Friday I had lunch with a very talented business owner I have known for about two years. I was told that one division of the business (the origin of the company) was on hold, one division was growing revenue at low double digits and a new product line in a new division was about to launch. I told the owner that I now recommended for early stage and small businesses to target at least 100% annual revenue growth, as a means to build a company that can scale. The owner's response was "I do not want to scale".
Here are the three reasons to scale a business:
- Timing. Technology and solutions appear when societal and customer needs become large, what some call opportunities. Timing becomes important because many people will be trying to apply the solution at the same time. Within five years of the launch of the Ford Model T there were about twenty car manufacturers. Markets and opportunities go through growth phases and then mature into a battle for marketshare. It is much easier and cheaper to acquire customers when the growth curve is at its steepest. Miss this inflection point and you find yourself in an expensive fight to take share from competitors.
- Competitors. I have a client that builds stores for national chains. He is bidding to build 15 stores in one city for a retail chain. No small local company will be able to react fast enough to hold on to any meaningful marketshare. If the local company had built out the market as fast as possible, maybe the competitor would have even skipped the city for one less competitive. Also, scaling and aggressive growth usually provide for lower product cost and spread overhead over a larger number of units, insuring the option to be price competitive.
- Complacency. World class athletes are constantly working to improve their performance. Companies should have the same discipline. One way to establish such a discipline is to constantly be scaling the business. Scaling and aggressive annual growth targets will consistently surface opportunities for improvement, thereby avoiding complacency. Complacency is what gives disruptive innovation its foothold and allows many other weaknesses to show through.