In my work with hundreds of small business owners, I’ve noticed that there are two “danger zones” where an owner may, consciously or unconsciously, prevent his or her company from growing any further.
The first zone lies at about $1 million a year in sales. Many owners reach a level of satisfaction with their personal income. The work is hard, but a single owner can do most of the skill-based tasks and still closely oversee what’s done by employees. Income and benefits reach a level that permits a reasonably secure lifestyle. The work week may be long, but the owner has sufficient discretionary funds to spend his or her time off on activities that feel successful (recreational vehicles, a second home, exotic vacations.) After struggling to build a business with meager resources, there is enough cash flow to cover operating expenses and leave a bit for “extras.”
The second zone is between $5 million and $10 million annually, depending on the industry. At that level the owner has at least a few trusted employees who can execute much of the day-to-day functions of the business. Personal income is comfortable. The time requirements of the business have usually fallen to a sustainable number of hours. The company develops a reputation of its own, and the owner begins to be recognized in business and community associations.
I’ve studied the owners of $5+ million companies to see what was different from those who run businesses a fifth that size. I’ve seen both with creative, big-picture owners and both with micromanager technicians. They represented companies in product and service-based industries. Some owners have a laissez-faire approach to managing people, and others insist on strong systems and processes that are followed diligently. For almost every industry, I can point to a company that has stayed at $1 million for a long time, and another with strikingly similar offerings, management style and markets that has grown much larger.
I’m convinced that the difference is an owner’s ability to set and achieve goals. In a word, it is implementation. The owner of a continually smaller company has many goals, but they are seldom achieved, or at least achieved on schedule. Everyone is too busy. The daily firefighting of customer and vendor problems pushes other objectives aside. Goals are redirected, excused, or ignored when they interfere with an employee’s “regular” tasks.
The more successful owner approaches goal-accomplishment as a normal part of daily operations. Achieving objectives on a timetable is an expected part of ongoing activity. Small crises and unexpected events are inevitable, but they aren’t allowed to create ever-extending deadlines for the important-but-not-urgent things that move the company forward.
Growing a business beyond the second zone requires a shift from an owner-centric culture to one built around management and systems. It isn’t for everybody, and many owners really don’t want to go there. Taking a business from a million dollars to several times that much, however, really doesn’t demand a complete change in culture. It just requires an owner who makes implementation of growth and improvement goals a core activity of the business, not merely a lucky outcome of its regular activities.
John, Very true. Setting and achieving growth goals as part of every day business is what it takes to grow from a $1 Million a year company to one 5 times larger. This was a practice that we used to grow my company from $100K to $5 Million in less than 5 years and be on the INC 500 list as one of the fastest growing privately held companies in the U.S.
Larry Amon
Thanks Larry! It’s always nice to have “real world” support for my own experience.
Although occasionally I have run into a business owner with a personal bias with regard to anything perceived as “corporate”. So implementing processes, or giving up tight control, is avoided. But for many SMB’s the observations shared in your post should are exactly what is needed.