The benefits of a bite-sized business

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With these differing motivations, come different goals and definitions of success. Many entrepreneurs are pragmatic about their financial objectives: they’re less interested in pursuing high growth and market conquest than they are in creating steady, sustainable revenue streams and enjoying the benefits of running a lifestyle business.

The basic idea is still, of course, to turn a profit: according to research from Xero and World Wide Worx, 75% of South African entrepreneurs think they earn more from their businesses than they would in a typical job. This is supported by a recent study from InfusionSoft and Emergent Research, which found that 94% of small businesses are focusing on definitive financial objectives – and that 65% believe they’ll achieve them. Their ambitions may be smaller scale, but they’re no less relentless in pursuing them.

For many South African entrepreneurs, this approach has merit. But do the advantages of running a compact business outweigh the potential advantages of high growth?

Small, but nimble

Of course, running a small business is still hard work. Nobody becomes an entrepreneur because they think it’s the easy option. Compact business owners may simply prefer to maintain a good work-life balance: they’ll give as much to their company as possible, but they also want to have time for ‘extracurricular’ hobbies or family life.

Staying small allows them to do so – and it conveys several other business advantages as well. Most notably, a compact organisation is better able to do right by its customers. Growing businesses can be self-involved: their energies are devoted to investor pitching, market research, and the logistics of continuous expansion. Customers don’t fall by the wayside, exactly, but they can only command so much attention.

Small businesses, however, can provide more focused service. If a client’s requirements change, they can be addressed quickly; if an issue arises, it can be resolved efficiently and amicably. Successful small organisations have a more personal offering than larger entities – and personalisation aids customer retention.

But beyond the customer, keeping it small also makes it easier to manage the inner workings of a company. The compact business owner doesn’t usually have to deal with opening new offices, kitting them out, hiring and onboarding new people. The myriad frustrations of running a growing organisation are either mitigated or eliminated entirely. The core responsibilities that remain are much more manageable – for example, it’s much easier to organise a budget and maintain a regular cashflow when a company doesn’t have to think about expansion. This lends small businesses a level of flexibility that makes it easier to respond to changing market conditions.

Small, but strong

Naturally, managing a smaller business is still a lot of work. Currency depreciation and inflation ensure that a certain level of growth will always be necessary. Beyond that, however, a compact business needs to take certain steps to build resilience and protect itself.

Finance, for example, can become time-consuming and difficult to manage without the benefit of a great accountant or dedicated accounting department. An entrepreneur should be focusing on business and mission-critical activities, not processing invoices, organising VAT payments, or engaging in any other intensive resource management. Technology such as cloud accounting software can automate many of these processes though, freeing up time to handle more pressing matters.

And while customer retention is important – to the point where it can increase profits by 25-95% – when a business relies too heavily on a few customers, the impact when these customers default is inevitably more significant, causing funding gaps and cashflow problems. The idea of keeping a business small is to maintain a sustainable level of success, but this is not always within the entrepreneur’s control. Keeping multiple eggs in multiple baskets is the best way to spread risk and protect profits.

In an age where ambition is often cultivated for its own sake, where growing organisations rise rapidly only to fall from great heights, a smaller business looks an attractive proposition. The satisfaction of leading an organisation, the thrill of winning a new client, the potential to earn a comfortable living – these things are available regardless of your company’s size. Sometimes, keeping it small is also keeping it smart.