The impossibility of predicting the future especially in respect to one’s own business inevitably leads to a common mistake of representing likely growth in a linear fashion, that is like a straight line continually going up.
This linear representation of prospective growth is not necessarily a mistake, but more often an expedient representation of something that is, in the final analysis, unknowable. That is, we know we will progress from point A to point B and we do not need to worry too much in the business plan about the day to day detail of how we will progress on that growth path.
As the vast majority of business plans are ultimately about money this approach is a useful expedient, but ignores the detailed problems that may be encountered along the way – some of which may be insurmountable. It is a bit like planning a long expedition across a plain, but ignoring the fact that half way through the journey you will need to climb up a sheer rock face: if you know at the start of the journey that you will face this obstacle then you might take some climbing equipment with you; without this knowledge you will get stuck half way through the journey and may need to turn back.
In reality business growth paths are fraught with many difficult obstacles and this tends to make make the growth path look more like a series of steps.
A growth path of steps continuously rising is also an idealised one, but at least shows steps which will coincide with something known as a Crisis of Growth.
A Crisis of Growth is a step change in the business operation. This is likely to be a significant step up in both sales and operations. In other words everything is changing at once so that it feels like, and indeed is, a crisis.
To understand this, imagine you are a one person company. In this company you are the means of both production and sales. It is difficult and you have to work long hours, but you only really have to support yourself – you earn a living wage from the business and that is all it needs to make. Then the business starts to grow, your sales process is successful and you find that you can generate more work than you can fulfill. You may be turning work away because you know you cannot do the work, or perhaps you are even taking work on, but letting people down and jeopardising your reputation.
At this point you decide to add one person to the business with the prospect of almost doubling your capacity (they are unlikely to be as driven as you). This decision then creates a whole new set of problems.
Firstly, if you employ someone who is not a family member, the chances are that you need to consider premises and move out of that back bedroom. This will add a new set of costs to the operation of the business: premises, rates, power, telephone line, internet access. Equally (for this one person business) a large capital outlay will be required to furnish the office with desks, cabinets and perhaps a new computer for the new employee – and this may need to be networked.
Secondly you need to ensure that the overall income that will come in will cover both wages and the increase in costs. Your sales may have been successful in recent times, but you may need to increase the level yet again and this may need to be a significant increase. Not only that, but you need to have confidence that this new level of sales will be consistent and can be maintained and built upon. This may mean that you will need to double your sales efforts so that you will be spending less time on fee earning work and so in fact adding one new employee will not double your capacity at all but perhaps only add about 50% capacity. Will adding 50% of fee earning hours to the business cover both salaries and the additional associated costs?
Thirdly, before you get to make the capital outlay or deal with the need to double your sales, you need to spend time and money on recruitment. The time is probably a bigger issue than the money, because you will have to take time out of either fee earning or sales to: write an advert, review CVs or applications, make initial screening interviews, make final interviews, write an employment contract, write a discipline and grievance procedure (to protect yourself more than anything), write an appointment letter, and send off thank you letters to unsuccessful candidates.
Fourthly, should all this work out well and make financial sense you then have to deal with the administration of a wage and tax on a monthly basis. You may be be able to sub-contract the administration of the wage to the accountant (another cost), but the chances are you will also have to deal with a new cash flow issue of ensuring cash is always available to pay your employee consistently every month at the same time – something you have not had to deal with before in this business.
Hopefully from this you can see that to make this bold step in the business will change everything at once while at the same time initially reducing your capacity to earn while increasing your costs. This whole process will be enormously painful and getting it wrong might break the business – it is undoubtedly a crisis.
Once through to the other side of the crisis and finding things working then adding another employee will not be such a crisis. It is just a case of another desk in the office, adding one more person to the payroll and going through the recruitment process which the first employee can help out with by perhaps working over time and covering the lost time to a large extent. Adding a third employee will be easier still.
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