Growing a Business

Mike Wolfe -

Throughout most of my company's history, it has been a small custom software development company.  In its 25+ year history, the company never had more than two full-time software developers.

I've spent the past several years trying to decide whether to keep the company small in size or grow it.  By "grow it" I'm specifically talking about whether or not to grow the employee count, but that's not the only way to grow a business.

Growing a company could mean any number of things:

  • Increasing revenue
  • Increasing profit
  • Increasing employee count
  • Increasing impact

There is not necessarily a positive correlation among each of the metrics I listed above.  For example, just because you increase revenue, doesn't mean you will also increase profit.  Likewise, increasing employee count does not guarantee an increase in revenue.

The Hiring Leap of Faith

When you are a very small business, hiring a full-time employee requires a leap of faith.

When I hired my first full-time employee, I was overwhelmed with work.  But I didn't have twice as much work as I could do.  Hiring a full-time employee meant that I would need to make sure that the hire would bring in enough revenue to cover the additional payroll expense.

Of course, there was no way I could guarantee that.  For someone as naturally risk-averse as I am, I felt trapped in a Catch-22.  I couldn't take on more work than I was capable of doing without another employee, but it felt too risky to hire another employee without having enough work lined up for them.

In the end, I knew my only option was to take that leap of faith.  Hire the employee, then make sure there's enough work to cover their payroll.  

It's kind of like having kids.  If you wait for the perfect time, it will never happen.  There's no such thing as the perfect time.

Relative Risk

The first few hires in any organization are always the riskiest.  When you're a one-person organization, hiring a second employee requires doubling your workforce.  That also means roughly doubling the amount of work you bring in.  And if that employee quits one day, you'll suddenly have twice as much work to do.

Each successive hire represents relatively less risk.  Hire a third employee and you only need to bring in 50% more work/revenue.  With the fourth employee, you only need to increase revenue by 33% to cover the payroll.  The fifth employee requires 25% more revenue, then 20% with the sixth, 17% with the seventh, etc.

This is of course a massive oversimplification.  I find it useful as a thought exercise, though.

The Danger of Half-Measures

Solo Businesses

There are many advantages to running a one-person business.  Most of these advantages also apply to a two-person business, whether that's a partnership or an owner-employee arrangement.

  • No HR concerns
  • Easier to maintain a single company vision
  • No need to manage employees
  • Minimal technology infrastructure costs
  • No commercial real estate expenses

Small Businesses

Larger small businesses (10+ employees) have a different set of advantages.

  • Better redundancy
  • Easier to sell the business itself
  • Employees can specialize in a single area of the business
  • Fewer existential threats; e.g., a big drop in revenue may lead to employee layoffs, but the business itself is unlikely to go under

Tiny Businesses

This is the no-man's land* between solo businesses and small businesses.  It's the 3-9 person company.  This is where you've outgrown many of the advantages of solo businesses, but haven't expanded to the point where you realize all the advantages of a larger small business.

This is the territory into which I now embark.

* (I'll readily admit I don't have personal experience with this phenomenon, and I am speaking specifically about professional services businesses like the custom software development business that I am in.)

Surviving No Man's Land

I resisted growing my company beyond two full-time employees for years because of my fear of this no man's land.  Having finally decided to move forward, my plan is to now grow steadily to at least that ten-employee benchmark.

This is a scary transition for me.  What led to 25+ years of success as a solo business is not the same formula that will lead to success as a larger small business.  Rather than simply following in my predecessor's footsteps, I'll be forging a new path.

While this new adventure scares me, I also find it invigorating.  Two years ago, I was invited to speak at a National Honor Society induction ceremony.  I told the high school students assembled there to seek out opportunities that they find "equal parts exciting and terrifying."  

Looks like it's time to take my own advice.

Image by Anja🤗#helpinghands #solidarity#stays healthy🙏 from Pixabay