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The pain of growth – transitioning from a

small to a medium-sized business

The medium sized business market comprises businesses with 20-500 full time employees.  At the smallest end of this market – namely businesses that employ 20-50 people full time – are some of the most stressed business owners we encounter.  Why?  Because they’re caught between a rock and a hard place.  They’re not ‘small businesses’ – where benefits of control and flexibility are still very real … but they aren’t large enough to have developed the infrastructure needed to run their business to its optimum.  That is, they don’t employ the functional experts that are required to enable the business to be more sophisticated in its operation, and to grow accordingly.
 
Consequently, in this 20-50 employee segment, the business owner can still find themselves ‘across everything’.  It is a constant battle for them.  This is partly because there isn’t anyone else responsible for decisions on the topic in question, and partly because many of these business owners have not learnt to delegate.  In many situations they are trying to think of themselves as a medium sized business, but they have the management practices and culture of a small business.
 
These businesses that have 20-50 employees are often ‘stuck in the middle’.  Consider some comments from a series of group discussions of business owners with 20-50 employees …

“My biggest problem is not being big enough to employ a full time advertising and marketing manager.  We have to do it on an ad-hoc basis, and we make a lot of bad decisions.”

“The biggest problem is getting people to do things your way.  Or else you end up not running the business that you want to run.”

“I relish the task of starting off with something small.  You’re far more manoeuvrable and it’s great having that manoeuvrability in the market place.  And as we’re growing you find that everything gets so big and you have to become so systemised.  The more people you have, the more communication problems you have.  When we had four people all we did was have a cup of tea and everyone knew what was going on.  There was no communication problem and I really liked that and enjoyed that.”  

“It used to be that a successful business was described as employing a lot of people.  These days a successful business is more likely to be defined as one that doesn’t employ many people.  If you had your time again you’d try to achieve the same results but with less people.” 

The different stages that business owners go through are often quite clear to them in hindsight.  Consider this fabulous comment from an accountant who now runs a very large public practice (nearly 150 FTEs) …
“There was a point at 25-30 people that was really hard to break through because at that point you’re doing everything yourself and you’re intimately involved in all the clients and making the business grow.  Not many businesses can grow through that, in our profession.  And the next time I saw it was at about 70 people because you’re doing great things but you’re at that point where you really don’t have the infrastructure.  You don’t have the capability behind you that helps you to do your job a lot easier, and you need to get that – all the managers across marketing, HR, technology, operations, you don’t have that but at some point you need to get that and the only way you can get that is to put a big amount of investment in.  So you’ve got to be really committed that you want to grow a LOT more otherwise why would you invest all that money?   And do you have the leadership capability to take you there anyway?  Then it was probably at 100 employees – because at a certain point you’re going to need a CEO to delegate a lot of the day to day issues in growing and running the business to other people.” (Accounting, 140 FTEs)
The notion that business owners have to make a conscious decision to grow further is widely understood – by those that have decided to grow and have reached the other side …
“As the company grew from $5 to $10 million turnover it exposed the deficiencies in the structure of the business and to get to $15 million + you have to get more serious.   And also when you’ve got that sort of volume you can afford to spend the money on corporate.  These smaller businesses are trying to do everything and they can’t afford it at their size and they’re not disciplined enough to do it and it becomes risky.  At $10 million plus it also comes down to the resolve of the individuals because some owner-operators tend to be so hands on that they feel if they keep doing the same thing they’ll be successful.” (Engineering, 120 FTEs)
So for a control freak, this represents a real problem.  Delegate – thereby entrust others and possibly lose control – or try to be across everything and carry the weight of the world on your shoulders.  Again, some comments from group discussions comprising business owners with 20-50 employees …  

“You have to make major decisions and you’re the only one that can make the decision … so it’s all on your shoulders.”

“I’d like to employ more people but business IS pretty tough and therefore you try to still keep it fairly lean – and that means you end up doing a lot more yourself.  So you feel frantic most of the time.”

“I really feel this loneliness issue because you have to be very careful, you can’t talk to your competitors, everyone is looking for an edge … and the industry associations are really not providing that forum for people.” 

Yet some business owners are able to move beyond this stage.  They are able to let go and ‘break on through to the other side’.  It is interesting to note that many of the business owners we’ve interviewed through the years that employ 50+ employees – and in particular those with 100+ persons – rarely if ever regret their decision to employ others and build their infrastructure.  That is, a key differentiator is that some business owners ‘dig deep’ and employ someone to help them to perform certain functions/tasks … and when they do, they almost always think they made the right decision (with hindsight).  This is typified by the following comment …

“We’ve had to put on a full time accountant, a marketing person, a marketing support person, but each time we put on someone, we realise that someone more talented and more senior was doing that work, and now they’re able to do what they were supposed to be doing.  So we’ve probably put 5 people on and they’ve all enabled higher paid people to do their jobs.” 

Conclusion

Organisations that sell to SMEs need to realise that running a business with 20-50 employees can be extremely difficult.  These businesses aren’t ‘small business’ – yet generally don’t have the infrastructure to enable the business owner to delegate decisions to a functional expert.  And in some cases the business owner would feel threatened in doing so as they are still thinking like a small business owner (ie a control freak). 
 
Consequently, decisions about what products and services to buy are made by people that often don’t have the technical understanding of a functional expert.  Hence, despite the fact that the business may be of a reasonable size, decision making can still be unsophisticated and emotional.
 
But some businesses are able to push beyond this stage, take the hard decision, employ functional experts … and from our research of the past 24 years it has been stunning the extent to which they almost NEVER regret doing so. 
 
Next month : What does ‘innovation’ mean to SMEs?
 
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