This is Part 1 of a 2-part article series – and explores some thoughts and cautions about growing revenue in a very small business. Part 2 discusses ideas for scaling your revenue. These are two very different things:
Like many others, my small business started out as a one-person operation, and deficient in just about every way possible – not enough money in the bank, not enough revenue, not enough customers, not enough products, and worst of all, not enough small business knowledge to really understand how to correct these basic business failings. I just wanted to run my own business, and I figured if I worked hard enough I was sure to succeed. I’d learn how to really run a small business through on-the-job training. With all that against me, the odds of success weren’t great.
In the end, I beat the odds. Not only did I stay in business through that first year, but also the second year, third year, and on and on. After almost 30 years and at age 59, I sold the business to a muc
h larger company – and retired, after a long and satisfying small business career. Along the way, I made every mistake in the book (a book which didn’t exist, I might add). Being a quick study of mistakes, I usually didn’t make the same mistake twice and I muddled through.
One of the most challenging parts of growing the business was how and where to add for that growth, when many of the parts needed to grow at the same time.
For example, two years into my business’ operation, I was at the limit of what I could produce. It was a service oriented business and my primary task was generating revenue. Each “service” engagement consisted of a mainframe software class that I would teach, on-site, at a customer installation. During the week, every spare evening hour was spent in my hotel room, working on course updates and new course development – and being the early 1980s, the work was done on the crudest of portable computers (then known as luggables, as the lightest one weighed 18 lbs).
The customer locations were all over the U.S., and most of the classes were five days in length. I’d fly out for each teaching assignment on Sunday, teach the class, then fly home on Friday night – only to turn around on Sunday and do it all over again. My little bit of weekend time went towards printing out and assembling course handout material for the next week (I would hand carry this in an oversized suitcase to the next class), invoicing the previous week’s customer, and keeping up with small business bookkeeping (the usual stuff, AR, AP, expense reports).
Somewhere in all this I managed to align time zones so that I could make telephone calls to solidify upcoming customer/course details, and calling potential customers to talk them into booking a class. Since this was before cell phones were available, I learned well how to track down pay phones wherever I was.
In short, I was the proverbial Chief Cook and Bottle Washer – CEO, President, Chief Revenue Generator, Vice-President of Sales and Marketing, Lead Product Developer, Head of the Complaints Department, Chief Bookkeeper, Administrative Chief, and chief of everything else that had to be done. Whenever I was home, I used a spare bedroom as a home office, a P.O. box for a mailing address, and an answering service to take my phone calls.
It was immensely satisfying and rewarding. I was stretched far too thin for it to last, but I knew I couldn’t skimp on the Chief Revenue Generator part of it. To succeed, everything else had to take a backseat to the day-to-day, week-by-week, and month-by-month classes that I had to teach. Consistently bringing in revenue was the only way to stay in business.
A lot of my business was repeat classes with just a handful of customers. This meant I couldn’t cancel a class due to sickness, couldn’t flub a class, and I couldn’t get a bad critique. It was imperative to do everything possible to convince each customer to sign up for more classes – mainly because I had scant sales and marketing bandwidth to bring in new customers.
Growing my business became the most difficult management problem I faced – and one that I was ill-equipped to resolve, financially and from lack of how-to knowledge. Before long, my teaching schedule was full for weeks and months in advance. I was constantly scrambling to match customer requests with my availability, knowing that if I couldn’t satisfy it I’d probably lose them to a competitor – and once that happens they usually don’t come back.
I knew I couldn’t just stand still, keeping my current customers, milking them for the rest of my life. If I tried that, after teaching a handful of classes for a customer, I’d hit the end of the line, and as I let that happen, my business would ultimately shrink, not grow. Growth was imperative.
Oh – and an important point – it wasn’t until a full two years into my small business that I was better capitalized and felt financially comfortable (which translates to, my bank account was flush enough). My goal was to grow the business myself – and importantly, keep running it myself (i.e., not get squeezed out by outside investors). This situation is the single most important challenge any small business owner faces, using current profitability to get to the next level. (I might add, my experience was before today’s SBA-backed small business loans that make it much easier to have a better bank account early on, but that too has its problems and challenges that you need to recognize.)
But where’s the best place to start your growth expansion? With a 1-person company, every area that isn’t your own specialty is an open employee position. And adding just one new employee instantly doubles the size of your company; adding two will triple it . . . you get the idea. That also means doubling or tripling your payroll. Ditto for your employee management and HR responsibilities, the number of headaches you’ll now face (meeting payroll, office politics, company policies, hiring and firing processes). And rather than working from a home office, you either have to create work space, or pay to outfit these new employees with various home office tools (cell phones, laptops or tablets, and on and on).
The trick is, don’t expand all of these areas at once. Instead, do it with a priority sequence that fits your situation. For example, I knew that I needed administrative/bookkeeping help first and foremost, so I hired an office management person – who’s first task was to locate and outfit a tiny and very inexpensive office to run the company, and at a salary that was affordable for my situation (and for incentive, a guarantees of a higher salary as I could afford it).
Having an admin person gave me the breathing room to concentrate a bit more on scouting out new customers (I wouldn’t call it sales and marketing because I’d never done anything in that area before). As new customer contracts came on the horizon, I started the search for an additional software instructor to hire.
The challenge here was huge – and fraught with risk. I’d be hiring a highly technical software developer-type individual, but almost certainly someone who had never stood up in front of a class and taught before (the position would be too specialized for expertise in both areas, and the technical knowledge was paramount). I focused on the technical side and secondarily about teaching skills.
The second challenge was salary. With a highly technical background, a regular salary for the new person would break the bank. At this point, I only had slightly more work than I could possibly handle alone. How could I balance cost and revenue to make this work? I solved it by first carving off some of my workload to the new instructor, plus a bunch of new and potential classes in the pipeline. I then negotiated a daily salary that was only paid for class days the new instructor taught. For incentive, this daily amount was quite a bit more than could be earned in a regular day job, but at my company’s contracting rate it still left enough that I had a good profit margin. I also offered no employee benefits, and factored that into the salary amount (more about that in Part 2). Not surprisingly, it was a hard sell to the new employee, as it was as risky for them as it was for me. The upside for the new employee was, it provided an incentive to work as much as possible, and also to bring in more business that could go on their schedule.
When the time was right, I added another instructor, then another, and another, and all in the same manner. Several of the instructors had highly specialized mainframe software backgrounds, and they were very interested in creating new course titles that fit their expertise (and it would guarantee more work for them). We had developed a wonderful strategic alliance with a very large mainframe hardware company, and many of our teaching assignments were subcontracted through the education division of this partner.
Along the way, an additional admin person became necessary, and finally we got to the point where we could afford a full-time sales person. After that we hired a just-out-of-college marketing person.
It took upwards of three years, but we became an 18-person company, with 14 full-time instructors who roamed the world teaching about 10 different course titles. It was a slow slog while all this was going on, but it enabled us to grow the company through internally-generated profits, providing a growth rate that was not only manageable, but sustainable and affordable as we built it.
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