From D CEO May 2023Subscribe
Small businesses are the backbone of the economy.
Nearly 50 percent of the U.S. workforce is employed by small businesses and about 65 percent of new jobs are created by small businesses. Yet more than half of those enterprises fail before their fifth year. Why? Because it’s hard to run a successful business. Owners have to be experts in their fields, and they have to be experts in every aspect of managing their businesses-—including marketing, sales, operations, finance, human resources, and IT. Owners also need to know how to make a profit. Small businesses that survive the first few years still face challenges. They must grow profitability to keep pace with inflation and cost of living. Owners are working longer hours instead of fulfilling their entrepreneurial dreams. What they need to do is scale—grow to the point where the company’s owner is not running the daily operations but overseeing an experienced management team that makes the day-to-day decisions. Is this possible? Yes! As someone who has started, grown, and sold two $50 million companies, here are some recommended steps:
1. Be intentional.
Don’t settle for 5 percent growth. Pick a lofty goal and set your sights on 20 or 30 percent annual growth. Then determine the steps you’re going to take to get there. If you’re running a $1 million revenue business, 20 percent growth means an additional $200,000 in sales. That’s $50,000 per quarter. Determine where that will come from and set a course of action to make it happen.
2. Hire the best people.
Assess your team and their capabilities. Ask people if they are willing to learn and determine if they have the grit to stick with you on the journey. Be clear that they will have major responsibilities (and a share of the profits) if they work hard and contribute to the company’s success. If not, great. Replace them with experienced pros that are hungry for the challenge.
This is one of the most difficult steps for most business owners. With the right people in place, give your employees authority to make decisions. Gradually step back from operations and lead your company’s strategic vision. Not overnight; they have to earn your trust. But as they do, take something off your plate. Free up time for strategic decisions or a vacation with your family—one of the many benefits of scaling!
4. Use leverage.
Seventy-seven percent of business owners don’t understand their financials and are making decisions without analyzing financial impact, which leads to poor outcomes. Once learned, leveraging your recurring operating profits will generate the resources needed to accomplish your short- and long-term goals.
A 30-year business leader, Deb Purvin is a faculty member of the Goldman Sachs 10,000 Small Business program and founder of Business Owner’s MBA.