The Small Business Dilemma: Shrink, Hold On, Or Grow

There’s no doubt that small businesses are the growth engine of the economy. According to the U.S. Small Business Administration, small businesses (with 20–499 employees) in the U.S. generate nearly 50 percent of the U.S. gross domestic product and employ 63 percent of all private-sector jobs. They’re responsible for 46 percent of new and innovative products, pay 42 percent of the private payroll, and produce more than 33 percent of the value of goods and services exported. And since the end of the recession in mid-2013, small firms account for 60 percent of net new jobs.

During the Grow Your Next-Generation Business Forum at SAPPHIRE NOW, Rhonda Abrams, President of The Planning Shop and author of Successful Business Plan: Secrets & Strategies; Kevin Gilroy, Senior Vice President and General Manager, Global Indirect Channels, SAP; and Mark Hopkins, IT Director, Skullcandy, shared their own insights into how small businesses can survive and thrive – now and in the future.

If you’re not growing, you’re shrinking

The most common misperception about small businesses is that all entrepreneurs dream of building a business that will one day be world-renown and worth billions. That may be true for some, but it’s definitely not the case for every entrepreneur. Some actually choose to remain a small business – preferring the idea of making a comfortable living, having the freedom to choose the customers they take on, and balancing it all with their personal life.

Abrams commented, “Lots of small business want to stay small, but this is a recipe for shrinking the business. Customers leave. Technology changes the playing field. Competition changes.” Once they reach a certain size, many businesses become more focused on running day-to-day operations – leaving any attention to the business’ growth to the wayside. Unfortunately, for these businesses, growth is viewed as a distraction.

“It takes a shift to think about growth as a priority in a healthy company that seems sustainable when you are busy taking care of customers and fighting fires,” advised Abrams. “If you cannot grow further from acquisition or diversification, you must innovate. Otherwise, you will shrink.”

It’s your choice – shrink, hold on, or grow

What makes Abrams’ perspective timely is the fact that businesses – of all sizes, industries, and regions – are facing a significant transition where the rise of cloud, social, and mobile technology, as well as the emergence of the millennial generation, are changing the entire landscape at a pace that is mind-boggling. And for small businesses, these changes can either be an obstacle or an opportunity for growth. According to Gilroy, “History tell us that 40 percent of all businesses in a major inflection point will shrink, 40 percent will try to hold on, and the remaining 20 percent will catch the wave and grow.”

The 20 percent that make money and grow have a leadership team with one rock-solid skillset in common – introspection. “They are able to think about whether they understand the situation and have the right talent, technology, partners, and attitude in place. Small businesses have to be introspective and sit down with employees, confidants, and advisors to find out if they are ready for the changes affecting the industry right now,” reflected Gilroy.

To be part of the 20 percent, businesses need to innovate. Gilroy noted, “Technology is the equalizer and foundation.” Small businesses are investing in and adopting technology faster than ever before – 50 percent in business management, 43 percent in analytics, and 37 percent each in mobile, social, and cloud.

The key is to make the user experience intuitive and connected – better yet, they should mimic the mobile apps, gaming scenarios, and computer programs we all use in our daily lives. “Simplicity is absolutely critical. The technology needs to be simple and so does the consumption and maintenance of it. Break down traditional selling borders, ‘derisk’ the technology, and give a delightful experience – that’s what we all want,” suggested Gilroy.

Go from small to rocking the globe

One company in the 20 percent is Skullcandy – a Utah-based company that markets headphones, earphones, hands free devices, audio backpacks, MP3 players, and other products. Within its first two years of business, the company reached $1.3 million in annual sales and $100 million four years later.

Skullcandy believes that the supply chain is a critical and necessary part of its foundation for supporting growth. Hopkins mentioned, “If you cannot make the stuff and ship it out on time and efficiently, it just kills you. That involves getting inventory visibility, having a single data source of all activities being performed, and moving products from the factory to the warehouse to the customer as efficiently as possible. Plus, the big retailers, like Target and Best Buy, have logistical requirements that we must comply with.”

Drawing from his own experience at Skullcandy, Hopkins detailed five things that must done to deal with the processes, connections, and operational scope encountered by every small business:

1. Start with a solid foundation. Interrupting your customer’s business is always bad – especially if you are growing rapidly. The most important thing you can do for your customers (and your business) is give them the confidence that you can deliver whatever the challenge may be. And that can only be accomplished if you have a strong IT foundation in place.

2. Partner wherever possible for systems and processes. To establish that foundation, you need business partners that understand your business and can help ensure your business is sustainable and reliable. Whether it’s for payroll administration or product delivery, you need to be able to trust everyone in the business network.

3. Perfect your ability to integrate. When you have all the tools you need to operate efficiently integrated into one data source, every part of your business has the information needed to make decisions and commit to customers. For example, field reps can access inventory data so they won’t promise product that is unavailable. Managers can generate reports to determine revenue percentages for each product or product category. But more important, you can see what you’re selling.

4. Scale accordingly. Whether you’re running a multimillion-dollar, global business or a one-person shop, you have to handle change. And the same is true for your IT infrastructure as growth happens through increased transaction volume, acquisitions, partnerships, and established supply-chain entities.

5. Measure and manage to know where things are going right and going wrong. Make sure everyone is looking at the same information – regardless of role or line of business. By feeding information into a central data warehouse, you can ensure that the data is clean and the information can be accessed in other applications, analytics, executive dashboards, and even content management systems that update product listings on the e-commerce site.

Do you have any other advice for small businesses that are either dreaming of multimillion-dollar growth or wanting the work-life balance we all crave? Share them below!

Grow Your Next-Generation Business Forum replays can be found online here .

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