Hundreds of years ago, the seed of a giant sequoia redwood tree germinated and took root. At that moment, it was genetically predetermined by its DNA that this tree would become, well, a giant.
If the germinating seed of a Bradford pear tree could know anything, it is that it will never be very tall.
As trees go, Bradford pears are short. It's in the genes. A tree's growth plan is fairly simple: soak up as much sunshine and water as possible, fight off the pests and the competition, and let genetics take care of the rest.
Businesses Don't Have Genes
Businesses are not like trees. Fortunately or unfortunately, there are no genetic codes for our businesses—nothing predetermined to take us off the hook in terms of how large our organization should become. Whether our company becomes a giant or an ornamental is up to us— the owners.
Yes, there are marketplace factors that influence growth, like capital availability, competition and general economic conditions, plus our own business acumen and management ability. But these are environmental influences, like food, water and sunshine, not genetic code.
Two Big Questions
A Bradford pear tree cannot decide to grow as tall as a giant redwood, but in a free-market economy, the size of a business can be what the owner makes it. And for small-business owners, that fact creates two questions we go to sleep asking ourselves and wake up trying to answer:
1. How big do I want my business to be?
2. How fast do I want to get to that size?
There are no right or wrong answers. That's the beauty of a free-market economy: It's your business—you get to decide.
But there are right and wrong reasons. For business owners, growth is a rope that can be made into a ladder or a noose. With the right business model, capitalization plan and effective leadership, you can design and build a rope ladder that you can climb to great heights.
But growth for its own sake is organizational suicide. If you don't believe me, take a look at the Dot-com revolution that created the Dot-bomb graveyard.
The Most Important Questions
There are two questions even more important than the previous two that small business owners should ask themselves first:
1. Do I want my business to grow?
2. If so, why?
Just as you have the right to grow your business, you have the right to limit growth. And believe it or not, the latter is more difficult for most of us than the former. Here's why:
• Entrepreneurs are hard-wired to create more of the object of their entrepreneurialism.
• The culture of the marketplace encourages, recognizes and rewards growth.
• The marketplace is nothing if not competitive. And the most prominent by-product of being a successful competitor is growth.
But in the face of all this pressure, small-business owners must be able to answer these two questions objectively, especially the second one.
Growth is Not Always Cool
Peter Meyer, author of Warp Speed Growth and founder of The Meyer Group, a business management firm based in Scotts Valley, Calif., lists four fallacies of growth. Here they are, with my comments.
Fallacy #1: You can grow out of an organizational problem.
Sometimes, in a state of denial or ignorance, small-business owners think getting bigger will fix their management and organizational shortcomings. If a tree is bent, fertilizing it won't make it grow straighter—only faster in the wrong direction. If you have organizational challenges, don't grow until you resolve those challenges.
Fallacy #2. Growth equals profitability.
Yes, increased sales volume can help you improve vendor discounts and, therefore, gross margins. But that doesn't mean your organization can manage the extra activity well enough to convert those discounts to the bottom line. One of the rudest awakenings an owner can have is when projected sales growth has been achieved, but the bottom line of the much-anticipated profit-and-loss statement is no better, or perhaps worse, than a period with lower sales. When I counsel small-business owners about their growth plans, I remind them that, "It's not what you make (sales) that's important, it's what you keep (profits)."
Fallacy #3. Profitability improves when every customer is yours.
Being the market leader can be overrated. In his book, Meyer cites research that shows that only 29 percent of market leaders were also the profitability leader. Not only are you not going to sell every customer, you don't want every customer. Every business has some individual customers, and some customer profiles, that are not profitable. Remember, you don't spend sales, only profits.
Fallacy #4. If you grow, customers will benefit.
Meyer says focusing on growth is focusing on yourself. Every minute your company focuses on itself is a minute diverted away from focusing on the customer. One of the classic examples of a company's self-absorbed focus on growth is when it uses the term "fastest growing" in marketing material as if this were a benefit for its customers. What makes you think customers don't like you the size that you are? What makes you think they will like the new size you are planning?
Don't Get Me Wrong
I'm the last person to tell you that growth is bad, or that you should be happy with the size of your company. I'm a capitalist, and capitalists love growth.
But I do want to encourage you to make sure that when you grow your business, it's because you've thought about why and how. Here are five reality checks, each followed by a slap-in-the-face question.
1) The marketplace is pretty full already. Is there a real opportunity to grow?
2) Growth takes cash. How will I fund the growth I am planning?
3) The rewards of growth are typically delayed. If we grow as planned, can my organization wait for the payoff?
4) Growth takes a company into unfamiliar operational territory. Do I have the staff and systems to blaze that trail without creating a casualty list?
5) Being a business owner should be a source of happiness. Will I be happy with a larger business?
This is where you say, "Thanks. I needed that." You're welcome.
Write this on a rock ... Businesses are not like trees. How big your business becomes is not genetically predetermined. It's up to you. Just because you can grow your business doesn't mean that you should. Ask the questions! And then proceed based on your answers.
