Friday, June 22, 2012

Would You Choose to Not Grow Your Business?

Jeffery company employees
 (Photo credit: Wikipedia)
It's the reverse of all we were ever taught. Start a business, with a lot of hard work build it up, expand and then one day stop the growth. Surprisingly some businesses make the choice to stop growth and maintain a certain size.

The Small Business Administration reports that there are 22.9 million small businesses in the United States. The Bureau of Labor Statistics (BLS) states that 90 percent of all net job creation from 1996-2007 came from small businesses. There is of little question that if the US is to recover from this recession and if unemployment is to be driven down, small business will lead the way.

Any business school you can attend will teach you that the cornerstone of our capitalist system is to build a companies value and have an ever increasing shareholder value.

Why would anyone ever put the brakes on a viable growing company. Surprisingly there are 3 good reasons to do this.

1. To maintain lifestyle and avoid risk. I know a building contractor who has reach a level of $3 million dollars per year income. My friend takes out of this income enough money to live a very nice lifestyle for himself and family. At the level his company is operating at he has plenty of time for a personal life. He spends his time going on vacation and tending to hobbies he loves.

He is a well respected local business man who could easily double his companies income. He has decide not to go that route. He is comfortable and any expansion would put to a halt the lifestyle he now enjoys. He has a business he can handle and doesn't want to take on anymore responsibility.

2. To avoid regulation. Another building services company in the area has chosen to cut back on expansion plans because of complex and expensive regulation that will kick in when the number of employees reaches 50. After gaining a thorough understanding of the complexity of complying with the "FMLA" (the Family Medical Leave Act), the President of the company made a conscious decision to stop the growth of his company. Job creation came to a screeching halt. The president wasn’t opposed to extending the benefits of FMLA to his employees. Rather, he made an informed decision to avoid the considerable cost associated with the complexity of maintaining records and making judgments about what qualified for FMLA.

It was determined that his company could not absorb the costs of this regulation. Naturally, larger company's with thousands of employees and millions of dollars of revenue could integrate these costs into their spreadsheets.

I know many companies that do not want any employees because of complicated and expensive regulations. Companies like this chose to outsource and hire sub-contractors for all necessary personal needed.

3. Keeping a one man band effect on the company. There was a company that was in manufacturing and it had 35 employees. The owner of the company kept the entire business in his head. He daily told everyone what to do. There was no office staff. The host of employees did the manufacturing, ordering , billing, and customer installation. The owner would not hire any help to staff an office. All office duties were put on the manufacturing employees.

The company lacked a complete organizational section. Not having any office employees and having everyone doing everything was chaos. This owner by his own lack of business knowledge kept his company from growing.

Whether it’s satisfaction with the status quo, a desire to avoid the burden of regulation or not understanding how to delegate, many small business owners have implicitly or explicitly made a decision not to grow their businesses.

It’s completely reasonable for business owners to make an explicit decision not to grow because they are satisfied with the current size of their enterprise. That’s their choice.

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