87% of Professional Services Firms Don’t Grow Beyond 10 Employees … Why?

I took a quick look at some 2012 census information to verify some surprising data I had read and compared it back to a blog I wrote several years prior based on 2008 census information. In 2008, 95% of firms reported they are smaller than 10 employees and 99.5% were less than 100 employees. In 2012, 87% of professional services firms reported they are smaller than 10 employees and 98 % are less than 100 employees. Growth has been the trend, albeit small growth. If your company (or employer) has crossed the 100 employee threshold of late, WOW that is a big deal, congratulations. If you make it above 500 employees, you are larger than 99.6% of the firms reporting. But why do so few make it beyond 10 employees and only 2 percent get larger than 100 employees?

There are some predictable barriers to growing your business that you should be aware of and plan for as part of your strategic planning and execution process. Much has been written about this but here is my take from my experience as CEO of a 550 person firm. The good news is if you want to grow, and not every firm does or should, these barriers can be overcome with sound businesses processes and some hard work I should add.

The barriers to growing your business tend to fall into several categories:

  • people
  • processes
  • policies
  • market conditions or dynamics

So what keeps the smaller businesses (or units within a business) small?

  • Leader Insufficiency
    • Leading change rather than just suggesting, is critical to success. Normally it is a failure to delegate or no one to delegate to. Unfortunately until there is a willingness and ability to delegate you are basically working at a job and not working at growing a business. To grow your business you will have to invest in good people and then delegate results not tasks. As a general rule delegate the results that can be achieved by others. Once you are able or willing to invest in good people you will need some business processes, policies, systems and structures, in place to allow you to go about your job as a leader and visionary for your company.
  • Cash Flow
    • As you grow, market dynamics kick in and the barriers to growth go from getting customers when you are small to cash flow as you add staff. Initially the first barrier you face will be all about getting and growing revenue. Many small businesses never overcome this barrier. As revenue grows, cash will become king and you will need to introduce some business processes to collect and retain cash.

Once you get to a point where the competition takes you seriously gross margin will come under pressure and you will need to respond. Your competition, large and small will see you as a threat and may engage a pricing strategy to test your business skills.

Lastly as you get bigger it will be necessary to deliver predictable profitability to keep your constituents happy. These constituents could be family, banks, investors, and partners and they will have expectations that you need to meet. These constituents would likely prefer to see a plan for several years of sustained profitability than a single year of larger profits with increased risk.

I would love to hear about the barriers you have faced as you have grown your business and the strategies you put in place to address them.

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