having enjoyed a "corporate" career in sales/marketing for over 20 years I have had my own company for 6 years. We have doubled in size every year and will do so again this year.
There are 5 in the team and we will add another 3 next year (all things being equal...).
I would like to think that in 5 years or so, we might get to 20 people or so. For me, delegation is wonderful, I still stay in control, but like a scrumhalf, I can control the level of growth, direction etc easily.
I have many friends who are small business owners and the company they own/run really runs their lives for them.
That could be a reason why so many end up selling...
Again, while it's often the case that a business changes once it exceeds 15 - 20 people, that doesn't necessarily mean that 15 people is the optimum size for every business and every owner manager in every industry sector.
Tim's post applied only to design and marketing businesses. And, the rationale given makes a lot of sense. Of course, the same rationale might lead to a slightly different size of business in another industry.
More importantly, the rationale and Tim's post emphasise again the fact that the "optimum" size is actually much more to do with the ambition of the owner manager themselves. If the owner manager's aspiration is continue running a business where they know everyone perosnally and have a very good "super-lifestyle" business, then that's great. At the same time, there are other owner manager's whose aspirations are different to that - even in the design and marketing industry! - and that's also great.
Optimum and success are defined by the individual owner manager, not by industry experts, no matter how well regarded they are!
This is an interesting discussion, I think you have to be clear why you started in business. We all have our motivation. That motivation may change as time goes on and cirumstances alter, but I think it is important to continually remind yourself why you run your own business and what you want to acheive from it.
For me it was to be able to spend time with my kids, drop and pick up from school and be there when they need me, but as they get older and need me less I can see that changing.
Yep - as I said (sorry to repeat myself but I rather like the line and it makes sense to me!)
"Rather than optimum I think I would go for appropriate size for a business, subject to choice, potential, aspiration!"
I think quite often, certainly B2B, that the missing ingredient here is “sales”, as in sales people.
You noted in the blog Robert that the entrepreneurs themselves often have no idea why they are any good at the coalface, only that it all goes wrong when they stop. So no surprise then that they have even less of a clue how to assess, recruit, train and motivate anyone else to do that for them. Or, if they “get lucky”, and find that they have attracted a consummate professional, perhaps they then get a bit nervous when they are left servicing that first key account, where the Sales Manager (Director?) seems to be in charge of the “new” 90% of the business, and all the employees who look after that.
(Growth will always have a cost, I agree, but, if the new 90% is as profitable and cash-managed as the first 10%, that need not always be crippling.)
This issue of business people and society at large not really having a clue what selling is all about is also why a great many of the top sellers cannot work with the rest of you, as your employees, and become their own entrepreneurs. But I do think that looking to repair and improve this situation is a much more likely route to success for UK PLC than trying to find 40,000 mentors for 400,000 entrepreneurs, that Dragon Jones seemed to be a bit nervous about, as a growth forecast.
Regards to all – Neil
Publisher – ModernSelling.com (e-Magazine for UK Sales Professionals & Managers)
Owner – The Sales Direction Database
Twitter: @ModernSelling1
Yes indeed Robert - the only issue then being...
"How long or complicated is a course in how to sell, professionally?"
Some have it at a couple of weeks, others thing it might be one of those Malcolm Gladwell "Outliers" issues where 10 years or 10,000 hours is probably required to make you "expert" in the business of doing (new) business.
Just because something is difficult to do doesn't mean you shouldn't do it. I often wonder why so many people identify the sales weakness and yet there don't seem to be programmes to reflect that demand...
Maybe the "I love/get sales" vs "I hate sales" divide is what will determine business success and growth...
Neil is absolutely right not just in small owner managed business but in large corporate organisations too.
Having worked in very large global organisations in a number of industries and now running my own company, the problem is that most sales people are little more then useless.
The 80/20 rule has never applied more then to sales people. In the last organisation I worked with at field sales level, only 20 or so of the almost 200 could actually sell, the rest just drove around and showed their faces or "dropped" off sale brochures or gave away free samples hoping then that something would happen (which it did sometimes...), they were the ones that also moaned about everything in the company too.
Be VERY careful before you consider employing a salesperson, they have an inflated view of their worth (including all of the associated on-costs), in healthcare, generally a salesperson will cost a company around £60k (assuming a £40/45k base salary with all costs included).
