How A Business Gets Bigger
Getting a business off the ground is a huge achievement, and you may be quite happy with where yours is right now. But if you want to grow, Eleisha McNeill has the low-down.
21 October 2021
Small businesses with less than 20 staff are incredibly important to New Zealand. They make up around 28 per cent of our gross domestic product (GDP), and provide jobs for around 29 per cent of all employees.
But most small businesses don’t want to – or can’t – grow. Why not?
“In some of those businesses, the productive asset is often the person who’s running the business, so there’s no scope to grow,” says Ben Fath, senior lecturer in the Graduate School of Management at the University of Auckland Business School.
“Outside that group of owner-operators, whether a business can grow depends on the growth aspirations of the person running the business.”
Businesses measure growth in sales, market share, number of employees, and profit. Of course, profit is the most common reason for people to grow their businesses.
Are you ready for growth?
Hiring your first employee is a big milestone on your business journey. It can redefine your role in the business, says Rob Fyfe, former chief executive of Air New Zealand and Icebreaker.
“Say you’re a plumber,” says Fyfe. “When you make that first step of growth from sole trader to employing people, the first big conundrum you have is that your job changes.
“Rather than spending your day out plumbing, now you’re spending time on invoicing, on recruiting; you’ve got to understand payroll, tax, and health and safety.
“You’re no longer a plumber, you’re a manager of plumbers. You need to think about whether you want that.”
Fyfe has worked for all kinds of companies, both big and small. In the UK, he worked for fledgling ITV Digital. He’s also invested in a number of Kiwi startups, and knows all the trials, challenges, and opportunities they face.
“At every step of growth, you generally have to invest ahead of the growth coming – you need to be able to pay employees,
pay for that accounting system and the office space.
“In that first stage of growth, when you’re spending all that money, you lose money until the revenue starts coming in,” he says.
“You need to plan, and understand that risk.”
Plan for profit
When he invests in small businesses, Fyfe says he tends to be cautious of growth unless the business has a clear business model around that change, and how they’ll create a profit margin around it.
“I see too many businesses that try to grow without knowing the answer to that question, hoping it will miraculously appear downstream. For some it does, but for many it doesn’t, and of course you only hear about the successes,” he says.
Ben Fath says growth prospects are usually better for businesses founded by someone who knows their craft – someone with industry knowledge and contacts.
Research has also shown that people who’ve worked overseas or in large corporations normally have strong growth aspirations for their own business, and think about and plan for growth when they start it.
Reasons to grow your business
· You can take a step back, delegate, and focus on growth, says Fath.
· The cost of providing a product or service reduces with scale, says Fyfe.
· Scale brings resilience. “I use the example of the airline industry,” Fyfe says. “If you have 100 planes, your competition has five planes, and you both have a plane become unserviceable, that plane’s only one per cent of your capacity. You can move things around and still get everyone to their destination. If it’s 20 per cent of your capacity, that can have a major impact on the service.”
· Growth may encourage good employees to stay, giving them a career path within your business.
· If more growth means more profit, you can invest in new technology to improve service, quality, and reliability.
· You can invest in new products or services, and better understanding your customers.
Plan for growth
Growth takes planning, time, and money.
Your plan could outline what the growth will look like, and where you want to be at different stages, giving you targets to measure your success. It can also help you work out how much you might need to invest to start growing.
The biggest risk for business owners is usually money. Many small businesses fund growth from their owner’s own pockets, which can put their personal assets at risk.
“The risks associated with growth require commitment,” says Ben Fath.
“People may choose not to grow because they don’t want to transfer a business risk into a private risk, say by securing a business loan with their house or personal funds.”
Another challenge can be finding and keeping the right people.
What the government’s doing
Finance Minister Grant Robinson says the coalition government’s economic plan includes policies to support business investment and growth. “We know that strong businesses mean a strong job market for New Zealanders.”
He says a NZ$1 billion research and development tax credit will be an incentive for innovation and growth, and the Provincial Growth Fund is investing in programmes to help develop regional businesses.
What help is available?
· Business.govt.nz is the government’s website for small business, providing all the information you need to start, run, and grow a business in New Zealand. Grab free tools and resources around laws, compliance, tax and accounting, staffing, workplace policy, and business plan templates. There’s also the Choose your Business Structure tool, which helps a small business owner decide the best way to structure their business.
· The Regional Business Partner Network helps you work out what kinds of government help you might be eligible for. It can also give you information and tools to help build your skills and knowledge, and introduce you to business networks.
· People on benefits who want to start a business may be able to get help from the Flexi-wage programme.
· Te Puni Kōkiri’s Maori Business Growth Support helps Maori businesses start and grow, and Pakihi runs free workshops and mentoring for Maori businesses.
· Business Mentors New Zealand charges a small annual fee, and mentors volunteer their time to help get new businesses off the ground.
· If you’re just starting out, the PopUp Business School complements traditional business support by getting people started and feeding into their mentoring and support schemes.
· There are 30 local Chambers of Commerce around New Zealand offering training, information, advice, information, and support.
· Local small business meet-ups happen all around the country – search ‘small business meet-ups’ online.
Rob Fyfe’s tips for a strong, enduring business
· Understand your customers and what they need.
· Understand your competitive advantage. What are you going to do better than your competitors?
· Have a clear plan and know how you’re going to build and grow a viable business.
· Don’t get seduced into profitless growth. Make sure you’re always protecting your gross margin, because that’s the future viability of your business. The gross margin is what the company keeps of each dollar of sales.
· Communicate openly, honestly and transparently with your team at every step of the way.
· Ask the right questions. Your customers and front-line employees have insights into any new product or service. Never underestimate the power of those insights – they could be the key to growth.
First published 28 February 2019
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.
Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.