When it comes to business, bigger isn’t always better, but sometimes small is just stagnating. Clemens Rettich discusses how to determine the right size for your business. Rettich is a business consultant with Grant Thornton LLP. He has an MBA from Royal Roads and has spent 25 years practising the art of management.
My column in Douglas magazine focuses on growth, so you would think I’d have talked about business size by now. But you’d be wrong.
I stayed away from discussing size because many business owners too easily assume growth is always about size, and I wanted the conversation to be about other kinds of growth, including social, technological, ethical, emotional, environmental and spiritual. The truth is, we must always be growing, but not always in size.
But now, over a year since I started this column, it’s time to answer the question: Does size matter?”
The answer is, absolutely.
But what is the right size for your business? While the answer, more often than not, is bigger, it’s important to remember that being bigger isn’t an intrinsic value, but being the right size is.
Some businesses rush headlong into growing bigger, and that can be a problem. Other businesses avoid growth because they equate it with losing something, such as contact with employees and familiarity with customers. There’s a vague fear of becoming a faceless, slow-moving, difficult-to-manage corporation.
So it’s time to get past our mistaken fears about growing businesses, because getting bigger doesn’t automatically make a business less agile, less responsive or less responsible. That’s a classic false causality: bad because big. The truth is, each of those failings is not the function of size but the function of poor leadership.
In fact, business growth (in revenue and number of employees) is on balance a good thing for businesses — and it’s important when it comes to productivity and the national economy. It’s worth referring again to “The Future Belongs to the Bold,” a 2017 study by Deloitte that found the vast majority of Canadian business remain too small (and too risk-averse) to fulfill their potential in terms of adding significant economic value in their communities or even in their owners’ lives.
Becoming the Right Size
So is there a right size for any business? While there isn’t a single answer to that question, there are markers to look for:
Retained value
A business is the right size when it creates and retains value beyond a lifestyle income for the owner. A business at that scale generates direct value for a workforce, for a community, and it retains that value for an exit or succession.
Effectiveness value
When everything being done in a business is being done by people who are experts in their roles, rather than by the business owners themselves, the business is the right size. It’s vital to move past the “chief cook and bottlewasher” syndrome.
Lean value
A lean business creates maximum value with minimum waste. Waste can take many forms: financial, materials, time. A business that is the right size delivers maximum customer value with less waste.
Impact value
A business is the right size when it creates the best possible experience for its employees, customers, owners and all other stakeholders.
Benefits of Bigger (and What’s Too Big?)
Notice that I refer to bigger, which is different than big. Bigger is a marginal gain idea. It’s relative. When we talk about getting to the right size, bigger almost always means increasing human capacity. For instance, when a solopreneur starts working with a virtual assistant, the business is getting bigger. When a billion-dollar retail chain adds another location in a new market, it is also getting bigger.
Can a business get too big? Absolutely. But too big is not a number. It is a condition.
A business is too big when its sales volume outstrips its ability to control quality or customer experience. It is too big when employees no longer feel connected to key decisions or decision makers. A business is too big when internal turf wars break out.
Too big is almost always about management capacity. A business is too big when it has literally become unmanageable. And just going back to smaller is not always the right solution. Sometimes getting it right involves the challenging leadership work of reconnecting with real values and redesigning everything accordingly.
Finding the Right Size
Taking a business from “too small” to “right size” is difficult. Stumbles on that journey are a cause of business failure. There are, however, ways of reducing risk:
Use data
Growth eats cash and stresses relationships. Being able to keep your finger on the pulse is the difference between sustainable growth and driving off a cliff. It’s critical to identify and track metrics such as profit margins, productivity, employee engagement and cash flow. You can’t grow bigger with a “set and forget” approach, so create a dashboard of vital signs and check it daily.
Open up communication
Wide open. Aggressive growth fails when the quality and quantity of communication don’t grow with it. Every person and function in the organization must be valued as a part of a communication loop. Increase transparency and build trust to minimize the stresses of growth.
Be cash rich
Unless you have the cash lined up, you’ll go broke if you expand faster than the available cash. Bootstrapping is rarely possible when expansion is the goal. Business expansion is an investment process: you invest today in levers like talent, invention and automation to realize growth tomorrow. The cash for that investment comes from your war chest or is financed with outside help from investors or lenders.
Lead with talent
Many leaders stumble in the race to grow because they don’t act on two mission-critical priorities. The first is to understand that the most valuable people are those who attract others to the organization. The most valuable people have high emotional intelligence and inspire high performance in others. The second is that talent precedes expansion. Getting bigger just because the opportunity exists in the market is doomed to be a painful experience if you don’t first have the right person in place to lead the change. The best way to rocket forward is to acquire the talent first then build the new opportunity around them.
A business that is the right size is a machine for creating value for the owner, its stakeholders and the community. For most businesses, the right size is significantly bigger than the status quo. Encouraging that growth is one of the most important things owners and their community of support can do.
This article is from the April/May 2018 issue of Douglas.
