Big and Slowing or Small and Growing

The best businesses are the ones that are already big and still growing. These are the types of stocks people want to buy on the public market and they’re the type of private businesses that people want to work for and do business with.

But being big and growing is hard to achieve. It’s not quite the finish line, but it’s definitely an accomplishment every entrepreneur should strive for. By the way, “big” is relative. A restauranteur in a given geographic region should be thinking about being the highest grossing restaurant and then the most profitable among their peers in town – not “How do we get as big as the Cheesecake Factory?”

Being big and slowing is very undesirable. That’s how you lose talent. That’s how you lose the confidence in the market and among your staffers. It’s harder to turn something around that used to be working than it is to continue to grow something that is working. Turnarounds require tough choices, and often a public acknowledgment that mistakes have been made, or the market dynamics have changed or that your products and services simply aren’t the best available anymore. Admitting it is the hard part, but fixing it – assuming it can be fixed – will also not be particularly simple.

Something small that is working well and getting bigger, even if gradually, is a better situation to be in. You’re not yet large so there is less to lose and more room to take risks that are less visible to less outside observers. You’re not in a position of trying to figure out what your existential problems are or trying to completely reinvent the business. You’re making mistakes and repairing them along the way when you’re small and growing. You’re adjusting to new obstacles you haven’t yet thought of or seen before. It’s okay. You’ll see new obstacles tomorrow, and you can’t plan for what you can’t imagine.

There’s one other situation we haven’t gotten too yet – small and slowing. In my industry of Registered Investment Advisors, there are thousands of these businesses. They used to call them “lifestyle practices” – a solo advisor and an assistant or two, managing enough to throw off the fees that pay for a comfortable living and some reasonable ongoing expenses each year. These days, the larger firms that are laser focused on scaling and growing look down on these lifestyle practices as dinosaurs. One consultant I know calls them “barber shops” and that’s not a compliment. It’s unclear to me how a $50 million registered investment advisor in one of the top 50 metropolitan areas in America is going to survive if they’re not growing fast. I don’t think you can “maintain” in this business anymore, given the pace of innovation, compliance costs, client expectations, etc. You don’t want to be small and slowing in any part of financial services today, nor can you afford to be merely small and “stable.”

Twenty percent annual revenue growth ought to be the floor for an RIA. I made that number up out of thin air, but a practice growing slower than that indicates a founder / proprietor that should be considering other options. Not everyone was made to be an entrepreneur or a business manager. Growth masks a lot of management deficiencies. No growth tends to magnify them.

Business owners and operators would like to be large and growing. Most won’t get there. They should enjoy their time running something that is small and growing instead. And take care not to become big and slowing or worse, small and slowing, in the future.

 

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  1. Big and Slowing or Small and Growing – Financial Solutions commented on Apr 30

    […] The best businesses are the ones that are already big and still growing. These are the types of stocks people want to buy on the public market and they’re the type of private businesses that people want to work for and do business with. But being big and growing is hard to achieve. It’s not quite the finish line, but it’s definitely an accomplishment every entrepreneur should strive for. By the way, &#82… Source: https://thereformedbroker.com/2019/04/30/big-and-slowing-or-small-and-growing/ […]