There are many advantages of being a small business. One of which is that you can respond more quickly to events.
But as businesses grow they often lose this nimbleness without even realising it. However, you can be a big business with the attributes of smallness if you know how to grow the right way.
Active Knowledge Question:
As your business grows, how do you ensure you don’t lose the competitive strength that smallness brings?
The Many Advantages Of Smallness
Traditionally, smaller businesses were seen as lacking resources and were not a real threat to mainstream players — but that view has now well and truly disappeared.
Our connected society has enabled smaller players to marshal the expertise and resources of many larger players without the holding cost of owning those resources. They can and do openly challenge much larger and established businesses everywhere.
There are many other advantages in being small, some of which are:
- Smallness induces manageability and commitment.
- The individual can stand out and make a contribution far easier.
- A future leader can gain a hands-on and real understanding of the business.
- A sense of community can be more readily built.
- Efficiencies can be easier to obtain.
- Adaptability and flexibility are more readily sustained.
- Decisions can be made more quickly.
- Creativity seems to flourish in an environment in which the individual counts.
- There is a higher-degree of face-to-face contact between leaders, employees and customers.
- Individuals and small groups tend to be far more creative and innovative.
- They are less complex and, therefore, there is less bureaucracy.
- There can be greater clarity.
Add these advantages together and they can, if correctly and utilised fully, represent an ability to:
- Communicate direction, alignment and focus more clearly throughout the business and muster a single concerted effort.
- Empower the individual and stimulate innovation and creativity.
- Find opportunities that others may not see or discover and bring them to life.
In short, with smallness comes less bureaucracy, which should allow you to have a much stronger competitive engine than a larger business.
Small businesses can also more readily become great businesses.
The practical evidence that small businesses can muster these advantages lies in the fact that the bigger players in the market often buy in their capability and ideas to carve out markets they could not otherwise access.
Smallness Seeds Innovation
Disruption is the domain of the small player.
‘Disruption’, as it was introduced by Clayton Christensen in 1995, describes a smaller business with few resources being able to successfully challenge a much larger, established business.
The smaller player saw an unmet need in the market, focused on successfully meeting that need and built a business around those offerings. Having established that foothold, they then expanded their offerings targeting mainstream customers and disrupting the marketplace and waking the incumbent out of their slumber.
While the smaller player was establishing their presence, the existing players were focused on meeting the needs of core customers and building profitability. They failed to recognise the market risk that the new smaller player represented and did not, or could not, respond.
The focus of this concept of disruption has been clouded over the years with the language of disruption now being applied to innovation generally. However, there is an important message here for the smaller business, and that is: finding an unmet need, a weakness in the current offerings and exploiting, is the domain of small businesses.
Bigger businesses find disruption, as Christensen first envisaged it, almost impossible. The niches that the smaller players can target and pry open are initially too small to warrant the attention of the bigger player. They do not have the space, time, patience or creativity to successfully target these markets.
In addition, the success that the larger players have enjoyed, effectively railroads them down a pathway where ‘things’ that don’t fit the paradigm of their success are quashed. Bigness brings with it its own ‘marks of death’.
The Heaviness That Comes With Size
Businesses, as they grow, must overcome various hurdles and learn new skills — but they also tend to create more rules and regulations and have to build structures in response to them. The ‘heaviness’ that these rules and structure usually bring work against the business’s ability to compete rather than strengthening it.
While acknowledging that growth brings strategic challenges and that there is more complexity with size, the manner of response the business takes is critical.
Here is an overview of how the strategic focus of a business changes as it grows through each stage and the focus and actions that are required for each:
- Inception (Value) — can this great idea really work, why will it and what will it take?
- Just Born (Reality) — translating the ideas into reality and delivering the value promised.
- Walking and Talking (Stabilising) — creating processes and systems to support consistent value delivery.
- Establishing Identity (Awareness) — recognising and building unique strengths and value proposition.
- Developing Self (Expanding) — building the capital value drivers that will underpin the growth of the business.
- Testing the Limits (Foundation) — not losing sight of the founding purpose and chasing every opportunity that appears but rather growing from meeting the needs of customers.
- Mature and Settled (Rebirthing) — ensuring that change is part of the business’s DNA and that the value delivered is constantly challenged and improved.
- Opportunity (Renewal) — need to restart the business to take it to another level.
As their businesses grow, leaders must change the way they guide their business, their day-to-day role in it and the systems and processes that support the business in its efficiency and effectiveness. Their ability to do this will determine whether their business can grow or whether it gets stuck.
And a leader’s response is where we see rigidity being built in attempts to manage growth.
Keeping Small, While Getting Big
There are a range of actions that leaders can take to maintain the benefits of smallness whilst also being able to leverage off the resources that come with getting bigger — attaining the best of both worlds.
I find there are two core issues that are neglected when businesses grow that effectively eliminate all the benefits of smallness. And these are leadership and organisational design.
There are also actions which leadership can take to keep the attributes of smallness in their big businesses.
The success of any business lies in worthy leadership. But as a business grows it is not unusual for the founder/s to fail to recognise the importance of character in the appointment of new leaders. Nor do they understand the working of centripetal authority in their business.
I believe everyone looks, and is drawn, towards the centre for leadership. It’s not an upward movement; it is an inward movement. As a leader, your influence only extends so far and when it reaches its outer limits you must ensure that you have appointed another worthy leader to extend your leadership influence. Think of it this way, extend your arm as far as you can, once it reaches its limit you need someone else to extend your reach. Leadership is the same.
However, leadership is more commonly viewed as moving up, as in there are more people under me and more activities to be controlled.
High performing businesses have leaders who have an eye for design, that is, the right organisational design for their business.
They understand that strategy is a function of structure, that is, the structure of your business directly influences the strategies that a business can pursue and that includes its ability to retain the benefits of smallness.
These leaders are conscious of the need for structures and process to guide growth, but they are also aware that adaptability, agility and creativity are key competitive traits that must not be sacrificed in seeking control.
Actions To Keep Acting Small
As an outcome of worthy leadership and maintaining the right organisational design, there are a range of actions that can be implemented as businesses get bigger. These actions should be viewed as allowing the business to grow and multiply — and not one of dividing. This distinction, multiply against divide, is critical.
Examples of the actions that can be taken are to:
- Parachute off new divisions, along product or geographical lines, to create autonomous new businesses.
- Allow these new businesses independence with both responsibility and decision-making authority.
- Maintain head office staff at a minimal level with few centralised functions. Shared services can operate as a separate business supporting all businesses in the group.
- No career head office ‘corporate’ people, instead, run a rotation of staff from the various businesses.
- Cross business and functional teams to deliver projects that impact all businesses.
And always bear in mind that simple guiding principles are a great way to overcome the need for increasing regulations and rules.
Is There An Optimal Size?
Is there an optimal size for a growing business at which point it should ‘multiply’ itself out to form a new autonomous business? Yes, there is, but the answer will be different for every business.
With size will come constraints on competitive performance. You must have a clear competitive posture, that is, how you compete to deliver customer value. Growth will impact your ability to deliver on that competitive posture and there will come a point at which your attempts to ‘keep everything under the one roof’ will adversely affect the value you deliver. Prior to this point, you want to multiply out and strengthen your businesses.
There is a right size for each business which allows it to optimise the value it delivers to its customers. It is centred in that business’s competitive posture and the competitive engine that is used to drive its performance. A worthy leader’s awareness of these dynamics will allow them to ‘right size’ each of their businesses to maximise customer value and, therefore, competitiveness.
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All the best in the success of your business,