Should You Grow Your Business? 6 Questions to Help You Decide
Growth is a naturally occurring component of life, and the same is true for the life of your small business. As rabbi and psychiatrist Abraham Twerski…
But, contrary to popular belief, growth doesn’t always have to entail heightened wealth, bigger offices or more employees. Before producing a new and improved lobster shell, so to speak, it’s beneficial to reflect on what growth means to your small business and what it will take to get there.
Here are some questions to consider to help you decide what comes next for your small business:
1. How do you define success?
Paul Jarvis, author of “Company of One” and co-founder of Fathom Analytics, has worked for himself for over 20 years and doesn’t want to grow his company in the traditional sense of the word. “It absolutely can be beneficial, but it isn’t always,” he says. “And I think it’s our job as business owners not to say we’re anti-growth or pro-growth, but to say we should question it.” He asks himself, “If everything goes according to plan and the business does well and it grows, am I going to like my life where it’s at?”
At Fathom, Jarvis strengthens the skills he’s genuinely interested in fostering, such as video editing. While learning more about becoming a manager, for instance, would allow the company to hire more people, that’s not the goal. Instead, to him success entails designing the lifestyle he wants while maintaining his business’s resilience.
2. What is your motivation to grow?
Money is essential, but it shouldn’t be the sole motivation behind growing a small business — the driving force needs to align with a greater purpose. Hugh MacMaster, a mentor at Score who helps companies scale their operations, explains that businesses are born out of the need for a particular product or service. “Somebody has an unmet need and you have the opportunity to fill it,” he says. “And if it’s focused on you making more money, it isn’t focused on meeting the customer’s unmet need. That usually doesn’t work very well.”
3. Do you want to be responsible for more employees?
Being your own boss is one thing — being other people’s boss is another. Jarvis, for example, found that he doesn’t want to be in charge of other people, simply because he wouldn’t enjoy it. Handling human resources, running payroll, building an employee handbook, creating workflows, managing employee benefits and integrating that information with your accounting data is a large undertaking that will cost you time and money. If you’re tech savvy and can foot the extra monthly bill, small-business payroll and HR software can help lighten the workload.
4. Will your relationship with current clients change?
A small business’s patrons determine its success. If growing means alienating them or sacrificing quality for quantity, that could hurt the company in the long run. “Understand your capacity and do that assessment first,” says Diana Martinez, a mentor at Score and CEO of Blukastor, a services marketplace for Latino small businesses. “Can I grow with the same clients or should I grow with new clients?” As a pulse check, she suggests asking your most loyal clients for their feedback on any major changes.
5. How profitable is your business?
Understanding the numbers behind your business is vital, whether you plan to grow or not. Martinez emphasizes the importance of establishing key performance indicators, or KPIs, so that businesses can measure success and set tangible goals. Similarly, Jarvis warns against gauging success based on gross revenue alone, and recommends paying close attention to margins instead. “If you had to spend $10,000 to make $500,000, but you had to spend $900,000 to make $1 million, you’re going in the wrong direction,” he says.
Separately, small businesses can compare their own financial ratios with industry benchmarks set by the Risk Management Association. The RMA establishes financial norms by compiling reports from its member institutions’ small- and medium-business clients, and banks refer to them while assessing business loan applications. Seeing how well your business is performing relative to your competitors can help shape new goals and determine whether you’ll qualify for a small-business loan should you decide to grow.
6. Does the work align with your mission?
Jarvis sets aside a few hours each week to take a step back from day-to-day tasks and reflect on what his company is accomplishing. “Otherwise you’re just in it — you’re just doing the work because that’s the work that’s in front of you,” he says. If carving out a few hours isn’t possible, he suggests setting a weekly calendar event, even if it’s just for 20 minutes.
In the end, expanding your small business isn’t necessarily good or bad — but it has to align with your own goals, both as an individual and as a founder. Martinez stresses the importance of developing your own leadership and time management skills throughout this process as well: “Empower yourself because at the end, what you do for yourself reflects on your team.”
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The article Should You Grow Your Business? 6 Questions to Help You Decide originally appeared on NerdWallet.
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