ON BUSINESS || 3 Things to Consider When Debating To Grow Or Not To Grow
Is growth always good? Is bigger always better?
From experience, I can tell you that the decision to grow a business beyond a certain threshold becomes a decision based on ego rather than profits. From what I have observed, there is a sweet spot for every business owner and company that should be based on your motivation for the business.
How can you determine your sweet spot? Are you motivated by margins? By team size? By client quality? Or, by work quality?
If you are motivated by maximizing your margins, then sometimes a small- to mid-sized company may actually give you the best margins. If you want to grow your company to a certain size, for example, over a thousand employees in 5 different countries, then that's your sweet spot. If you want to have the ability to pick and choose clients while not sustaining too much financial stress, a mid-sized company where you have earned a reputation for your firm could be the market position you are looking for. If pumping out quality work trumps all other factors and you want to remain a part of the overall implementation process, then a smaller company with fewer layers will allow you to stay involved in the action and retain the startup spirit.
There is no right answer, and to each their own, but what are some key things you should consider? Here are a few key points I consider as I am exploring the optimal company size for my ambitions and motivations.
Are you faced with the decision of whether or not to grow your business? When your business is in a stable state, some people opt to forego the risk and stress of growth and decide on maintaining their business instead. Everyone’s path is different.
1 | What’s Your Risk Tolerance?
Would you take out a loan to fuel the potential growth of your company? Would you grow your company prior to securing enough business to achieve break-even in cash flow each month (making enough revenue to cover expenses each month)? How much debt are you comfortable with (relative to the cash you have in the bank)?
According to the financial concept of the risk-reward ratio, the higher the risk, the higher the (expected) payoff. So, how much risk can you stomach?
Is it fine if you don’t know if you have enough cash to sustain beyond the next 6 months? 3 months? 1 month? 1 week?
I would insert my caveat here that my style of running a business is rather conservative because my theory is: I need to be able to deal with the worst-case scenario.
From my past life when I was an entrepreneur pitching for investor funds, I learned that most investors not only want to see traction in a business, where you are actually selling your goods and consumers in the market are willing to pay for them, but they also want to see that you have saved up enough runway to keep your company running for at least 12 months if a black swan worst-case scenario comes up.
So that’s what I aim for: 12 months of cash in the bank in case business slows to a trickle.
Guess what happened? Covid happened.
Under the stress of the pandemic, the all-new task of maintaining my team as well as my own mental wellness while working from home, and continuing to service clients that stayed on (amidst those who cut their contracts), I was relieved that I didn’t have to worry about the ability to make my team’s paycheque.
Having started several businesses, I have to say the biggest stress burden is when you know other people rely on you for their livelihood; having the ability to let my team know that they were safe, at least for as long as I could hold on, was a big sigh of relief.
My risk tolerance is low despite my being an entrepreneur, and I am very thankful that I have that self-awareness.
Should you aim for one cafe location or three? We’ve all heard comments from within our social network of how one location’s quality is better than others, so how can you expand without diluting brand value and quality?
2 | Do you want size or quality?
This is one that I have debated extensively. I’ve had numerous enlightening conversations with friends who work in large corporate companies, and also friends who work in companies that have experienced quadruple growth during covid (mostly tech companies).
Some tech companies went from scrappy startups to structured behemoths in a matter of 18 months. The work environment changed drastically and with that more processes and procedures were implemented to make sure the increased number of employees knew what protocol to follow. It can’t act like a scrappy startup anymore.
For myself, I enjoy the team bonding opportunities of having a smaller team. My friend, who is part of the management team of a business that quadrupled in size over the past year, says it’s hard to maintain the mindset and belief of “we’re all in it together” with their team now because as senior management, they are several layers removed from the “action”. Some people enjoy working in companies with more layers, while others like myself prefer fighting every battle alongside their team. Again, you need to think long and hard about what your preference is. You might even want to try out both scenarios and see which one is a better fit before making a decision. Of course, securing a job at a senior management level at a large and/or growing company is no easy task, so maybe the next best thing is consulting with those who are in senior management positions at companies that inspire you and absorbing their experience through their stories.
3 | Do you want sustained growth or can you accept volatile growth?
You want to consider how much growth you can handle at a given time. Some prefer growing and scaling their companies rapidly, where growth is quite unpredictable and volatile, sometimes tied in with market growth trends that seem to skyrocket a company to stardom. Others prefer growing at a more sustainable, slower pace, where they may be adding 1 to 2 staff members to the company each year.
How big is big enough? 20 people? 100 people? 1000 people? It’s a relative answer and only you can determine the company size you are comfortable with.
Carefully managing growth, and determining the level of growth stress you can put your company (and yourself) under, is a honed skill. Growth is great, but you don’t want to ‘break the machine’ over it.
When a company is in its growth phase, every aspect of the business is under stress; you are trying to hire as fast as possible without compromising quality, you need to foresee market trends to ensure you can sustain the same rate of top-line growth, you need to train your team to manage more people and develop management skills in a short amount of time, and you need to develop processes for every detail in your business — all at once.
I hope that these factors I have considered for my business can also help you. Take the time to reflect on what you want out of your business, and consider how these decisions will impact your lifestyle, to move forward with more clarity and determination.
