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Why do most small businesses stay small?

Eric Scott

Because it’s DAMN HARD to get big.

The government defines “small business” as anything under 500 employees.  I’ve taken more than one business through the first three fairly distinct sizes and haven’t yet cracked 50 employees.

Solo Businesses – Core Growth Step:  Hiring Another Person

Most businesses start with just you and maybe a partner.  The main challenge to grow past this phase is getting up the courage to hire someone.

Single person businesses contain vast amounts of work, from minimum wage tasks to $1000/hour+ CEO strategic planning.  There’s never enough time and often it’s easier to do the cheap work, than the important work.  Hiring a solid assistant / office manager / manual laborer / helper gives the owner a second pair of hands and another brain to do the cheap but necessary work so the owner can focus on growth.

If you don’t have an assistant, you are one.

Hiring someone is also a big pain in the ass.  Worker’s comp insurance, employment law, payroll, and additional taxes all need doing as well as the actual hiring and management part.  Around 20M people in the US run single person businesses and most of them stay at one person because they never get up the nerve to add a second.

2 to 10 People – Core Growth Step:  Replacing You

Once you effectively hire a support team and figure out how to generate enough business to pay everyone, you’ll inevitably bump into a new wall:  only the work you enjoy and are good at is left on your plate, and you can’t do it all.  Growing past a support team requires you to step out of the “doer” role and into the “owner” role.  You need to hire someone to do your job and effectively train and manage them to do it like you did it.

Your customers don’t really care that you do the work.  They do, however, care that it’s done like you do it.  Being able to replace yourself is hard both tactically, and mentally.  It’s hard to give up the work we like, especially when we think nobody else can do it like we can.

It’s a big change and often isn’t fun.  You go from being really good at something you like, to being brand new at something where you don’t really even understand what to do next.

10 – 50 People – Core Growth Step:  Systems

Once you’ve got a team of people doing your old job, you tend to grow fairly quickly again.  You wind up with a group that’s larger than you can oversee effectively.  You also end up with a lot of certain kinds of work that requires teams, instead of people.

Adding key operations, hiring, and sales systems becomes critical to delivering consistency to clients, keeping enough of the right people, and bringing in enough cash to keep the lights on.

Systems are also only systems if they’re used so you’ll need to add training and management to teach people to use the systems, and hold them accountable for doing so.  You only get what you inspect and if you don’t check to see if people follow the manual, they wont.

All That, and Still “Just” a Small Business

Once you’ve done the above, you’ll tend to have a company doing between $1M and $10M in annual revenue with an actual CEO role, a few managers, and a bunch of workers.  It takes most folks between 5 to 20 years of their life to grow a company from nothing to 50 people.  It’s hard, it requires sacrifice, persistence, and doing a lot of things that aren’t enjoyable including working excessively, fighting with the government, getting yelled at by customers, losing money, paying fines, sleepless nights, lawsuits, firing employees and saying “no” to lot of really nice people.

…and you’re still less than 10% of the way to not being called “Small Business” anymore.

It’s so easy at every point to say, “you know what, I’m good where I am” and live off this business you’ve built.  The other choice is signing up for another round of high risk, struggle, and uncertainty to attempt another move up the size scale.

That’s why most small businesses stay small.  It’s really hard not to.

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