Monday, April 30, 2012

What's the right size? The quantum mechanics of growth...

What's the right size? The quantum mechanics of growth...:
How come there are no ants as big as Buicks (except in the movies)? Why not have a college with a million students (or ten)?
The physics and economics of a business determine whether it's the right size or not, whether it ought to get bigger or smaller. Starbucks, for example, was not the right size when it had 11 stores. That's too many stores for just one senior manager to handle, but not enough stores for centralized purchasing and marketing and organization. The cash flow from an eleven-store chain just doesn't easily connect to the staff requirments necessary to make it efficient.
A web company might do really well with thirty people and a few million dollars in revenue. To get to a thousand people (big enough for an IPO, say), it will need to transform both the product and the way it's sold. And in between the size it is now (which is working) and the size necessary for the public offering, there's a dead zone. This is a leap, not a stroll.
When I was growing my first successful business, I kept saying that one day I'd hire enough people that the people I was hiring could manage themselves. I went from having four direct reports to eleven before I realized that I wasn't going to be able to make the leap in scale that was going to be necessary to reach a comfortable size.
The same rule applies to independent musicians and comedians. At the solo level, you might be very happy making a living gigging at certain kinds of venues and being supported by a given audience. On the other hand, to support a manager, a band and a label, you can't just add a few more fans. You need different venues, different gigs, different revenue streams. If you can't (or don't want to) get to that new level, the new team isn't going to help, and it might destroy everything you've built.
It's worth charting both profit per employee and owner satisfaction against the number of people in the organization. Perhaps getting a little bigger isn't what you want, and it might not even be possible.