One of the biggest decisions business owners face is whether to try to expand their businesses. This may seem like a silly question: Who wouldn’t want a business to grow? But owners who choose growth can get stuck. For some, the issue is how to handle delegation. For others, it’s about raising enough capital. And for still others, it’s about learning the technical skills required to manage a growing business.
In my analysis, there are three types of businesses. Each one places burdens on its owners that are different and unique. The point being, a business owner doesn’t have to get swept up by growth. Here are the general options:
Microbusinesses are where all start-ups begin. The vast majority of the 27 million businesses in the United States are microbusinesses. Some are start-ups, some have been in business for years and some would like to be bigger, but the owners can’t figure out how to make the leap.
Microbusinesses are often one-person shows. If the owner becomes disabled or dies, the business falls apart. The biggest challenge with a microbusiness is keeping a steady stream of income.
The next largest group of businesses as traditional small businesses. These businesses usually have five to 25 employees. They are more complex in that the owners don’t do all of the direct work themselves. They have moved into a role supporting or supervising others. As with microbusinesses, many owners decide this is a good place to be and don’t want to make their business any larger.
This is fine as long as they have ability to create capital for growth. They also have to learn tools and techniques for running a larger company. The challenge is that sometimes these owners get stuck because their businesses don’t make enough money or because they haven’t learned the right skills.
Those who do move on, can become a lower middle market business, which is a business that can be sold. That means the business has to be able to run for long stretches without the efforts of the owner. Businesses that create enterprise value typically have more than 25 employees and produce more than $5 million in sales per year. The United States Census Bureau says there are about 300,000 businesses in this category.
Owners of successful companies that produce enterprise value know how to act and think strategically. They have created companies that function with tactical excellence; they are not just trying to get through the day. The truly successful businesses in this class have also achieved strategic excellence. It’s when tactical excellence is joined by strategic excellence that real value is created for the owner.
Moving into the lower middle market is a very difficult transition because one has to learn to trust their employees, allow others to make mistakes, put together dashboards to monitor what is happening in the company and find ways to take themselves out of the daily operations.
One thing all of these business owners have in common is the balancing act. Knowing what to take on and what to delegate. What passion to follow and what challenge to take on and as the director of the big screen when to say “cut”.