Riddell: But how do I know when?
February 8, 2017
In his book, The Tipping Point, Malcolm Gladwell uses the Gore Company as an example of the effectiveness of using the 150 thumb rule in regards to organization and expansion. Basically this maxim states that you expand or reorganize whenever the number of employees in a grouping exceeds 150. While not having had the benefit of the case study provided by Mr. Gladwell, I can say, given the organizations that I have managed that anecdotally there is merit to this simplicity. But what about the entrepreneurial start up/small business that is trying to decide whether to move to new space. What magic algorithm or data point can they look to for clarity in their decision?
The simple answer is until they reach 150 employees there is no magic formula.
However there are a few simplistic questions that can be asked that will lead to a successful decision.
Moving to a New facility
For example, in the rush to move to a new facility, you might do well to ask yourself three related questions. The first is how much lost business (orders lost) can I directly attribute to my current facility? Second, if we assume that the new space will cost a bit more, how much new business will you have to generate to cover this additional cost? And third, are you comfortable knowing and can you accept that this new additional cost and the revenue that will be secured to cover it will go into the pockets of your landlord as opposed to your own pockets?
There are two maxims of business that have always stood the test of time. The first says to keep your fixed costs down and your variable costs up. "Bricks and mortar" for all practical purposes represent fixed costs. The second is the always popular "Cash is king." Would you rather have your hard earned dollars tied up in a committed cost or would you like the flexibility and financial options associated with your success?
But yet the argument can be made that space that is too small or too cramped or ill designed is a hidden cost to a business. And while this may certainly be true, this problem can be remedied once a business has established itself on a solid financial footing. For many startups, however, the terms "too small" or "too cramped" may be synonymous with "inconvenient" or worse, "embarrassing." I have found that following one simple personal inclination most often provides the most solid basis for a successful decision. This personal thumb rule is as follows: if you have any doubts, if you have any reservations, do not do it!
The rationale for this approach is pretty straightforward. Any reservation you have probably indicates a couple of issues. One is that you haven't convinced yourself that you can't improve what you already have by maybe changing how you do things. The second is your lack of belief that the new space will definitely result in enough incremental revenue to offset, with a bit left over, the incremental cost.
Risk and reward are daily dilemmas for every entrepreneur/small business and everyone has to handle them in their own fashion. But sometimes thinking about the current reward as opposed to the future risk can allow us to creatively come up with ways to better and more cost effectively deal with the pain and opportunity of successful growth.
Following a successful international business career, John Riddell turned his attention to small business/entrepreneurial pursuits that included corporate turn-arounds, start-ups, teaching, authoring business and sports columns and serving as VP for the Chattanooga Chamber of Commerce directing its Center for Entrepreneurial Growth. He can be reach at firstname.lastname@example.org.