Wednesday, April 28, 2010

Small to Medium Size Business Equilibrium

This post is largely from a blog by Seth Godin and hits on a really important topic for entrepreneurs and business owners.

Basically, I have long said to business owners that there becomes a point where your business stops being fun. You can hit that point for many reasons, including: sales pressure, competition, more demanding clients, more products, more overhead, human resource headaches, regulation or it could be as simple as the success of your business has outgrown your ability to manage it.

I think this is as applicable to doctors, dentists, lawyers and accountants as it is to restauranteurs, plumbers, technical firms or any other small to medium size business.

The key is to (hopefully) understand this ahead of time and know what to do when you hit that point. So, Seth has some tips below but here are mine:

  1. Always keep in mind why you started the business and what you want to accomplish
  2. What are you good at and what to you dread doing (a lot of times growth drags you into the things you dread doing)
  3. Don't hire more (or less) people than you need.
  4. Always remember that more growth means more opportunity (and more challenges).
  5. Sometimes you just have to say 'no'
Finally, I will leave you with this real world example. Ever been to one of those 'hole in the wall' restaurants with little atmosphere, great food and an hour wait that decided to expand / open a new location? The experience goes way down, the service goes down, the food quality goes down? Why? More customers + More employees + More stress + More capital Requirements = More Stress / More Challenges

From Seth:

An organization with eight people in it might be happy, profitable and growing. The same business with twenty might be on the way to bankruptcy.

Ideas, markets, niches and causes have a natural scale. If you get it right, you can thrive for a long time. Overdo it and you stress the inputs.

The earth has a carrying capacity, certainly. It might change as a result of technology (we know how to grow food more efficiently than we did a century ago) but in any moment of time, there's a limit beyond which degradation kicks in. I don't think many would say that we currently have a people shortage. (Impossible to pull off, but worth considering: what if we skipped a growth cycle in the population and everyone in a generation had just two kids? Or even one...)

Your industry might have room for six or seven well-paid consultants, but when you try to scale up to 30 or 40 people on your team, you discover that it stresses the market's ability to pay.

Interesting note: there's also the common problem of under-staffing. More lawyers in a market might create more lawsuits. More effective ad vehicles certainly create more advertising. More lanes on the highway have been demonstrated to lead to more people commuting to work. Sometimes, adding capacity is exactly the right strategy if your goal is to add more revenue.

The next time you find your business struggling, take a minute to think about scale. More people (or fewer) might be the simplest way to solve your problem.