When does an entrepreneur decide to scale their business?
Over the past few years, I’ve enjoyed meeting and interviewing people who have built various types of businesses. Those who have succeeded and found their stride typically fall within two camps:
a) those who have built a business that centers around sustaining their lifestyle
b) those who have scaled a business with multiple employees that extends beyond themselves.
I was reflecting on one of Seth Godin’s newsletters recently which read:
“Creative institutions get bigger so that they can avoid doing things that feel risky.
They may rationalize this as leverage, as creating more impact. But it’s a coin with two sides, and the other side is that they do proportionally more things that are reliable and fewer things that feel like they might fail.
In other words, hiring more people makes their useful creative productivity go down.”
Sometimes what’s best for a company is not to build a $10MM+ business with 20+ employees. Sometimes the greatest impact with the highest quality of work is done by keeping the team small or perhaps acting as a solopreneur or smaller boutique shop.
There’s a large creative agency here in town that has great brand recognition, but if you were to ask anyone in the industry about them, the common consensus is that it lost its creative edge years ago. It’s kind of hard not to when you become a firm of its size. That’s the detriment to scaling; it comes at the expense of taking creative risks, as referred to by Godin.
If you’re an entrepreneur, it’s important to think about these things. Once you hit a certain point, you find yourself at a critical juncture where you must decide to scale forward, and make this business bigger than you, or scale back, and turn this into something that you can manage on your own or with a small team.
I’ve interviewed a few entrepreneurs on The EnTRUEpreneurship Podcast who have scaled their businesses to beyond themselves and I wanted to pick their brain to get a better understanding of their rationale. Here were a few of their reasons:
1) Larger competitors threatened to put them out of business
In the case of Wade Barnes, CEO of Farmers Edge, he was going up against major publicly-traded companies that could easily wipe him out while he was just starting in the ag-tech space. Unless Wade scaled quickly and brought in outside investors to help him grow, his technology would be surpassed by his other competitors. Scaling up made the right sense for them. At this point, Farmers Edge competes head-to-head against these much larger businesses, and though much smaller in market cap, it’s considered the leader in ag-tech innovation.
As Wade would say, “You don’t have to be a giant to win. The big don’t necessarily eat the small; it’s the swift that eat the slow.”
2) The business is built on mass adoption
Jillian Bridgette Cohen spent years in the startup health space before launching her own mobile platform, Virtual Health Partners. The company is only three years old but now has international reach largely due to Jillian’s strategic approach in working with health/medical providers as the vehicle to the general masses, or a B2B2C-type model.
In order to create more economies of scale for her business, she needed to reach a larger consumer base, which required her to scale.
3) They want to fill a massive void in the market
In my interview with Brendon Schrader, CEO and Founder of marketing company, Antenna, he reached a point in his business where it grew to be too big. Brendon was unhappy not being able to sustain it with a small team and also not spending enough quality time with his family.
Yet, the market was telling him there was still opportunity on the table and Brendon ultimately made the decision to reinvest everything back into the business to create a company and organization that could run without his direct involvement.
Now Brendon’s time is focused on thinking about the future of the gig-economy as well as launching his new platform, Independently.
Not every business should scale. There are things you give up when you decide to grow bigger, and sometimes the only consideration is top-line revenue, which can be a poor motivator when the dark days hit.
If there’s a good rational justification for major growth of your business, then don’t let anything hold you back in making it happen. Otherwise, there’s nothing wrong with keeping it small.