When asked about business growth goals, many Stage II entrepreneurs respond in a variety of ways, like “do better than 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. It originates from a lack of foundation from which to set strategic goals.
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.
Business Growth: Not As Easy As it Seems
During the economic downturn of 2008, entrepreneurs quickly discovered the challenges of an economic retreat. Revenues dipped. Budgets were cut. Talent was reduced to keep organizations afloat.
My Dad, a product of The Great Depression, would say, “We need to tighten our belts.” And, tighten our belts we did!
Despite that, many of our colleagues were unable to keep their heads above water. The small business failure rate was 4%. An additional 12% of businesses shuttered in 2009.
Businesses that sustained a growth rate of 20% or more stayed afloat during that stressful time. Despite the challenges, they weathered the storm.
I originally wrote about business growth rates in 2013. At that time, economists were identifying a global economic decline in 2019 (see 2. The economy will slow down…). Economists said it would likely spread to the United States in 2020. Yikes! We did not see COVID, and its accompanying financial upheaval, coming.
By April 2020, 22% of small businesses that existed only three (3) months earlier vanished despite PPP support. That’s 3.3 million businesses! One year later, in April 2021, 36.8% of small business entrepreneurs anticipated the return to normal operations would take longer than six months. Their primary concern? Talent acquisition.
Despite the uncertainty, small business entrepreneurs remained optimistic. In fact, 89% of small businesses queried by Goldman Sachs 10,000 Small Business program were confident their business would survive. That’s good news!
Business Growth: How Fast is Too Fast to Grow?
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. They created a framework to prepare entrepreneurs for business growth.
Based on their work with a variety of organizations, Prof. Randle and Flamholtz identified five rates of growth for small business firms. (From Growing Pains…Transitioning from an Entrepreneurship to a Professionally Managed Firm by Eric Flamholtz & Yvonne Randle)
1. Less than 15% annually — growth.
Although many consider this rate rather unspectacular, a firm will double its size in five years while growing at a 15% rate. (Raise your hand if doubling the size of your business in five years is acceptable to you. 🖐)
2. 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 is 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.)
3. 25 – 50% annually — very rapid growth.
4. 50 – 100% annually — hypergrowth.
5. Greater than 100% annually — light-speed growth.
Your Goal for Business Growth
Rapid growth is very appealing to the always-optimistic entrepreneur. However, it’s good to note these growth rates can create problems for an entrepreneurial firm. Rapid growth, for instance, can make it difficult to keep up with the needed infrastructure. A business can actually choke on its own growth.
Isn’t it nice to have some guidelines for intentionality 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.