Keep Your Business the Right Size

Goldilocks and the Three Bears is more than a popular bedtime story. It’s also a tried-and-true business model. After all, some businesses are too big, while other are too small. In order to succeed, your business needs to be just right, according to Michael Hart, a Birmingham, Ala.-based consultant, speaker and radio host who specializes in small business.

“There’s a common thought out there that a business has to be either big or small,” Hart says.

The truth is, a successful business can be virtually any size. It just depends on how its owner defines success. “A business that is ‘right-sized’ will be determined by the owner’s goals,” Hart continues.

In other words, if your business is taking you where you want to go, then perhaps it’s perfect the way it is. “A lot of people espouse the philosophy, ‘Grow or die,’” says Dr. Edward D. Hess, professor of business administration and Batten Executive-in-Residence at the University of Virginia’s Darden Graduate School of Business. “Unfortunately, many people underestimate the risks of growth. In some cases it could be grow and die.”

This advice could be especially true in a challenging economy, where growing beyond your means could spell disaster—even for the most successful, in-demand electrical contractors. For that reason, it’s important to determine the ideal size, scope and growth strategy for your business.

Good Growth vs. Bad Growth
Determining the right size for your business requires a realistic assessment of your current capacity to accommodate growth and the consequences of growth, says Hess.

“As you grow, you’ve got to focus even more on cash flow and quality, and you have to be willing to deal with more people issues,” he says.

In other words, good growth is gradual, sustainable and deliberate. It’s not fueled by greed, speed or whimsy, but rather by strategic thinking and careful planning.

Roadmap to Success
Because good growth is strategic rather than spontaneous, achieving it requires a roadmap for taking your business from point A to point B.

Once you’ve created a roadmap, you must locate and define your own ‘Point A’, according to Linda Swerling, owner of Level II Solutions, a Brookline, Mass.-based business consultancy. “You can’t worry about growth until you understand your business at its current level,” she says.

For that reason, Swerling recommends performing a trend analysis in order to pinpoint not only the type of work you’re doing, but also the amount of time and money you’re spending—and making—doing it.

“Look at the projects you’ve worked on recently and figure out when you made the most money and when you made the least,” Swerling says. “Doing that helps you figure out what kind of work you want to be doing. For instance, do you want to be doing projects that are very tiny, and be doing 10 of them a day? Or do you want to be doing projects that take a minimum of a half day, and [do] only two of them a day?”

In addition to your workload and your income, outline your current costs. Knowing both what you make and spend on from a yearly to an hourly basis will help you determine whether growth is feasible for your business.

Business Plan Basics
Just as important as where your business is today is where you want it to go tomorrow. “Determine the total amount of money you want to be making one, five, 10 years from now,” Hart says. “If you don’t know how much money you want to earn, you won’t know how much it’s going to cost to get there, and you won’t know when you’ve gotten there.”

Although few contractors enjoy it, Hart acknowledges, the best strategy for setting and achieving goals is creating a written business plan.

Hess calls it your “cookbook.” You should include your revenue goals, your costs, as well as plans for reconciling the two in your own business plan. If your costs exceed your revenue, you may need to hire or fire employees, modify billing rates, improve cash flow and collection, increase marketing or edit your menu of services in order to be profitable.

Brake Before You Break
No matter your goals, don’t be afraid to put the brakes on growth if you’ve reached your milestones, Hess urges. Unchecked growth can make your business too big quickly, creating an unstable enterprise.

“Business is like farming,” he says. “You get up every day, you go to the fields, you plow, you put out some fertilizer, you pull weeds and you water.”

If you plant more seeds than you can harvest, however, the quality of your service and your work will suffer, and even your biggest cash crops won’t deliver.