I was talking with a new acquaintance this week and we were discussing whether or not he should start his own business. We discussed things like his dissatisfaction with the current situation, the steps that would be required to open his own shop, support from family members, how to keep work in check when it comes to a healthy marriage, and about half a dozen other things. In short, we talked a lot about his readiness to step out on his own.
Readiness is a very useful concept in business. It speaks to a combination of competency, timing, resource availability and mindset. It applies to all kinds of areas, but in my work I am most interested in a company's readiness for strategic planning. I spend a lot of time in due diligence trying to assess that readiness before I allow anyone to become a new client. So for the next several weeks I am going to break down the various components of strategic readiness. And I will start with the company as a whole. What companies are good candidates for strategic planning?
The companies that we work with are typically between $2-20 million in revenue. There are several good reasons for this. First, these companies have outgrown the owner's ability to do everything. In my experience small firms can do about $1 million in revenue with an owner who serves as chief cook and bottle washer. Beyond $1 million delegation and management become much more important. The ability to acquire and leverage these skills makes growth possible. By the time a company reaches $2 million the owner has worked out many of the kinks in personal management style and has proven capable of delegation. That is key in strategic planning because execution has to be a team affair. Putting all of the execution on the owner’s shoulders is overwhelming and is not sustainable.
Second, companies at she $2 million level and above typically have the resources to invest in our services and money to spend on strategic initiatives. While we would like to work with everybody we also need to turn a profit. Sometimes smaller firms with good margins will hire us because they are committed to rapid growth, but they are the exception. It is very hard for the smallest of small businesses to afford outside help with planning and execution. That is unfortunate because in many respects these are the companies that can benefit the most from a little planning. In these cases motivated owners with some extra time can make great strides with some self help resources and a good peer group to serve as a sounding board.
Finally, companies larger than $2 million have teams. Teams are powerful things. One of the highest value skills we bring to clients is the ability to focus the entire team on one set of strategies and goals. When I say team I mean small groups of people that are at roughly the same level on the organization chart. A typical team might consist of the owner, the sales manager, the operations manager, the controller and the head of customer service. Once a plan is established and we begin execution this team is capable of holding one another accountable. They can help fellow team members problem solve and trouble shoot obstacles. They can pass the baton as certain groups take the lead in implementation. And they can sustain and even build momentum behind the plan. Teams are very important in the implementation of plans so working with companies that have established teams is generally more impactful.
I should say something about the upper limit of $20 million. Once companies get to this level we need a larger team of specialists to tackle different elements of most strategic plans. For instance, a plan built on the vision of becoming a mid market player will likely employ some type of capitalization strategy to fund expansion. Without a dedicated equity or debt specialist on our team I feel like we would be doing these companies a disservice. The same thing is true of companies that pursue M&A strategies in this space. We are very hands on during implementation. Moving into the market north of $20 million would mean delegating much of the implementation work to other experts. As we grow and add these resources that will change. However, we need to be honest about how thin we can stretch and how comfortable we are letting someone else drive the plan that we work so hard to build with our clients.
We have clients smaller than $2 million and we have clients larger than $20 million. But each of those outliers have extenuating circumstances that make them good candidates for strategic planning in spite of their failure to meet these revenue criteria.