Cleaning the closets: Evaluating business opportunities

My kids, like so many others, have too much stuff. It doesn’t take long before the closets are stuffed with outgrown clothes, toys and books from indulgent relatives, and the interesting things they collect along the way. My oldest son is a ruthless editor (a trait, I must admit, he gets from me). He has no trouble sorting things into three piles: one to keep, one to pass on to his brother or young cousin, and one to donate. His younger brother, however, is a different story. It isn’t easy for him to let go. Items, for him, take on a certain sentimentality and each thing he casts away represents a loss. As you can imagine, cleaning a closet with him is no picnic.

If you’re running a growing business you will likely reach a day where you realize that your closet is full – you have more business than you can reasonably handle at your present size. This is especially true if you run a service business where you must complete some of the billable work.  A reader, Diane Fiderlein of ThinkSpring Marketing writes:

I’d be curious what you recommend when it’s obvious the business model needs to change in order to continue growing. I have new projects coming from everywhere, far more than I can do myself. I want to do them all because they are interesting and a good fit  but I don’t want to alienate my existing clients either. What do I do, clone myself? Say no? Bring on subs?

Since cloning is not currently an option, a  situation like this usually means one of two hard choices. The first choice, of course, is to get a bigger “closet” – adding people and infrastructure. Adding people is tricky. If you’re hiring employees the level of complexity in your business increases from the first employee you hire. It’s critical to have personnel systems in place, including payroll processing, policies and procedures, and evaluation mechanisms.

Subcontracting is another option, particularly for service businesses, but I ask my smaller clients to follow a simple rule to protect profitability: If you are doing some of the billable work, figure out what your monthly/weekly/daily break-even amount is and make sure your personal billings will cover that. Anything over and above that amount is generally OK to outsource as long as you’re building in some margin for yourself.

Adding infrastructure can be tricky, too, because it raises overhead and impacts profitability, at least in the short-term. I typically like to see my clients with a cash reserve that will cover their new, larger overhead for a bare minimum of 90 days if they’re adding infrastructure.

While a bigger closet is a tempting option, sometimes it’s not feasible and sometimes it’s not prudent. Growth must be handled with care. In my next post, I’ll talk about the other hard choice – saying no.

Have a story about managing growth? Send it to sarah@dayonebusinessservices.com – if I use it I’ll feature your business.

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