Lazy convention suggests that business success is all about rising turnover and profits.
This is simply not true.
I’ve already written a bit about how a general economy shrink is not necessarily a bad thing and also a post in praise of small businesses (take a read!) so expanding on that theme I want to take a look at the conventional thinking that says a business should keep growing indefinitely.
This was prompted by a memo from my accountant which noticed that while our fees regularly trickle up we have the odd period when our turnover falls – she sounded a little worried.
Perhaps I should explain a little about my work: I speak at conferences, provide consultancy and train people in the medical and pharmaceutical industry. I’m a freelancer – as are the 3 others who make up my company’s (excellent) team. I work with whom I like when it is convenient for me to do so. I don’t have a boss to keep happy or a lavish lifestyle to fund.
My Freedom Bus Business
Sometimes I don’t like to work too hard on this business – conventional folk would refer to these periods as “holidays” (I may be doing other “work”: looking after my godson, checking out our investment properties, managing our websites, visiting the family, shopping, tidying the office, hoiking leaves out the swimming pool or mowing the lawn – but not fee earning work. I might even be lying on a beach somewhere!).
Other times I am in normal working mode: 3-4 hours a day, 3-4 days a week. Other times it’s all-out earning: a dozen days consultancy in half a dozen countries with associated flights, hotels and long evenings of “networking” with businessmen and women.
It’s usually after a burst like this that I’ll take a “holiday”.
If other bits of my life are hectic, I’ll also choose to do less fee work. At the end of last year we moved house – so for a few months we eased up on the fee-earning work.
It was this period of quiet non-earning that prompted my accountants query. Was the business in trouble? What was the outlook?
“If you’re not growing in business you are dying!”
I was able to reassure her that the Freedom Bus was in fine health and it made me recall some of the exhortations of corporate folk I knew who lazily spout about “if you’re not growing in business you are dying!”
Utter nonsense.
Business success is touted as being about indefinitely rising turnover and profits. But what has business success got to do with more and more money? Think about it.
We don’t just define personal success in this way … well OK some one-dimensional saddos might, but most of us don’t.
I’m not even sure that indefinite growth is possible – I tend to think that all companies move in cycles. Even if it were possible, what possible value would indefinite growth bring?
If one asks people in the medical world “what grows and grows indefinitely?” – They have a chilling one word answer; “Cancer”. And as we know cancer grows until it kills that which supports it.
Most stock answers about why constant growth is desirable point to boosting investment, shareholder value, job security etc. More rubbish.
Why are we in business?
Are we running businesses to keep accountants and Wall Street analysts happy? Do we work and provide services to fuel pension funds and create work for investment bankers and corporate lawyers? (Clue: the answer is “NOOOOOOOOOO!!!!”)
What about job security? You say. Well one great way businesses squeeze more profits is by cutting jobs, then cutting real wages, then outsourcing to India before finally outsourcing to Vietnam. That’s the £12 an hour to 18p an hour way to boost profits and delight the bankers. Great.
Know when enough is enough
We need sufficient profits to keep the business functioning. Pay everyone well. Invest in improvements and tuck a little away for rainy days or future opportunities. But no more.
We don’t need to keep fuelling the hyper-driven greedy short-term views of the money men.
In every market niche there is a right organic size for a specific type of business. Too small is too small…but too big is just that: too big. (We have laws against monopolies for reasons too).
Those businesses that grow too fast are at great risk. They get fat. They get over-stretched. The culture that once made them experts at what they do and a great place to work gets diluted. Customers notice and employees notice.
The too-fat firms then begin a series of yo-yo diets. They lay people off to streamline, expand again and downsize once more. All the time they do this they strip out the essence that once worked so well. The humanity also fades as business-speak and money-focus takes over.
One only has to watch the news to see how many big firms struggle during financial downturns. Some of the debts, losses and personal tragedy are appalling. And all because they greedily wanted to get bigger and bigger.
Profit beyond the minimum is not essential for survival. Certainly a deficit can be deadly to a business but a surplus can also be very troublesome. Someone will want to spend it, gamble with it, open new swanky offices, take over a smaller rival, expand into other new areas of business or generally speculate with it.
The balance gets broken. It is like saying “my children have too many toys at Christmas … we’d better have another baby!”
Get better not bigger!
Instead of growing the size of your business why not grow the skills? Get better not bigger! Invest in the quality of what you already have: the people, the systems, the care and attention.
Think of your small specialized business like a great university or orchestra. Cambridge university could have colleges all around the world (imagine how popular they’d be in the USA!) – but they don’t – they just keep getting better. The Berlin Philharmonic Orchestra is great – they make a wonderful sound with 120 people (or so). Do the directors of the orchestra have a business plan to expand to 4,000 musicians? No of course not!
I hope your Freedom Bus business earns you sufficient profits and you know when enough is enough. Do you agree or disagree?
August 9, 2009 at 6:44 pm
Good points raised here, espcially ‘getting better, not bigger’. A firm with more skilled labour is much better than a firm with lots of unskilled labour.
We can also look at the law of diminishing returns, as it could potentially lead to a fall in production if so many people are employed in a business.
Finally, communication is a key factor. Smaller firms generally have better communication than bigger firms. It is also easier to spot out those who are working harder in smaller firms to get promoted and those who are lazier and end up ‘demoted’ or fired.
James (The Prospective Economist)
August 9, 2009 at 7:00 pm
Thanks for your comments James – I agree with your observation that one tends to find better communication in smaller firms. People’s contribution to the overall goal is generally clearer and most feel more closely aligned to the firms purpose as a result. This sense of belonging and being part of something bigger and grander paradoxically seems to diminish in a much larger organization. In bigger firms, smaller sub empires are created often with the associated in-fighting and sniping.
Smaller firms seem to be a bunch more fun too!
August 24, 2009 at 3:14 pm
Your comments made an impression on me, all that you say works at both an individual and big corporate level.
A pre-requisite of having pride in “work” requires a focus on the skills/quality of what is delivered, and I find it hard to imagine anyone who works without such goals in mind being personally happy or professionally proud of what they do. The individuals and companies I have see that have a joy / buzz about them all have a deep pride.
Thanks for your thoughtful posts.
August 24, 2009 at 3:34 pm
Thank you Sarah for your kind comments.
I have just finished reading a book by Anita Roddick, the co-founder of The Body Shop. (“Business as Unusual”).
Roddick expands on the point you make and looks deeply into why business should exist – I think you’d enjoy the read. I’ll leave you with a couple of quotes:
“The business of business should not just be about money, it should be about responsibility. It should be about public good not private greed.”
And
“My vision, my hope is simply this: that many business leaders will come to see a primary role of business as incubators of the human spirit, rather than factories for the production of more material goods and services”
Until next time,
Ian