So, with a margin of 30%, he/she would need to sell £180k per annum JUST to pay for themselves let alone a contribution to other costs in the business and no profit for the owner. My questions would be;
1. Can he/she actually sell £200k of your service/product in the market in which you operate?
2. How quickly will they get to break-even point for you? (based on the above assumption, that's £17k A MONTH) a good salesperson will take around 3/6 months before they become effective, what would the cost of that be to your business?
3. Can they actually sell? some salespeople like to sell capital equipment (they are called closers!) they are often badly organised, don't like detail and you will have to chase them for everything. On the flip side, they are likeable and your customers will think highly of them, so good PR for your business and strong sales, they are mavericks. Those that sell services or consumable type products are account managers with good attention to detail, can manage projects and make good team players (and sales managers too!). However, they often can't close properly...
Don't forget to allow for expenses which can ramp up quickly particularly if they need to stay away in the week.
When hiring you MUST check out the CV and ALL references, sales people are great at hiding bad news...
Always remember the golden rule - not everybody who calls themselves a "salesperson" actually is, you have been warned...
Good luck!
A lady in my poker club pretty well runs a local milliners, and describes her job as responding to new business enquiries whilst maximising returns from existing clients by excellence in the existing and innovation and thought leadership of the new. She hates sales people.
My new business partner is MD of a very successful SEO and Social Media Marketing company, and spends his days on the lecture circuits, wowing new prospects whom he diligently farms after each event, and architecting fabulous deals with some truly impressive blue-chips, as well as managing those key accounts. And he seriously hopes he left his selling days behind him when he left the trade magazine publishing company where we both once worked, many moons ago. As he guides countless thousands of his clients' prospects towards their websites (and his own to his own) – he equally struggles (so far) to see what the value of sticking a sales person into the communication channel would be.
The Chartered Institute of Marketing (born 99 years ago as The Sales Managers' Association) are not all that fond of sales people either - it would appear - unless perhaps they "do what they're told"?
nd to echo Christian’s thoughts, my son worked for a leading UK B2B Telco, and there the Sales Management imposed Key Performance Indicators were, for example, to definitely have 12 face-to-face meetings with new business prospects per month.
One such meeting is no small undertaking, by the way, involving finding out what the prospect might, possibly (if they squint), imagine that they would be wanting to buy by way of telecoms/data network upgrades in the next quarter, and then for the seller to assemble a meaningful analysis and quote via colleagues. And, in fact, I also met an ex-Sales Director from the same firm who assured me that the company knew that this process meant that it cost them £500,000 to build the required £6million “pipeline”, each time, which was the size it was because £4million in “sales potential” and therefore £375,000 in actual costs, off the bottom line, were “guaranteed to fail”. This was also why that ex-SD had left to start his own “Sales Forecasting” company.
Still my son’s bosses and bosses’ bosses stuck to it, churning their way through an endless stream of “failed” sellers as they went. Reinforced, in fact, by handing out an award for “Sales Business Plan of the Year” to one of my son’s then colleagues, who had mimicked this wondrous machine, and which plan subsequently went on to close precisely 0% of the “business” in there.
So it’s not just the individual sales people themselves that we need to be wary of, it’s the entrepreneurs and more mature businesses who seek to recruit certain types to fill the “very special” holes they have created.
Witness also the endless parade of entrepreneurs through The Dragons’ Den, where 90% of them can (maybe) do what they do, but were hoping that one or more of the Dragons would sell it for them. And, if they believe that they can, that the Dragons nearly always want 40-50% of the equity, before they do. So are other entrepreneurs taking “sales” that seriously?
Reading between the lines, what we are saying is that we need to focus on results and let the most appropriate means be used.
Foe some businesses the old systematised funnel works a treat (esp on some internet products)
For some the customer magnet approach works.
The big issue is to address the goal and then use the most effective method of getting there. It may be a traditional sales function, it may be a social media campaign...
The line between sales, marketing, PR have become so blurred from the customer point of view that it is curious how many businesses still insist on creating functions/depts based on their own silos and not the customer's POV.
The issue then is how "old" or universal was/is the "systematised funnel"?
