Sunday, 3 July 2016

TO GROW OR STAY SMALL - LIFESTYLE BUSINESS V ENTREPRENEUR



INTRODUCTION

This blog is a reflection of having worked in businesses that were going to grow, sell and make millions, as well as having established my own business with more modest ambitions to provide great service at low cost. It is not to champion one over the other, but to compare and contrast whilst noting that a whole range of factors may influence your preference including age, circumstance, lifestyle, ambition and income demands as well as your product, service and customers.

LIFESTYLE BUSINESS

A lifestyle business is a business set up and run by its founders primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which to enjoy a particular lifestyle

https://en.wikipedia.org/wiki/Lifestyle_business

ENTREPRENEUR

By contrast an entrepreneur has traditionally been defined as the process of designing, launching and running a new business, which typically begins as a small business, such as a startup company, offering a product, process or service for sale or hire. For the purpose of this blog an Entrepreneur is different from a lifestyle business only in so far as they aspire to grow the business either with a view living off the proceeds from selling it.

https://en.wikipedia.org/wiki/Entrepreneurship

THE PROS AND CONS

Generally  a lifestyle business run by its founders is unlikely to have many staff, and may be modest in both client base and income. If the aim is simply to provide sufficient income to pursue other interests there is no motive (or need) to manage growth or all the extra-overheads associated with creating capacity and satisfying demand.

From a client perspective these businesses can be very efficient: there is no big sales, marketing, HR, or technology team all of whom add to the costs of the product or service without adding to the quality or outcome.

From a founder perspective close to 100% of the income goes directly to the founder, with minimal overhead and without the need to pursue additional work simply to fund the overhead.

An entrepreneur by contrast will have to work much harder to grow a business and provide the income to sustain that growth. The bigger the business the more that growth is overhead (sales, marketing, HR, technology) all taking from the income but not contributing to it.

The prize for such growth is questionable if the additional income is spent simply maintaining operations rather than paying a dividend to the founder for their efforts.

THE LIE THAT BIGGER IS BETTER

There is the idea that having a bigger business is better because you can delegate all the work, but in truth even if they are doing all the work you as founder will be doing all the co-ordination necessary to guide the ship and that may be harder and less satisfying them actually doing the work that yields the income.

From a client perspective there may be a feeling of safety in numbers; that doing business with a small business or one-man-firm is inherit more risky than doing business with a firm that employs more people.

The reality is that there is dependency on good people irrespective of whether they are the employer or the employee and arguably you are going to get more commitment from someone whose income comes directly from the client as a result of their performance than someone who can be ill, take holiday or have their attentions directed elsewhere or quit their job with no recourse for the client.

 RISK AND REWARD

The risk and reward does appear to favour the entrepreneur, however is we assume that a good one-man-firm earns £100k , divided by 220 working days in a year that’s £450/day.

By contrast if you employ 3 people doing billable  work (£90k) and employ a book-keeper (£30k) operating from a small office (£10k) with modest infrastructure  (£5k) you’ll find that you need to bring in £1068/day  to achieve exactly the same result.

These numbers are indicative only because the higher wages for good people and financial burden of admin and the time lost to admin and bureaucracy is likely to make this scenario even less tenable.

From a client perspective they are getting access to talent worth £30k salary, rather than the commitment of someone  valued at £100k [this pre-supposed that price is actually reflective of value, which is a whole debate within itself]

In this scenario both founder and client loose-out.

FEWER PEOPLE WANT TO BIG BUSINESS

Perhaps the biggest factor is the change in demographics, education, culture and expectations. Fewer people want to be “wage slaves” and more relish the opportunity to do their own thing, working collaboratively in dynamic environments.

Clients too increasingly favour employing people who are passionate about their product or service than those who simply sing the corporate song of somebody else’s  for as long as their being paid.

The industrial revolution which saw people flock to the cities to find work with the factory employers is now in reverse with tele-working and globalization persuading people that the time spend commuting and the cost of posh premises is simply not valued by the people doing the work, or the customers paying for it.

NETWORKS, CONSORTIUMS AND COLLABORATIONS

Instead we are seeing  Networks, Consortiums and Collaborations as being the replacement for corporate employment since these provide the breadth and depth of multi-disciplinary skills, and the social fabric for communication, innovation and collaborative working.

The great value of this is that good, strong and successful Networks, Consortiums and Collaborations with thrive and others will wane. The ebb and flow of new combinations for new projects and initiatives provides a more dynamic and innovative environment for rapid change without the encumbrances of juggernought business which simply cannot offer this depth of resource pool or flexibility.

CONTACT

If you are interested in any of the above and would like to contribute to the discussion by posting a comment, or meet with me to chat about your experiences and the issues and opportunities in your organization I would be delighted to meet and buy the coffee and  croissants for an interesting conversation.

ABOUT THE AUTHOR

Tim Rogers is an AMPG Qualified Change Practitioner, a PRINCE2 Project Manager, with an MBA in Management Consultancy. Past projects have included the incorporation of Jersey Post Office, Operations Change and Sales Support for RBSI and NatWest and the integration and incorporation of Jersey Harbours and Airport. He is a tutor/lecturer for the Chartered Management Institute, a past curator for TEDx, Team manager for Jersey’s Triathlon Island Games Team and Performance Director for Jersey Rowing Club.

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