Maybe Your Business Should Stay Small

The business world has developed a strange obsession with growth. Start a company and the next question arrives almost immediately: how big can it become?

Growth has become so closely associated with success that telling someone you are perfectly happy running a ten-person business can sound almost apologetic. As though you have missed the point of entrepreneurship. As though you should be pitching investors, hiring aggressively, opening an office in London and using the word ‘scale’ considerably more often.

But perhaps we have got this backwards.

There are thousands of perfectly good businesses whose owners have no interest in building the next £100 million company. They want good customers, reliable staff, healthy margins, control over their time and enough money to enjoy the life they are working so hard to fund. These are not especially modest ambitions, nor are they necessarily easy to achieve. Yet somewhere along the way, we have developed the peculiar idea that a business which is not getting bigger must somehow be standing still.

The assumption deserves examining, not least because growth has consequences that are rarely discussed with quite the same enthusiasm as its benefits.

Consider two businesses. The first employs 12 people, serves a loyal customer base and generates healthy profits. Its owner earns a comfortable living, carries little debt and has no particular desire to establish offices in three more cities. The business is well understood by the people who work there, customers receive a good service and there is sufficient money left at the end of the year to make the whole exercise worthwhile.

The second employs 120 people and generates substantially more revenue. It also has several layers of management, a larger borrowing requirement, more complex systems and a considerable amount of time devoted to meetings about other meetings. Its overheads require a constant supply of new business, and the owner now spends much of the working week dealing with problems that did not exist when the company was smaller.

Which is the more successful?

There is not enough information to answer, which is precisely the point. Revenue, headcount and geographical reach are useful measures of a company's size and activity. They tell us remarkably little about whether it is delivering what its owner set out to achieve.

Growth is a measure of change, not a definition of success.

None of this means that expansion is undesirable. For some businesses it is essential. A venture-backed technology company has accepted capital on the understanding that it will pursue substantial increases in value. Manufacturers often need scale to justify expensive equipment, secure favourable purchasing terms and compete internationally. Retailers may need additional locations to make their operating model economically attractive.

Larger organisations can spread overheads, employ specialists, invest in technology and absorb shocks that might overwhelm smaller competitors. OECD research has also demonstrated the disproportionate contribution that scaling SMEs can make to employment, innovation and competitiveness.

There are excellent reasons to grow a business. The difficulty begins when growth becomes the objective before anyone has established what it is supposed to accomplish.

A specialist consultancy, for example, may become less effective as it expands. Its reputation might have been built on the expertise of a handful of experienced people, whose time is increasingly consumed by recruitment, supervision and internal administration. More employees require more work, which can mean accepting clients the business would previously have declined. Before long, an organisation celebrated for its personal service has created precisely the kind of corporate machinery its founders originally wanted to escape.

The economics may still work. The question is whether the resulting business is actually better.

For a family-owned company, independence might be worth more than additional turnover. A professional services firm may prefer a small group of exceptionally capable people to a much larger workforce producing lower margins. And a founder who enjoys managing 25 employees may reasonably conclude that managing 250 would be an excellent way to spend the next 20 years being disappointed in calendar software.

Such decisions are not necessarily evidence of limited ambition. They may simply reflect a more considered understanding of what the business is for.

There is, however, a distinction between choosing to remain small and being unable to grow.

The former can be a deliberate commercial strategy. The latter is sometimes stagnation wearing a nice jacket.

An owner who has built a profitable company and consciously prioritises quality, independence and flexibility has made a choice. Someone who claims to have no interest in expansion because they cannot attract customers, delegate responsibility or establish a workable management structure may simply be dressing up an unresolved problem as a philosophy.

It is an important difference, because small businesses are not inherently superior to large ones. They can be more responsive, less bureaucratic and more closely connected to their customers. Decisions that would require three committees in a corporation can sometimes be made over a cup of coffee. Employees may have greater influence over how things operate, and the people running the business are often close enough to the work to understand what is actually happening.

But smaller companies also carry particular vulnerabilities. The loss of one substantial customer can undermine an otherwise healthy year. A key employee leaving may take years of accumulated knowledge with them. Businesses that depend almost entirely on their founders can be difficult to sell, difficult to leave and occasionally difficult to take a holiday from without checking Slack beside the swimming pool.

Remaining small does not remove risk. It simply changes its nature.

What matters is whether the size of the organisation suits its commercial model, its customers and the ambitions of the people responsible for it.

This is where the conventional conversation about growth becomes rather unhelpful. Ask a founder about their plans and the discussion will often turn immediately to expansion: the next office, the next recruitment round, the next revenue milestone. These are perfectly reasonable subjects, but they tend to assume that the direction of travel has already been decided.

Far less attention is given to the question of why.

Sometimes the answer is obvious. Customer demand exceeds capacity, the economics are attractive and the company has the people, systems and capital to expand without compromising what already works. Sometimes growth is necessary to remain competitive or to fulfil obligations to investors.

At other times, the reasons are considerably less convincing. Competitors are getting bigger. The business has reached a round-number turnover milestone and another one seems appropriate. Someone has suggested that the founder ought to be thinking more ambitiously. Or perhaps the company's growth plan exists largely because everyone at networking events keeps asking to see it.

There is a powerful social element to all this. Business awards celebrate the fastest-growing companies, rankings favour revenue and headcount, and entrepreneurial success stories tend to feature enormous valuations, substantial fundraising rounds and eventual exits. A profitable 15-person business that has quietly served its customers for 25 years rarely receives the same attention.

Yet its owner may have created something that many of the people chasing those larger prizes would quite like to possess: a dependable income, a respected company, meaningful work and a reasonable degree of freedom.

That deserves recognition, even if it makes for a less dramatic awards ceremony.

Perhaps the more useful conversation with any business owner should begin with a different question. Not how large the company could become, but what they actually want it to become.

The answer might be a 500-person international organisation, with all the investment, complexity and opportunity that entails. There is nothing wrong with that ambition, provided the business is built to support it.

Equally, it might be a 15-person company that makes excellent money, employs good people, delivers work its customers value and allows its owner to enjoy a life outside the office. There is no particular prize for turning that into a company of 150 people if the result is more stress, more responsibility and no meaningful improvement in the things that mattered in the first place.

A business should be allowed to reach a size that suits its purpose without being regarded as an unfinished version of something larger.

The best size for a business is not necessarily the biggest size it can reach. It is the size at which it works best.