I certainly never got anywhere near "marketing" generating and nurturing "leads" for me, the seller, to "close", and that's 1976 to today. And I'm also aware that it never really worked either, for the vast majority of professional (B2B) sales people - witness the 90% of marketing collateral that even the American Marketing Association say goes completely untouched and unused by sales people - and therefore their suspects, prospects and customers.
But the customer's point of view and point of contact and whether that's with a "brand" and marketing collateral or an "expert" as in trusted advisor, is exactly what we should all be looking to make better.
So, if you have a "vending machine", then automate away or, if it's conversations and communications (to "connect & collaborate") that you're after, then better perhaps to get some people in the front line.
Small IS Beautiful. Business is fun, a great alternative to being employed. If you take out much more than 43k a year, you are hammered on personal tax. So how much do you want? Keep enough margin for leakages and just enjoy your freedom!
Small IS Beautiful. Business is fun, a great alternative to being employed. If you take out much more than 43k a year, you are hammered on personal tax. So how much do you want? Keep enough margin for leakages and just enjoy your freedom!
Reading between the lines, what we are saying is that we need to focus on results and let the most appropriate means be used.
Foe some businesses the old systematised funnel works a treat (esp on some internet products)
For some the customer magnet approach works.
The big issue is to address the goal and then use the most effective method of getting there. It may be a traditional sales function, it may be a social media campaign...
The line between sales, marketing, PR have become so blurred from the customer point of view that it is curious how many businesses still insist on creating functions/depts based on their own silos and not the customer's POV.
Robert above seems to have asked the right question in terms of delegating. Often the small business owner is unemployable, by that I mean that they NEED to be in control at all times and in everything!
If you are honest with yourself and accept that having your own business allows you to exercise that need, then you must manage your growth carefully. In my experience having enjoyed a "corporate" career in sales/marketing for over 20 years I have had my own company for 6 years. We have doubled in size every year and will do so again this year.
There are 5 in the team and we will add another 3 next year (all things being equal...).
I would like to think that in 5 years or so, we might get to 20 people or so. For me, delegation is wonderful, I still stay in control, but like a scrumhalf, I can control the level of growth, direction etc easily.
I have many friends who are small business owners and the company they own/run really runs their lives for them.
That could be a reason why so many end up selling...
Deloitte's fast growth index highlights just what I possible, take Mobile Interactive Group, (www.migcan.com) their growth in the last five years exceeds 26,000%. certainly, that's due to being in the right place at the right time, with the right products; but that sort of growth isn't to be sniffed at. It's not about the size of the company but the size of the opportunity, something that you can be both too big for or both too small for.
In short, it's about getting as much juice out of the fruit as possible. The choice of fruit can limit a small firm's potential, but an aspiration not to be small for the sake of it can actually be damaging to a business.
Cash is definitely king, and on days like today, when the snow is thick on the ground and the customers aren't, it's a worry. Our range is made-to-measure, so not an online purchase.
However, the fact that people are thrilled when they contact us, and we are "here" helps build our reputation; and having a closer hold on the reigns than large companies means we can react faster.
There is a strong train of thought that 150 is the optimum maximum number of people in a business before it starts to lose it's way. With a team of five, a good business, great customer experience and an optimistic outlook, I think we're on course for success :-)
Same as us: what we can't handle in-house, we out-source or we have a few peopleon retainers which make it easier to act quickly when needed!
Just because all of the V, F, RA and DD team thought like that doesnt mean that it is the right way to think and one that we should all follow, even if you think that what they have/represent is the only signifier or model of success...
If I want to stop working in my business then it needs to be big enough to run without me.
If I want my staff to stay with me for a long time, I need to offer them some form of career progression?
If I want to hire a manager or specialist staff then I need to grow my business.
That jump from being a business owner who can do every job and has fingers in all the pies to one of being able to stand back and even eventually walk away (sell) the business - makes growth a sensible goal?
Trying to take a business that is not ye fully formed and franchising it - crazy !
I suppose it depends on just what a business owner wants out of the business. More profit is better than more turnover (unless they are combined of course). A lifestyle business is what, I think, most small business owners want as they get the best of both worlds - a good business that pays what they want and time with the family (&the golf clubs) when they want.
It really depends on what you want from your business and what type of person you are.
Yes attracting the right people to the business can be difficult, but many people set up their business for the challenge. Once they’ve achieved one goal they need to raise the bar and achieve the next goal which for many means developing a team. Maintaining the team spirit with the wrong people can be difficult but with the right people the sky's the limit!
