Sunday, July 17, 2011

Bigger is not Always Better

One long-standing aspect of the American culture is the belief that “bigger is better.”

We seem obsessed with having the biggest city, the tallest building, the busiest airport or the largest house. When I went to business school in the 1970s, we were trained to pursue one goal – maximize market share.

Even today when students in my classes describe the businesses they want to start, many feel the need to explain, justify, rationalize or even apologize if they do not plan to grow the venture to meet its full market potential.

However, I always make a point to caution them about what I call the “Growth Myth of Entrepreneurship” – the myth that the success of a venture is best measured by the size of its revenues.

The truth is that growth is not always good for an entrepreneurial venture.

A banker once told my students, “The leading cause of business failure is business success.”

What he meant by this is that to be successful with a growing business one must also create systems, build infrastructure, grow the team and secure critical resources to support growth.

To survive and thrive as a growing venture, entrepreneurs cannot simply run things the same way they did in the start phase of the business. If they don’t change how they run things in the growth phase, the odds of the business surviving the trials and tribulations of growth aren’t very good.

So how big should an entrepreneur plan to grow the business?

Before answering this question, we need to understand what needs to be grown.

Revenues should never be the primary focus for growth – profits should be. Profits are what allow an entrepreneur to earn a salary and build wealth. Revenues should only be grown if they help grow profits.

Too often I see entrepreneurs chase customers just to build sales without making sure that those new sales will actually earn them more profits.

The goal for growth should be tied to the entrepreneur’s aspirations and financial goals. Some people describe this as simply pursuing a lifestyle business. However, I would argue that every business is a lifestyle business. It all just depends on the lifestyle you want to pursue.

If you grow your business deliberately based on your goals and aspirations, you can create a business that is an intentional reflection of the lifestyle you’d like to live. Entrepreneurs should always remember that success in life should be so much more than simply growing a company and making money.

One of my favorite quotes about success comes from someone who grew a very large business. Paul Orfalea grew Kinko’s from a single copy shop into a huge chain of stores that eventually was sold to FedEx.

When asked after all the things he had accomplished since he opened his first store, what was his biggest success, Orfalea replied, “Success in life is having kids who want to come back to visit you when they’ve grown up.”

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