As kids, we sang a well-known (to us) nursery rhyme that beautifully described Mary and her garden — specifically, her knack for growing with her green thumbs. It went like this:
Mary, Mary quite contrary
How does your garden grow?
With silver bells and cockle shells
And pretty maids all in a row.
This catchy little nursery rhyme reminds me of how a small business grows. I’m not referring to growth strategies but rather how entrepreneurs decide their business growth goal.
If someone were to ask how your business grows, would you be as quick on your feet as Mary to respond with some forethought?
The truth for most small business entrepreneurs is that business growth is somewhat ad hoc. It's kind of a mystery. It's what happens to us when we're frantically working "in" our business rather than "on" our business.
When asked about business growth goals, entrepreneurs respond in a variety of ways, including “do better than we did last year” or “double what we did last year.” This seemingly unplanned, off the cuff response doesn’t come from a casual attitude about business growth, but rather from not having a foundation from which to set realistic, strategic growth goals.
Business Growth: Not As Easy As it Seems
Entrepreneurs growing a business during the economic downturn of 2008 know only too well the challenges that accompanied the economic retreat. Revenue dipped. Budgets were cut. Talent needed to be reduced for organizations to stay afloat during this difficult and uncertain times. My Dad, who was a product of The Great Depression, would say, "We need to tighten our belts."
Tighten our belts we did!
Despite that, many of our colleagues were unable to keep their heads above water. The small business failure rate among self-employed business owners during that stressful time was 4% with an additional 12% of businesses shuttered in 2009.
Those who were able to stay afloat during The Great Recession from 2008 - 2010 were businesses that had sustained a growth rate of 20% or more. That period of time was not without its challenges. However, they withstood the storm.
Looking Ahead: What's in store for Business Growth
Economists are identifying a global economic down in 2019 likely to spread to the United States in 2020. Not to be Debbie Downer but knowing this is an opportunity. It gives us time to get busy — to strengthen and grow — at a rate that helps weather the impending storm.
While obtaining my MDE (Management Development of Entrepreneurship) at UCLA Anderson School of Business, I had the good fortune of studying under Professors Yvonne Randle and Eric Flamholtz. In addition to their work at UCLA, they own a consulting firm that allows them to work with companies like Starbucks and Jamba Juice to create a framework for entrepreneurs to be more prepared to grow their business.
Based on their work with a variety of organizations, Prof. Randle and Flamholtz identified 5 rates of growth for small business firms. (From Growing Pains...Transitioning from an Entrepreneurship to a Professionally Managed Firm by Eric Flamholtz & Yvonne Randle)
- Less than 15% annually – Although many may consider this rate rather unspectacular, a firm will double its size in five years while growing at a 15% rate.
- 15 – 25% annually – Rapid growth (Note: My practice with coaching business clients growing at 15- 25% revealed some interesting experiences. During their time of accelerated growth, they admittedly worked harder. They were exhausted at the end of the week. Resources like time, talent, and money were stretched. The quickened growth — and thinning margins — often required an infusion of capital. This seems to be more common with service-based businesses due to the required talent to deliver on value. The notion of a capital investment, whether it's through taking on debt via a credit card, loan, or credit line can be a bit unnerving. Yet, sometimes that's the risk of entrepreneurship to provide the resources needed to break through to the next level. Being strategic can help you leverage the risk to reduce your personal stress and get a good return on the risk.)
- 25 – 50% annually – Very rapid growth
- 50 – 100% annually – Hyper growth
- Greater than 100% annually – Light-speed growth
Although rapid growth and hyper growth rates are very appealing to the always-optimistic entrepreneur, it’s good to note that such growth rates can create more problems for an entrepreneurial firm. Rapid growth can make it difficult to keep up with the infrastructure needed to support that growth and a business can actually choke on it's own growth.
Isn’t it nice to have some guidelines from which to be intentional in planning your business growth? What's your growth goal? Let us know how we can help you achieve clarity, focus and strategy to achieve your growth goals.