Business Growth: Does Size Matter?

Part of my job as a business adviser in the creative sector is to ask questions – sometimes awkward or unexpected questions. So when entrepreneurs ask my advice about how to grow their businesses, my first questions are: “Why do you want to grow?” and: “What do you want to grow?”

Why grow? There is often an assumption that bigger is better, but this is not always the case. It depends on what we mean by ‘Better’. Defining ‘Success’ is my starting point when discussing business development with entrepreneurs and clearly this is a matter for them to decide, not me. For some people it’s purely about money, for others a particular lifestyle, and other factors such as creative passion, autonomy, recognition, and social impact are often part of the mix.

Grow what? Many businesspeople express the growth of their enterprise in terms of their turnover, or number of employees. These are useful measures, but are they the most important? When I watch PowerPoint presentations about the growth of a particular business and the graph of increasing sales is displayed with pride, I ask about profitability. Profitability can actually go down, at least in percentage terms, as turnover grows. As the saying goes “Turnover is vanity, profit is sanity”. We need to measure the most important things that are part of our definition of success.

“And cash is king”, the same saying concludes. Growth can often lead to severe cashflow problems, especially if fixed costs increase as businesses develop. Having high fixed costs can lead to desperation for cash to pay monthly overheads, and as a result, many enterprises have accepted unprofitable work, which makes problems worse. The businesses best placed to survive the credit crunch are those which have flexible costs and are able to grow and contract according to the volume of work, month by month.

Some businesses grow by design, others by default. When I ask business owners about their plans to grow to the size they now are, the response is sometimes: “We didn’t plan – it just happened”. In other words, they got busy, took on a couple of employees, moved to a larger office, attracted new clients, employed more people, and so on. Sometimes they find themselves in an unhappy and uncomfortable position. The creative entrepreneur sometimes looks back wistfully on the days when they were hand-on themselves instead of managing others doing the creative work. And they remember fondly the nights they slept soundly, without worrying about how to pay everyone at the end of the month. For some enterprises, they have grown too much, almost by accident.

Some entrepreneurs design a business which ultimately they can sell as a going concern, without it needing them to be involved. They work ‘on’ the business rather than ‘in’ it. They design themselves out of the picture. Instead of creating a trap for themselves, they achieve liberation. For creative entrepreneurs, the key to doing this can be found by using intellectual property rights to create income streams independent of their ongoing labour.

In conclusion, the most successful enterprises have business growth strategies which are based on a clear definition of what they mean by ‘success’ – and they evaluate progress towards their goals by measuring the right things.

Read more about this and other matters in the book ‘Chase One Rabbit: Strategic Marketing for Business Success
63 Tips, Techniques and Tales for Creative Entrepreneurs’.