Sometimes ‘Bigger’ doesn’t equate to ‘Better’

We’ve all seen it: the little one-person, Mom-And-Pop business that comes from nowhere, built on sweat, determination, and long hours into a company that employs others and creates a tangible footprint upon the society around it. Then, often, they grow bigger in an effort to diversify, serve more customers, gain more throughput/output, etc. Sometimes, they stop here. Other times, they continue to the next level, and become a chain, a national force, an international force. In effect: something far greater than anyone ever imagined.

Sometimes, this is a good thing. Other times, it’s a GREAT thing. The question I want to pose today is: is this the RIGHT thing? Here’s why I ask:

Recently, one of Digital Ninjas Media’s clients considered expansion. They wanted to take their business to the next level by purchasing an addition to their building, adding new equipment, and bolstering manpower. We were fortunate enough to be a part of the group-minding behind this process (Yep – we’re not just pretty faces – we have some business experience too.) Initially, we thought that it was a great idea that would make our client a lot more money. That was, until we started thinking not like an observer, but like a researcher.

The decision all began (and ultimately ended) with numbers. First, we collectively developed a business-specific method by which we could ‘see’ – in a cause and effect manner – how much each employee was bringing to the table in dollar output, versus what it cost the company to employ them. Then we compared it to the employer’s perceptions. And a bomb went off. So we dug a little deeper. And the more we quantified and monetized the data, the more we found an inversion. In fact, the company was losing money by being as large as it had become already, based on a number of factors that were – to that point – unquantified, or unknown. How did we do this? Here’s what we used:

Costs of payroll (including the higher factor of overtime)
Costs of taxes associated with payroll
Costs of unemployment insurance
Costs of employee benefits
Costs of individual errors and mistakes (using the rule of 3)

Next, we took a look at the earnings potential of each employee per hour. Then, we figured out how many hours, on average, they were working in a set period of time. This number, subtracted from the amalgamation of the prior items, showed us what was left over for the company as ‘profit’. To the management’s surprise, some individuals were actually losing money for the company, while others were clearly carrying it. The end result? Expansion seemed like a terrible idea. Downsizing, in fact, would prove to be more profitable.

Now this might sound cruel, or even cold and heartless. But here’s the upside: the ownership didn’t want anyone to lose their jobs. They truly cared about their employees, as humans first, and employees second (which is something sorely lacking in this day and age.) As such, they sat down with each employee, and outlined their findings, as well as setting goals to rectify each individual situation. In the end, some did, and some did not. The result, however, was a much stronger and robust workforce. And as a bonus, morale was lifted. The individuals who were shining were further recognized for their stellar contributions.

The company did, in the end, downsize. They changed their business model drastically as well by identifying key areas where cost savings could be achieved, and then tackling each – one by one – in an effort to do so. Amazingly, as of this writing, we’re told that they’re doing more with less, and are experiencing a cathartic resurgence in pride of work, employee productivity, and employee recognition – all because they wanted to expand.

Expansion is something that cannot – and should not – be taken lightly. If you are choosing to consider it, here are some key factors to consider:

Would you be more profitable and nimble by altering your business model first?

Would your customers still receive the level of service that they’ve come to expect from you, or would it potentially suffer?

Are there enough qualified employees in your area to fill the new positions, while keeping the company workflow moving in a positive way?

Is the cost of expansion worth the return on investment? Can you quantify it?

Are you expanding to meet a new need, or just to increase the filling of a current one?

Is your company prepared for a ‘catastrophic loss’ – such as you, or your management, in the event of death, departure, or other significant ‘acts of God’ , or force majeure?

Are you maximizing the potential of all of your current assets – human and physical? Would doing so alleviate the need for expansion?

Are multiple shifts an option?

Are you, as the owner, going to be forced to work in the business? Or will you be free to work on it?

In the end, each business – like each individual – is different. Each one works around a specific model that is right for their industry, locale, economic climate, and any number of other things. I cannot, however, express enough how important it is to quantify everything in the most intuitive manner possible. It affords a snapshot of your company that will – I can almost guarantee – reveal things you thought you knew which are dead wrong.

Need help with getting started? Well, Digital Ninjas Media is nothing if not robust. We meddle only in things we feel we are strongly suited to. And we’re happy to assess – free of charge – if this sort of service is right for you. And, because we’re a-la-carte, you can choose as much or as little hands-on from us as you like – no contracts, no retainers. We’re not only to help you, but to educate as well.

Until next time!

Cheers,

Heath D. Alberts – Co-Founder & Marketing Director

Digital Ninjas Media, Inc. (heath@digitalninjasmedia.com)

Author of: “Terminal Beginning” (2010) | “Guerrilla Business” (2012) | “The Battery Man” (2013) | “Last Rights” (2013)

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~ by digitalninjasmedia on January 25, 2014.

 
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