I left corporate consulting many years ago to focus on the engine of the American economy—the small business. The statistic that defined my decision was 90 percent of all new jobs were created by just 5 percent. These companies were very small—under 20 employees—and could overcome the odds to achieve exponential growth. I was hooked; it became my obsession.
I found there were three groups of small businesses—the 80 percent that were surviving or just hanging on; the 15 percent that were successful, but uncertain about how to take it to the next level; and the cheetahs, the elite 5 percent. This poses the question: How do the 80 percent make it to 15 percent and then become the elite 5 percent?
Are You in the 80 Percent?
If you are in the 80 percent, you are in the majority of small businesses—getting by, and needing to rethink where you are and what you are doing. The immediate need is to focus on:
- Maximizing your resources to become the lowest cost producer (this is not about price).
- Enhancing your offer by improving your existing products and services to become distinctive, and taking the pressure off price.
- Professionalizing management to blend frugality with developing people.
The starkest element of my experience working with the 80 percent is to attack cost and capacity first instead of pursuing revenue. Every 80 percent company that tried to move into the 15 percent group by increasing sales first went out of business.
Are You in the 15 Percent?
You are already doing better than most of the competition, and just one or two steps away from the 5 percent. The immediate need is to focus on:
- Researching your market to identify high growth opportunities (customers with unmet or under-met needs that have solid financials and fit your processes).
- Specializing your offer to solve unique customer problems.
- Making a significant investment in marketing and sales.
My experience with the 15 percent is they are at risk of going out of business because growth killed working capital—an inability to grow fast and under control. The core issue to getting hockey stick growth is the investment in branding, marketing and sales.
Are You in the 5 Percent?
You are a member of the elite because you dominate markets; you create the standards everyone is forced to copy. This forces your competitors to play catchup while you are reinventing the business. This is a moment in time and fleeting. It is more difficult to sustain than achieve and a great time to sell if that is your long-term objective. The company may never be worth more unless you reinvent and take it to another level. The core issue is to reinvent the company—either its offer and/or how it does business. It can be anything except reinventing the brand.