Monday, June 14, 2010

Growth vs efficiency

It seems to me that one of the biggest fallacies of modern business is the idea that you ‘have to grow’. Especially in the small business end of the spectrum, why is it that I always hear how critical (and yet difficult) it is to grow? Apparently growth magically solves everything! The bigger your business the more money you’ll make, the less time individually you’ll have to work and everything will just coast along once you get to a critical mass.

 

So the question then becomes what is that critical mass? At what point will you know that you’ve reached ‘easy street’? I’m sorry to say that in my experience not only is this a moving target but the chances of success actually decrease the bigger that your business becomes. Why? Because unless you have refined your systems beforehand you are simply building any growth on the weak structure you’ve had as a small operator. This is a recipe for disaster.

 

It would seem to me that a far more intelligent pursuit would be striving to become more efficient. In essence producing at least the same amount of output with less amount of input. When you are not able to become more efficient then, and only then, should you consider growth as an option. The problem is how many businesses do you know that are constantly looking at ways to improve their efficiency? Not many I’ll bet.

 

The smaller you are the leaner you need to be simply because you don’t have the resources. You should spend your time firstly determining what you do well. Then you should determine what you don’t do well and either outsource it or stop doing it. Sometimes it is hard to stop doing something you shouldn’t because you truly enjoy it, however if you are running a business and not a hobby then the choice is straight forward.

 

Formula 1 cars don’t achieve the speed and performance they do by adding more, they become more and more efficient. The teams invest vast amounts of time and energy looking to squeeze the tiniest improvement in performance but it is exactly this that makes the difference between outright first and the first of the losers (i.e. second). Formula 1 is a business and those who don’t perform end up on the scrap heap.

 

Ask yourself whether you are a Formula 1 car or simply a lorry trundling along with stuff overflowing the sides. Efficiency is all about doing more with less which is difficult in a consumer world where the emphasis is always to ‘buy more stuff’. That however is the reason why not everyone goes Formula 1 racing, if it was that easy, everyone would be doing it.

 

So set aside some time to do some planning on how to become more efficient. Work out where you are spending your time. Look at ways to automate and outsource. Efficiency requires constant work and fine tuning but in the end is far cheaper, faster and easier to implement than any growth strategy. Just because people ‘say’ you need to grow doesn’t necessarily make it the correct strategy. Being efficient will always yield results where growth may not. To a business person the choice between the two seems obvious to me.