Small business: The entrepreneur’s dilemma

Growing a small business is no small task.

A recent Vistage publication concluded that 19% of Vistage member companies have less than $10 million in sales (the threshold used by the U.S. government to define “mid-market”). And according to this article in Harvard Business Review, only a tiny percentage of these will ever reach $100 million in revenue.

Inherent growth challenges 

Why is leaping over the $10 million hurdle so hard? There are several contributing factors:

• Small companies lack resources. Therefore, their employees tend to be generalists who wear many hats.
• Entrepreneurs get stuck in operational roles. This robs them of the ability to continuously innovate and see around the bend.
• Larger customers tend to pigeonhole and intimidate small suppliers.
• Small companies emphasize profit at the expense of growth.
• Family businesses pose unique challenges in terms of management, succession and communication.
• Small companies struggle to compete on compensation and benefits.
• Small companies have poor systems and lack integration.

It is becoming more and more difficult for companies of this size to remain relevant. With consolidation ramping up in every industry, B2B customers are growing larger. They are requiring suppliers to meet onerous requirements for compliance, cybersecurity and payment terms. In B2C, online ordering is leading to deep commoditization. It’s only going to get more difficult to be small.

Strategies to spur growth

In order to cross the $10 million threshold, a small company should:

Emphasize innovation and agility in your strategic plan. A company’s business model, value position, strategy and tactics cannot be static. They must be dynamic and have the ability to adapt to changing market conditions. A company’s strategic plan is never complete. In fact, strategic thinking must occur at a faster and more frequent rate than ever before.

Be very niche. Hyper-competition begets hyper-segmentation. To remain relevant, find a very small sliver of the market that you can dominate. Consider a space where you can become best in the world.

Establish a solid senior team. Hire one VP or C-level manager per year until you have built a legitimate management team. Having several key managers—probably starting with a chief financial officer—can move a business forward by lightyears. Paying your first senior person $200K requires a leap of faith, but it’s a necessary investment.

Focus on growth. To spur long-term grow, you need to make investments that may not be realized for years. Great growth is imperative. Set stretch goals with your team to get them there.

Dedicate time to innovation. Innovation will always take a back seat to the daily demands of a business. An entrepreneur must delegate daily operational duties to the extent that they can focus on innovation and research and development. Alternatively, if an entrepreneur’s tendency is to make all the operational decisions, they must delegate innovation tasks to others.

Let technology be your friend. Technology can be a great equalizer. Today’s low-cost Software-as-a-Service (SaaS) products give small companies access to highly scalable solutions that can improve their competitiveness.

Outsource non-essential activities. The rule is to insource things close to a company’s core competency, and outsource low-value activities. Small businesses cannot afford to have assets that are not 100% utilized.

Tell your story. It is perhaps even more critical that small companies prove their expertise with strong digital assets, including dedicated landing pages (by market vertical), whitepapers, case studies and testimonials.

Limit hires to qualified candidates. When family members are hired or promoted based on bloodline alone, management creates a dangerous precedent and promotes favoritism.

Have a clear succession plan. Many family businesses are unwilling to have crucial conversations about roles, responsibilities and “what ifs.” It is critical that employees understand who is responsible for making which decisions under what circumstances.

For more guidance on this subject, read my Executive Street article on succession planning.

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