Shweta Jhajharia explains why over two and half million UK businesses are unable to break the coveted 1 million threshold and highlights three areas that might just hold the key.
The majority of businesses never reach the 1M turnover mark, a level often used to benchmark firms. This is significant because most business owners, when they first started, envisaged not just a multi-million pound business, but a multi-billion pound business.
Statistically, only 4% of business owners ever reach the 1M mark and further, only 10% of these businesses (that’s 0.4% of all business owners) ever reach the 10M mark.
So the question is; what’s holding back more than 2,500,000 businesses, across the UK, from crossing that coveted 1M mark?
Having worked with hundreds of businesses over the last several years, I have discovered that there are striking differences between the micro business owner and the owner of a 1M enterprise:
Before we look at the issues that a company needs to tackle when it is established and nearing the 1M mark, we first need to rewind and look at the start-up stage – because it is how businesses start that often sets the foundation for future problems.
The first year of the life of a business is the most critical. The passion, skills, value of the core product or service, and pure perseverance account for much more than anything else. The key here is survival
It is the start-up year that defines whether the business has any survival potential, including the potential to reach the 1M mark.
Most businesses start with a great idea and passion for striking out on their own with the skills and knowledge that the business owner has developed over time.
Starting a business requires no formal education or qualification, even the process of going online and registering a new company can be given to a friend, partner or child.
This low bar to start also means that most people assume that what they know is likely to be enough. They then spend the entire first year of existence bravely finding their footing and learning to walk.
What they fail at and focus on at this early, critical stage facilitates the development of fundamental skills that will ultimately allow them to break through the 1M mark.
This kind of start, while allowing the business to survive the initial risks and growing pains to achieve a certain level of success, also builds pillars to support a ceiling that the business eventually hits.
This is when the business becomes trapped in what is sometimes called the Hindu Rate of Growth, an average growth rate of around 3% each year, just enough to keep pace with inflation.
But, here’s a quick quiz: how many years does it take a 500,000-size business to cross the 1M mark if it grows at 3% every year? Despite the magic of compounding, the answer is unfortunately 24 years!
That’s a lifetime for most business owners; about the time that they would be starting to think about succession or retirement.
So why do business owners keep reaching this ceiling? It’s because the way they began as a start-up, has meant that at this point, further improvement and growth is too complex for them to handle and pursue.
In order to break through this ceiling, new systems need to be employed to allow for growth to happen, at the same time managing the increasing complexity of the business. What initially enabled many entrepreneurs to run a successful small business simply cannot support larger, more complex teams and issues.
It is at times like this that it helps to have an outside party shine fresh light on the business processes. This allows someone who isn’t so close to the company to identify the issues and provide solutions for decreasing complexity and increasing leverage.
What is often forgotten, or worse yet, never learned by entrepreneurs, is that business speaks a different language to what they have been used to speaking all their lives.
While this point could be an entire article in itself, the basic fact is that your business speaks to you not in English, but in the language of numbers: profit, sales, cash flow, receivables, assets, equity, ROI, average value sale, conversion rate, these are all numbers that the professional business person not only understands, but is also able to leverage for every decision that they make in their business.
This is the language that every successful owner is fluent in, must be fluent in, in order to break through the 1M mark. In marketing, sales, team management and leadership there are key metrics to measure, estimate and average in order to evaluate the probability of effects and, justify the decisions and calculated risks that lead to sustainable growth.
While understanding this language is essential at every stage of business, it becomes critical as the business starts growing in size and complexity. The relative importance of running this business as a ‘business’ increases as you lose the ability to be personally involved in every activity the business undertakes. Understanding numbers helps you keep track of this growth systematically, without having to do everything yourself.
If you have been unsuccessfully targeting this 1M threshold for some time now, and keep hitting that complexity ceiling, it might be time to review the techniques you have been using since you were a start-up and consider making some major changes to your decision-making process. The good news is that reinvesting in personal growth and learning can help you reach this benchmark, perhaps within the year!
Shweta Jhajharia, Principal Coach and founder of The London Coaching Group, is a multi- award-winning business coach, recognised both by external bodies and the industry awards panels as the top coach in the UK. Despite a competitive economy, her clients across sectors consistently achieve measurable double digit growth (over 41%) and are the most awarded client base in UK.