I was speaking with an aspiring restauranteur who told me he wanted to eventually have more employees so that he could manage people and he didn’t have to work in the day-to-day of the business like the previous owner. I hear those words frequently from new entrepreneurs: “I want to have more employees”. But what I hear from seasoned business owners is, “I need more employees.” There’s a huge difference between want and need.
Owners who have run their businesses for any length of time understand this because of experience. More employees are harder to manage. More employees require more revenue and sustained profitability. More employees require more systems to manage performance, more training. More employees changes organizational dynamics and mixing personalities in larger groups can be harder than a small tight-knit group.
Inexperienced entrepreneurs get caught up in their status in the business – I’m the owner. I have people I manage. That can cause them to take their eyes off the purpose of the business.
Peter Drucker said, “the single most important thing to remember about any enterprise is that results exist only on the outside. The result of a business is a satisfied customer. The result of a hospital is a healed patient. The result of a school is a student who has learned something and puts it to work ten years later. Inside an enterprise, there are only costs.”
Employees are cost. If an organization can achieve as much or more results with fewer employees, then it probably should. Public companies are measured by their ability to create a return on the stuff they have – assets, employees, etc. Fewer employees creating more results is a good thing!
Drucker also said, “Profit is not the explanation, cause, or rationale of business behavior and business decisions, but rather the test of their validity.”
A business should expand when doing so enables the organization to create more value for the customer. The test of whether expansion or contraction is the “right thing”, then, is increased profitability.
When should a small business expand? When the cost of expansion (people and stuff) will result in increased profitability.
Thinker is going through a significant expansion. Since the beginning of 2017, we’ve added someone to head business development outside of our core market, a project manager and another to launch a new service, creating automated audio and visual systems for boardrooms, conference rooms, restaurants and presentation rooms. Thinker also moved into a new space, one that is nearly three times as large as the last one.
The two happened opportunistically near the same time. A new space became available that met our criteria. We waited about two years looking at spaces as they became available. Our new space increases our capabilities following our market plan, helps us with operations as it leads to additional space for people, is in a more visible location, and matches our brand and aesthetic.
Our expansion of people is based on need. It follows the organizational chart that leads us to better management of our pipeline and opportunities. Ultimately it leads to increased efficiency, revenues, and profitability.