There's a reason some businesses grow beyond 'small.' And it's all about mindset.
It’s easy to hunker down and go into reactive mode, constantly responding to one phone call or crisis or emergency after another. This is especially true in the early days of a small business, when no one really has a job description and everyone pitches in to help however they can. Unfortunately, for most of the companies I work with, the company keeps operating in that small-business state of mind long after the point that thinking like a midsize-company could make their growth and profitability skyrocket.
I’m not talking about “small businesses” and “midsize businesses” the way the Small Business Administration does. Those definitions are made by government officials and used for tax planning purposes. I’m talking about the distinct cultural shift that happens when a company stops thinking of itself as a scrappy little underdog and starts thinking of itself as an established mid-size business with a long-term strategy to match.
Failing to take the time to challenge small-business attitudes is a sure-fire way to miss out on the growth your company could easily be ready for. Here are three major attitude shifts that happen when a small company becomes a midsize company. Not every company is ready to take the leap, but it’s worthwhile to see if it’s time for you to take one of these steps.
Invest in Quality Support Staff
Is your neighbor’s kid still troubleshooting your IT when he gets home from school? Sure, he’s talented and easy on your pocketbook, but at a certain point, not having the quality support you’d get from a professional costs more money than it saves.
I did this twice. At one company I ran, a B2B software services company, we didn’t have a receptionist for three years. When we finally hired someone, it transformed the whole office. None of us had realized how much of our time was taken up handling visitors and phones and office management and supplies. We all juggled travel plans, office management, and company events. Furthermore, having a dedicated, friendly professional to answer the phone and greet visitors created a polished and professional first impression that garnered better-quality customers.
I made the same mistake several years later, at a company that sold CD-ROM games in supermarkets. (This was right before the advent of affordable DVDs, so the company didn’t do too well.) With my background in finance, I figured we didn’t need and couldn’t afford a CFO. Wrong! I spent more and more time consumed by the company books. When we finally hired a CFO, it more than doubled the time I had available to spend CEO-ing.
In both these cases, we should have made the choice to invest in quality employees years earlier than we actually did, missing out on tons of productivity and growth. A small company generally can’t afford full-time professionals in key support positions. Midsize companies know they can’t afford not to.
Turn Customers Away
When you start running a company, it feels like you have to take every order a customer is willing to give you, no matter how small - and sometimes, you do. But when you start getting $10,000 orders, you should be turning away the $1,000 ones. Do the same thing with the $10,000 orders when you start to get $100,000 contracts.
Making a small sale generally takes as much effort as making a big sale - except that the small one pays a lot less. My wife, an interior designer, recently realized to her astonishment that she spends almost exactly the same amount of time and energy on every project, whether it’s a small kitchen renovation or a full-scale floor-to-ceiling remodeling job. Midsize business owners have shifted from being thrilled to get any customer to knowing that they’re big enough to be choosy, and they reap the financial rewards of doing so.
Expand the Management Team
I’ve seen plenty of partnerships between one person with a great idea and the engineering know-how to make it happen (“the technical guy”) and another person who knows how to get customers (“the sales guy”). That pairing can successfully grow a business to a certain point. It starts to founder if the technical guy and the sales guy don’t bring in a “strategy guy” who can develop and implement a successful long-term business plan.
At this point, it may even be time to re-structure the company’s ownership, giving the new managers a personal stake in the company’s success. You might also join forces with a strategic partner, or sell part of the company to financial investors in exchange for a shot of growth capital.
If you want to successfully transition to being a mid-size business, it is essential that you stop to assess whether your ownership and management have the right attitude towards your company’s growth. If it’s time to take it to the next level, you’d better start making business decisions like midsize companies do.
DAVID LONSDALE built and sold three venture-funded companies before becoming president and co-owner of Allegiance Capital in 2005, which provides M&A financial services to middle market business owners. @MiddleMktMandA