The Truth about a Growing Business
I was taught (at least) two truths about entrepreneurship when I was an MBA student at Babson:
- A successful business is always growing; and
- Start-up entrepreneurs and entrepreneurs who are scaling up their business require different skills.
As I’ve coached both start-up and scaling-up entrepreneurs (and launched my own business) over the last ten years, I’ve struggled with these two notions. I’ve concluded that these are partial truths, at best.
The first one, “A successful business is always growing,” suggests that maintaining a business at a certain scale is a cop out. It’s disparagingly referred to as a “lifestyle business.” If you’ve found a scale that’s sustainable and profitable, why constantly push yourself to grow? I like to frame it more positively, it’s a “right-sized” business.
Admittedly, some businesses and circumstances require you to scale up or get left in the dust. But growth for the sake of growth seems silly, particularly when scaling up requires you to acquire a whole new set of skills (see truth #2). I decided this “truth” is hogwash, and let it go.
I’ve had a harder time wrapping my mind around the second truth. Does scaling up a business really require new skills than starting up?
Over the years, I’ve watched a few of my clients struggle with the expectation that they need to achieve “constant growth.” They’d been successful so far: their customers love their products and they’ve been profitable. As demand increased, they put more fields in production, hired more staff and purchased more equipment.
And then things started to fall apart. The owners put in more time and general revenues increased, yet what had been a profitable, growing business became less profitable. What happened?
- They took out loans for new purchases without fully thinking through the financing and now they can’t afford the debt.
- They increased production but weren’t able to sell everything they grew.
- They hired new employees but struggled with turnover.
See any common themes? The growth phase required new skills that they hadn’t mastered, such as:
- Financial management
- Marketing
- Leadership and HR management.
When you’re starting up as a solopreneur – whether it’s cooking, farming (or even creating financial projections) – all you usually need is a good product or to be good at what you do. With good intuition and a little bit of luck, you can successfully squeak by at a small scale.
I wrote about it four years ago, but (if I can be honest with you) I didn’t fully understand what it meant. I suggested that a scaling entrepreneur needs to focus more on strategy than day-to-day operations. This clearly misses something because how much time does strategy really take?
While I still believe that strategic skills are essential to scaling up, I recognize that the owner of a growing business does require other skills as well.
As you grow the business, you no longer do, you manage. There aren’t enough hours in the day for you to grow all the food, tend all the fields, cook all the meals, sell all the products… whatever it is that is the basic operations of your business. You now must hire staff and manage them to do the actual work. Instead of farming, you:
- Manage the field crew.
- Manage the marketing team.
- Manage the financials.
- Work with lenders to secure financing to grow.
If you want to grow, then you need to develop your leadership and management skills to manage all the people now doing the work for you.
Going back to partial truth #1, continual growth isn’t right for everybody. Maybe you don’t want to manage people; or you earn a comfortable living as it is. Don’t buy into the myth that your business must continually grow. “Right-sizing” is okay.
If you’ve been growing because you should, ask yourself:
- Am I more profitable now?
- Do I enjoy working at this scale?
- Do I like having new challenges in front of me?
If you answered “yes” to all three, great! Keep doing it. In next month’s newsletter, we’ll discuss how to hone your management and leadership skills.
If you answered “no,” what do you need to do to get to the right size? That’s different for every business. Need help? Give me a call and we can discuss.
