Businesses can get bigger in different ways—more customers, additional sales, employees, and even product or service offerings. Growth in any of those areas can result in bottom-line growth as well. All good, so far. But bigger isn’t always better.
One lesson we can take away from the recession’s aftermath is that there’s an incredible benefit in staying focused on your company’s sweet spot. Knowing what you do best (in terms both of profitability for you and results for the customer) allows you to hunker down and wait out an economic storm.
Those organizations that were spread too thin (or tried to be something to everyone) got thrashed when the economy tightened. That lack of brand vision, coupled with a bad habit of taking on clients they couldn’t serve profitably, cost many businesses a significant amount of money and, in some cases, shut them down.
Especially when times are lean, it’s tempting to chase dollars even if they’re coming from outside your normal scope of services. After all, a dollar is a dollar, right? But that bad fit will inevitably cost you time and money. And the biggest loss of all is that you take your eye off what you do best.
It takes a savvy businessperson to be disciplined enough to not stray outside of his core competency. That’s not just smart business, that’s smart marketing. How can you differentiate yourself, or be seen as an expert, if you do everything?
As you mull over what this year might hold for you, consider whether you could grow your business by being smaller. What if you said “no” to work or clients that took you out of your sweet spot? Maybe it’s worth trying out.
(Photo courtesy of Bigstock: Big Dog, Little Dog)
Interesting theory…but the bigger issue isn’t so much about straying from one’s core competency, as it is about NOT changing the way we work. The businesses that we have seen close their doors weren’t able or willing to address social media and the digitization of just about everything.
Hi Diane,
I think “getting bigger” can mean lots of different things to lots of different people. You may be right that for many it’s about not being willing to be leaner/meaner thanks to new technology and/or efficiencies. But for some, it’s about trying to stray too far away from their sweet spot in an attempt to either be everything to everyone or to diversify.
I think business people are very goal and growth oriented so being/staying small feels counter to everything they’re driven to do. But…you can be smaller and have your bottom line be even bigger.
Hard to argue with that combo!
Drew
Nail on the head Drew,
As an owner with a sales background I chased every buck till the doors closed. We were savvy in the social media and it helped save cost however, it IS harder to get smaller because the decisions become uncomfortable to those of us with so much entrepreneurial spirit.
Joe,
No doubt there is a size that is too small to scale. But my point was more the opposite — as you suggest — chasing every buck. That’s a tough order to fill, in my opinion. Sooner or later, you’ve simply stretched yourself too thin.
Drew
Agreed! It’s all about being smarter and more efficient. In a down economy, you need to look at all your policies and procedures, cut out any tasks that have no benefit to you or your customers. Then position yourself to thrive when the economy turns around.
No doubt efficiency is part of the equation. I think most businesses, as they’ve weathered the past few years, have trimmed the fat. Now it’s about being smarter and recognizing where your profits are made and drilling deeper into that sweet spot, rather than spreading yourself too thin,
You’re exactly right — the time is now, as the economy takes a turn for the better, to get yourself in a position to maximize on that timing!
Drew
It is hard for some people to wrap their heads around the concept of growing smaller.
I think you have brought up a key point about specializing and becoming an expert in your field.
By taking your core specialty to the next level you can strengthen your brand and perhaps your business.
[...] Profs Daily Fix: In this post, I suggest that many business owners would be smart to think differently about how size matters. By staying focused on your organization’s sweet spot — you can actually get smaller [...]
We’re a small family business that has been manufacturing gourmet baking mixes for 14 years. Several years ago we were approached by Target to produce private label mixes. Like many small companies we jumped at the chance, even though we had to outsource production to a co-packer and our margins were razor thin.
Sales ramped up very fast and of 13 new food products introduced by Target, ours were #2 in sales. But selling to a national giant like Target presented it’s own set of challenges: these were private label products so we had to inventory and pay in advance for the product packaging; the co-packer had a 30,000 lb minimum order requirement, which increased our ingredients costs; and Target wanted just-in-time delivery, which meant acquiring EDI and processing weekly orders from 26 distribution centers. We had to bring on a full-time person just to handle the Target business and the drain on our cash flow limited our ability to pursue other opportunities.
Our plan was to move to a larger manufacturing facility and bring production in house. After we moved the recession hit, the cost of our major ingredients, flour and sugar, skyrocketed and our credit lines were severely cut back. We tried to negotiate a higher price, but the response was to use less expensive ingredients or lower the price in an attempt to get shelf space in more stores (we were in 400 of 1,300 stores).
Although we never had any missed delivery dates, back orders or charge backs and Target always paid on time, after three years we concluded that we were too small to compete in this league. We needed the ability to quickly scale up production and increase productivity to meet the price and production requirements that the major national chains impose. With the soft economy and the lack of adequate capital we decided that continuing the relationship was too risky.
Between the recession and the loss of Target our sales dropped 40%. We kept the larger production facility, but cut costs dramatically and focused on other “high end”, but smaller national accounts, as well as our BtoC and BtoB internet businesses. Since then sales have come back almost to 2008 levels, our margins are higher and overall profits are up, particularly from our internet sales.
I sometimes regret walking away from Target, but we weathered the recession, our financial condition is much better and we did not compromise the quality of our products. We may go after that market again, but next time we’ll be ready.
John, this is a great case study on putting too many eggs in one basket and getting burned. I’ve heard similar stories about small businesses and Walmart. I’ll bet you sleep better at night now.
John,
Thanks so much for sharing your story. There are a lot of lessons in there. First — it’s pretty difficult for a small business to deal with the giant big box stores. Their demands are so draining, as you described, and their payment terms are so challenging that unless you have pretty deep pockets, it’s almost impossible to survive it.
You are a rare business owner to recognize that the golden goose was indeed the thing that could kill you. Most would have keep chasing the big score…and destroyed their business. I tip my hat to you — that must have been a difficult decision to make.
Drew
“It’s tempting to chase dollars even if they’re coming from outside your normal scope of services. After all, a dollar is a dollar, right? But that bad fit will inevitably cost you time and money. And the biggest loss of all is that you take your eye off what you do best.”
So true, Drew!
Hi Drew, you make some great points here. I definitely understand the benefits of staying lithe and nimble during tough times. It’s very important for small businesses to keep their current customers happy and do whatever they can to keep them loyal and engaged, however, not at the cost of turning down smaller deals with new customers. There may be times when a deal seems too small to be worth while, but I would advise against that kind of thinking. The value of a diverse customer base can’t be measured in dollars.
Diversifying your client base will reduce your risk and over-reliance and dependence on one income source. Things can happen that are outside of your control. If you lose a big customer, you’re going to take a hit. At the same time, having additional small customers may mean the difference between going out of business and staying afloat until things get better.
hey Michael,
I think it’s a case of really knowing your sweet spot so you don’t go too big or too small. But at the same time, you do need to find some diversity in your customer base — as you suggest. It allows you to mitigate the risk by spreading it out.
Sounds like you’ve “been there, done that.” Thanks for weighing in.
Drew
I think every businessman want to get their business big. Very few of them are able to gain success. But getting bigger is not an easy job. You have to maintain a lot of thing. You have to create a new policy for getting closer to the clients. Promoting business policy is a big thing. Now-a-days many people like to make a fan page or official page in Social media and want to create more and more likes.
This is not a bad idea for promoting their business.
Carmella,
Chasing likes is not a bad idea IF the people who are liking you are your sweet spot customers. Otherwise, it’s just a distraction and could actually cost you business.
Drew