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Growing a Small Business 101

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Grow Your Business through Reinvestment

Before you even start growing your operation, you do need capital to support your growth. You can of course get that capital from a variety of sources: the bank, personal funds, reinvested profits, outside investors, and so on.

But the consensus seemed to be that you wanted to grow through reinvested profits. Growing through reinvested profits meant by definition you were sure to be growing a profitable business. And growing through reinvested profits meant you didn’t have some perhaps well-meaning but unknowledgeable outsider influencing decisions.

You want to be reinvesting real, already earned profits and not anticipated profits. In other words, you didn’t want to do what many big, fast-growth companies do… which is reinvest hoped-for profits.

Starbucks, reportedly, did this with their business plan at least in the days before the Great Recession. The firm might commit to open a new location in year 3 using the profits they hoped to earn in year 2 on a store they were planning to build and open later on in year 1.

Don’t get me wrong. I’m impressed the management team was able to sequence their site development and location openings in this manner. If you’re a Starbucks shareholder, absolutely, you want Starbucks to grow their business as fast as they can.

But for small businesses, group consensus was, you and I want to go slower. First, because slower works more safely when you have those tighter profit margins typical in a small business. That makes sense, right? You and I just don’t have as much financial cushioning to deal with setbacks or stalls if profit margins are tight and we have to personally pay for any mistakes.

And then, second, let’s admit it. In our small businesses, we have neither the management infrastructure nor sophisticated information systems to support a business plan with hundreds of moving parts that need to fit and work together just right.

But that’s okay. We don’t need that infrastructure or those systems if we’re careful and go slow.

Grow with Right-fit Customers and Clients

A related idea to this notion of growing a business with new fat margin services and products… Once this point was made and discussed, people also pointed out the importance of adding the right type of customers and clients.

Now obviously, one can grow revenues by adding any old product or service and any customers or clients willing to pay their invoices. But adding profitable customers and clients sometimes requires more effort. Customers and clients who buy your or my most profitable products and services, and with typical customer or client service burdens, make for right-fit relationships.

And then this weird observation. Even if you and I are, superficially, in the same business, your “right-fit” customers or clients may be different from my “right-fit” customers and clients. You may, for example, have arranged your operation to very efficiently handle clients or customers who look and act a certain way. But these clients may be a poor fit for my shop.

A general guess: I wonder if we don’t serve best customers and clients similar to those we already efficiently serve with fat margin, high quality products and services.

 Grow Opportunistically and in Spurts

People seemed to think you often grow a small business not steadily but rather in spurts.

A small business, for example, can’t simply open up five or ten new locations each year, thereby producing predictable arithmetic growth.

More commonly, a small business gets to grow because the firm suddenly gets access to a new resource that bumps their capacity. Or a firm suddenly sees a new customer or client need it can help fill. Or a great new player joins the team and brings new contacts or skills and these support a step up in revenues.

Big businesses, I think, often seem to munch away at large markets which they steadily capture over years and years.

Small businesses, by definition, don’t. Small businesses uncover a $500,000 or $5,000,000 opportunity, quickly capture some big percentage of the market, and then wait patiently and watch closely for the next opportunity to become visible through the fog.