I’m writing this post to address an issue we see with so many successful entrepreneurs as they grow their companies. They start their business with a dream, they quickly sell enough to warrant getting some extra help, they hire a few friends or part-timers to assist, and then they stick with that team as their business continues to grow... until it doesn’t anymore.
The fallacy in this approach is that we believe since we were successful before with the same team, that we can continue to be successful indefinitely. Unfortunately, this is not true. As your company grows, your infrastructure needs to grow as well. Not just in the number of people, but in complexity. “But that is so expensive!” Yes, it is, but it’s also expensive to stop growing, or even worse, to start to fall back. Growth of the infrastructure expense line is a necessity if you want to continue to scale your business.
What are some of the most common areas entrepreneurs fail to grow fast enough? Here are just a few:
Accounting. Sure, when you first start, a family member or acquaintance can do your books. Some business owners will even go as far as getting a part-time bookkeeper to handle the bookkeeping on a regular basis, which is a wonderful move. However, as a company continues to scale, most will need a true managerial accountant. Someone that doesn’t just record transactions and produce reports, but rather someone that helps you make decisions based on that data, and possibly even helps you forecast the future of your business. Waiting too long to upgrade your accounting function is not just costly, but it limits the growth of your enterprise as well.
Human Resources. Yes, your administrative assistant can do a great job initially with some of the HR duties. In fact, the same part-timer referenced above that handles your bookkeeping may be able to as well if they are willing. However, if a company is to continue to add staff and work into multiple layers of management, a true HR professional will be warranted at some point. Continuing to have accounting staff or other administrative professionals handle the HR function within your company instead of making it a separate function limits the growth of your organization because those individuals weren’t originally trained for that purpose, and it’s not their primary focus. Splitting off the human resources function into its own department, or at least its own staff member, allows you to properly grow your business and avoid costly mistakes down the road.
Legal. I’m certainly not saying that all small businesses need to employ an attorney full-time. However, there is a point in business where it is no longer wise to rely on Google, an all-you-can-eat legal subscription, or your cousin that attended law school for a semester. All those resources can be adequate as you start your business, but every business at some point needs to consult a professional attorney that is focused on your issue specifically. Yes, the investment in such advice comes with a higher price tag, but the peace of mind you get from qualified advice that is customized to your situation is highly valuable as well.
These are just a few of the administrative areas that need to scale as you build your business. In my experience, the first two are the most often delayed – accounting and human resources. Many small businesses limp along trying to survive on the original infrastructure that they started the business with for way too long. It's like trying to build a skyscraper on the foundation of your first starter home. Eventually the foundation crumbles under the weight.
If you have thoughts on this or other topics and would like to talk further in-person, please reach out to me on our Contact page.
Have a wonderful week!
Mark
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