Why most of small businesses don’t grow?

July 14, 2016

There were a record 5,4 million private sector businesses at the start of 2015.
According to the federation of small businesses (FSB) 99.3% of all the private sector at the start of 2015 were small businesses and 99.9% were small or medium sized businesses (SMEs).
In 2015, there were 1.3 million employing businesses and 4.1 million non-employing businesses. Therefore, 76 % of businesses did not employ anyone a part from the owner.  The overall business population can also be further split into:

  • 3 million sole proprietorships ( 62 % of the total )
  • 6 million companies ( 30 % ) and
  • 436,000 ordinary partnerships.

Another interesting fact is that there were 2.4 million businesses registered for VAT or PAYE, 44 % of the total population. A further 3.0 million are not registered for neither VAT nor PAYE.
What do these figures tell us?
The vast majority of small businesses are microbusinesses with only one individual. At the same time many companies don’t want to employ staff and perhaps prefer to outsource its services to other subcontractors.
There are many reasons as to why a business does not grow and I believe that the most common reasons are:

Individual choice
Some people simply do not want to grow their business.  They prefer to keep a small business structure cashing out the money out of the business rather than reinvesting it back into the business to grow.  There is also the fear of reinvesting the business savings back into the business in case the business were to close losing all the business accumulated savings after weeks, months or years of hard work.

Most business people prefer small rewards in the short term rather than big rewards in the long term.  I understand the reason.  We all live in a business environment where one becomes addicted to a ‘quick return’.
But what is wrong with being a small business and wanting to keep it small?  There is nothing wrong!
The mental pressure we face today is that there are hundreds and hundreds of business books written by big entrepreneurs and the vast majority of them try to convince small business people that the bigger your business becomes, more successful you become and finally more money you make. This is totally nonsense!
I have met two different kinds of business individuals.  The one who knows in his mind what he/she wants to achieve for their business in the short, medium and long term basis  clearly forecasting how many clients they want, their business turnover and how many employees they want to manage.
The other kind of business individual is the one who does not have clear what they want to achieve they have a business idea and want to give it a try.  If it works, then they will make the decision as to whether the business grows or not.
They will also make the decision as to how fast they want their business to grow.
There is no right or wrong path.  On the other hand, there is no way to grow your business without reinvesting the money back into your business.
In most cases, if not in all, a bigger business means a bigger structure, more employees, more systems, more processes, a better telephone system, a better website, more rules, more equipment and more money.

Level of responsibility and leadership
Some business people do not want to grow their business because they do not want or like to manage other individuals. As your business grows, your responsibility grows along.
One of the biggest challenges that a business person faces is managing employees whilst being fair to all of them as the business grows.
You can develop your leadership skills as the business grows but if you do not like to be the company leader or you feel the position is not for you, you must reallocate this function to somebody else.
But you run the risk of this individual not having the same passion for your business and your employees as you have. I have heard many business consultants saying that my company should adopt ‘Customer first’ rules but this is not the way I want to manage my business.
‘Employees first’ works better for me and I believe that by keeping my employees happy my customers will also be happy.  Managing a business as a sole trader is completely different to managing a business where you employ people.
As a sole trader , you are the only decision maker, you run your business as you wish and if your business is making money , you have two options : to reinvest the profits in the business or to cash the money out.  If you want to manage a business with employees you must be prepared to first look after your employees, reward them and then pay yourself if there is money left. I don’t want to be radical, but what I am trying to explain to you is that as a sole trader is only you and as you start contracting employees is you and them. My employees have a more important function than mine.

Kind of risk taker 
I like to compare the level of ‘risk taking’ with a poker match. You buy £ 100 worth in poker chips. After 6 hours of concentrating and playing moderately well you now have £ 600 worth in poker chips.
The next day you come back to the casino with £ 600 and you have a few options available:
1) To buy £ 100 worth of poker chips and play like the day before.
2) To buy £ 300 worth of poker chips (obviously you will keep the other £ 300 as money earned) and play with other players whose stakes are slightly superior
3) To buy £ 600 worth of poker chips and play at a higher level.
The point being that this is the same kind of question you must ask yourself when you need to reinvest money back into the business in order to grow.
Make sure you play in the right table and be prepare to lose as well. What makes a good poker player is always winning more than losing .The strategy being you must run your business at a level where you feel comfortable and you are not putting yourself in a situation where you might be stressed or afraid to lose everything.  Like I said before, and would like to reiterate:  There is nothing wrong in keeping your business small!

Business model difficult to grow or duplicate
Some business models are easier to grow than others. But technical and specialist services are more difficult to learn. If you want to grow your business and your business offers services you must be ready to teach others. Being a good teacher is not easy and you must be patient as well. But not everyone is ready to teach others what they know. I don’t understand the reason but a few ideas come to mind.
The first one is that they don’t want to teach others because they want to feel they are the  most important asset in the business, the second one is they also believe that once you teach employees everything they know , the employees might decide to work for themselves or work for somebody else.
Please remember that if your employees have the technical skills to do their jobs properly it does not necessarily mean that they would become your competitor. Being a good employee does not translate into being a good business person or a good leader. At the same time, if you keep your employees happy within a good business environment and  show them that the company wants to help in every way possible to allow them to grow within the business as  well as beyond as individuals; I have my doubts they would want to leave your organization.

Work ‘on’ your business not ‘in’ your business
How many times have you heard the sentence: You must work on your business and not in your business? As your business grows you start to understand the meaning of this sentence, but be aware of its meaning.  As your business employs more staff your role shifts towards management /leadership rather than a technical or operational role.  Obviously this varies depending on the business and sector.
Your business functions might be reduced but do not believe that growing your business means working less hours or working more on your business rather than in your business.
All the successful people I know have worked very hard in their business and keep working hard in their business. What you need to bear in mind is if you want to grow your business, you need to reorganize your business better. You need to think about having systems and processes in place, an operational manual, a good customer relationship manager software package.  But a lot of business people are not prepared to reallocate their time and energy in doing this. In order to be successful you need to work in your business and also on your business at the same time.
Have you ever seen a top runner running in a track and field race?  He/she needs to keep running within the track and not over the line whilst working harder to improve efficiency in order to run faster and longer.
The same concept applies to business. If you are looking to grow your business make sure you are prepared to work hard especially for the first 5 years. Not being the best runner does not necessarily mean you are not a good runner, especially if you are happy with your results.

Afraid of losing control or failure
Many business people don’t want to grow their business because they are afraid of losing control of the business. Losing control means not being able to manage a bigger business and not being able to keep the same level of quality service.  Being afraid of failure especially when the business is a successful one no matter the size, makes business people refrain from taking the next step.
In addition to this, business profitability varies and in order to grow your business there will be times when your business makes no profit and this is when you might get concerned. As your business costs increase your business turnover also needs to increase but sometimes this does not happen. Some business people are happy with the results not wanting to take further risks and therefore prefer not to adventure into unknown territory preferring to be in a comfortable situation.




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