Interesting post, Robert.
At the same time, in my view, it's just as invalid to argue that every business should stay small as it is to argue the every business should grow aggressively.
In the owner managed business, you can't disentangle the business from the owner managers themselves. An owner managed business looks and feels the way it does today and has the opportunities and challenges it has today because it belongs to that individual owner manager. And the future of the business, including how much growth and how quickly, will be primarily driven by the owner manager themselves - their personal goals, their personal ambitions, their personal drivers and their ability to manage and lead the business.
So, if an owner manager has been working "at the coal face" to use your phrase, for a number of years, and their goal for the future is to stop doing that quite so much in order to make the business less reliant on them personally, then that seems to me like a perfectly valid personal goal. It also probably means that the business will need to grow in order to achieve that.
At the same time, there are other owner managers who went into business because they love doing a particular activity which then becomes the core activity of the business they set up. We call these people "Artisans" - plumbers who plumb, potters who pot, accountants who account and solicitors who solicit! This type of person is particularly common among the creative industries - designers, architects, software engineers. The most important aim for many of this type owner managers is often to continue to do the work that they live. Therefore, they will deliberately choose that their business will stay reasonably small.
Both of these sets of personal goals, and the implications of them on the future of the business, are perfectly valid choices in my view. The most important thing for any owner manager is to design and build a business which enables them to acheive what they want for themselves. That way, they'll be satisfied and contented and the business will flourish. If they end up building a business whihc delivers something that don't want (eg. doing a role that they don't want to do any more), then they're probably going to be discontent and that will affect the business.
So, neither growth or staying small is right for everyone. The important thing is to work out what you want for yourself and your business.
There is some big thinking going around transitional economics. I sense this more than just the intuitive feeling that there are natural limits to growth. GDP is a really clumsy measure yet we run world and national economies on it. In any business as vital as this we would measure other contributing metrics. In the thirties GDP was largely designed as a crude guide to how western economies could cope with the war effort. Lets put some great minds into generating the right metrics for the 21st century knowledge economy!
What if Virgin, Ford, Ryan Aer,Most of the team on Dragons Den and many others had thought like that.
On the whole, yes, to quote "small is beautiful" for flexibiity, control, etc as you say. as long as the business has several clients to spread the risk and is not depending for the majority of its income on one big one, especially in the current economic climate.
Secondly, there are a number of respected economists, including Amartya Sen, Ha-Joon Chang and Raj Patel (and I think Joseph Stiglitz) who have queried the model of continuous growth, partly because it has led to the current global economic nightmare and it makes no sense for economies to rely on more of the same to get us out of it, but also because it is unsustainable for a planet with finite resources if we're to successfuly tackle environmental and climate change issues.
Growth is good to a certain level, the skill is determining when small becomes too big and being content to stop at a managable size.
Re - small giants
go to
http://robert-craven.blogspot.com/2007/09/small-giants-companies-that-choose-to.html
So Schumacher was prophetic all those years ago - small is beautiful.
So should we stop expanding and taking on new staff??? What about the old adage 'Big is Beautiful' or does that just apply to voluptious bodies??
Interesting, but costs often scale DOWN as size goes bigger. You CAN be more efficient bigger than smaller.
Bo Burlingham - Small Giants makes the same points in a book.
Inspiring and very much in tune with a lot of entrepreneurs who love what they are doing.
And a lot of entrepreneurs when they sell out are pretty miserable after they sell out....
"Small business = small paycheck"
I disagree, we are a small virtual business with independant contractors, very low cost, with a high profit margin for our shareholders, which are myself and my co founder. We're pretty happy with it...
Some business owners see their job as making widgets. Some business owners see their job as building a business.
The latter are creating something that will generate value for others and keep doing this when they, the founder, are no longer involved. To succeed, they have to stop actually making widgets and devote their time to systemising the way they sell and deliver their product. They have to learn how to achieve results through others. They have to gain the passion and skills for management and organisation and leadership which replaces or augments their original passion and skills. Then they become business owners.
I don't think there's a right or wrong here, but I don't think many people take the latter route. ONS stats suggest less than 0.5% of startups have 20+ employees after 10 years.
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