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Growing Pains

7 Ways to successfully prepare your business for its stages of growth.
May 1, 1997
URL: http://www.entrepreneur.com/article/14120

7 Ways to successfully prepare your business for its stages of growth.

Joanne Winthrop faced the challenge of business growth in a big way during the early years of her homebased business career. Her Estacada, Oregon, business, The Basket Connection, which sold $1.8 million worth of baskets in 1996, was started in 1978, when Winthrop's husband, then a wholesaler of Asian baskets, contracted hepatitis. As an independent contractor, he had no unemployment benefits; with no college education and no job skills, Winthrop, a mother of six, suddenly found herself thrust into the role of breadwinner. With only $300, she originated the idea of basket parties. Four people agreed to host basket parties, and she hired them as independent contractors to sell the basket-party idea for her.

Her business grew quickly. She and her contractors logged more than $250,000 in sales the first two years. She later sold 1,000 of her businesses in the form of franchises for $3,500 each. Experts and entrepreneurs similar to Winthrop offer the following suggestions for coping with what some say is the happiest of problems--dealing with growing pains in a homebased business.

1. Design a financial model for the future of your business. Mark LeBlanc has helped more than 350 business owners cope with growth through his work as a seminar leader and owner of Small Business Success, a consulting firm in St. Paul, Minnesota. He's discovered that many homebased business owners have a knack for creating a salable product or service, but are less adept at managing their actual business operations. "Some entrepreneurs get so caught up in running their business that they forget they have a life and don't pay themselves enough," he says. "Others are caught up by the allure of growth for growth's sake, and their decisionmaking gets skewed."

For small service firms, LeBlanc created the 50-35-15 financial model, a benchmark formula to help keep a business balanced. "From whatever money a service business owner deposits, the owner should get 50 percent, 35 percent should go to marketing, and 15 percent should go to administrative expenses," he explains. "While businesses vary in product and financial status, entrepreneurs can consider this formula and start thinking in terms of allocation. When faced with a growth decision--such as outsourcing, moving out of the house, or adding a second location--they can ask how this will change their financial model. They can make better short-term decisions so the long-term situation can take care of itself."

2. Start growing when your business does. Winthrop didn't even have order forms or business cards when she first started. She took her first orders with a pencil and a pad of paper. "When setting up your business," she says, "don't go out and buy a lot of expensive equipment. Image is important, but many businesses have stunted their growth by buying too many expensive items they didn't absolutely need. You can often start your business with a minimum of equipment and save some `image' purchases until later."

3. Hire from your household first. After Winthrop's husband recovered, he began working with her. Today, all six of her children also work in the business, which she says taught them all entrepreneurial skills. Many homebased business owners look to their families for help, particularly with tasks that children can learn to process simply. You can also make agreements with family members to help out with household chores, freeing you to pursue business tasks.

4. Utilize other sources during growth periods. When setting up your bookkeeping, Winthrop suggests looking for a good software program that can serve as a relatively easy and user-friendly bookkeeper. "It is less expensive than an accountant," she points out, "but almost as good for what you probably need."

Some homebased entrepreneurs find that receiving business mail at a professional postal center helps them manage their work while maintaining a professional image. Mail-delivery services can also save time during peak or growth periods. Airborne Express, for instance, picks up packages for free, and the U.S. Postal Service will retrieve any amount of parcels for one small fee.

If travel is a part of your business, consider using the services of one of the "executive suites" across the country. Rudy Lewis, president of the National Association of Home-Based Businesses (NAHBB) in Baltimore, explains that such services allow homebased business owners to choose from a variety of support services, such as temporary secretarial services, photocopying, shared office space, and maintaining a professional address and/or phone listing at the executive suite location.

5. Use outsourcing and subcontracting when the workload gets too heavy. You can farm work out when you're temporarily overloaded. When she began her resume-writing service, Career Writers, in Arvada, Colorado, three years ago, Tracy Williams wouldn't dream of letting anyone else share her work. "In the beginning, homebased business owners like myself have both superhuman energy and an overburdened work ethic," she says. "We think that we've gotten successful through our own efforts--and have to continue that way forever." As her amount of business increased, she soon reconsidered that sentiment, and subcontracted with another homebased business owner who operated a secretarial business. "It's great to have an arrangement with a subcontractor so you know you can handle an overload. If I hired a regular part-time employee, I'd be stressed over whether there would always be enough work to justify paying him."

Often, farming work out can be a reciprocal agreement where you each refer projects to the other person when you are overloaded.

Cynthia Brower, vice president of marketing for the NAHBB, explains that subcontracting is financially efficient. "When subcontracting," she says, "you only have to pay the person for as long as the project lasts, and you aren't responsible for their taxes and benefits." A subcontractor could be a manufacturer, a wholesaler, or a dealer who helps you with duties or assignments you don't have the time or resources to tackle yourself. Network in associations with businesses similar to yours to find leads for additional help.

6. Hire permanent help when you feel overwhelmed. Knowing when to hire help is a highly individualized decision. Here are some indications that it is more cost-effective to hire permanent help: You routinely cannot complete all tasks alone; you find that your business is growing beyond the capacity of a single worker; you realize that your time has become worth more than it would cost you to hire someone to complete your less complicated tasks.

New York City's Lina Marks is a management consultant who applies marketing principles in Strategies for Business Success, a homebased business she has operated for 14 years. She states that, once a homebased business has acquired sufficient financial resources, not hiring employees can prove to be penny-wise and pound-foolish. "I've seen so many entrepreneurs who do everything in their businesses, including very menial tasks, because they feel they can't afford to hire someone to do that work," says Marks. "Yet, while you are packing or shipping--tasks you could hire someone else to do for minimum wage--you could be picking up the phone and getting a new customer, or developing a new product."

When hiring, pick employees who can add their expertise or skills to your business. "When you don't have the valuable experience or knowledge you need," says Winthrop, "find good people who have what you lack and hire them."

7. Expand to a second location. For 17 years, Wanda Gozdz of Fort Lauderdale, Florida, has operated a homebased business organizing private library collections for law firms and other professional organizations. When her business grew and she hired two more people, she chose the innovative solution of creating a second office--in her garage. Now both her offices have an outside entrance, and she feels she's combined the positive traits of both environments--maintaining the privacy of working at home while expanding her business to a second location.

To decide when you need to expand, Lewis recommends comparing your current level of business with past performance to evaluate whether the growth you are experiencing is a sustained increase rather than a temporary surge. You can do this by comparing the hours worked, or by comparing your business' statistics over a period of time: Are you making more profits? Producing more products? Expanding into new business arenas? Have these changes lasted six months or longer?

In seeking to manage your expanding business, remember that growth is a "happy problem" that is evidence of your entrepreneurial success. It's a challenge--but a worthy challenge--to make business growth work for you.


Carolyn Campbell, a home-office entrepreneur for 20 years, has written more than 200 magazine articles.

Adding Employees

Lina Marks, a management consultant and former adjunct instructor of marketing at New York City's Hunter College and Pace University, advises entrepreneurs to map out their businesses using the following guidelines to ensure cost and time efficiency when adding additional employees.

1) Identify all tasks necessary to operate the business.

2) Assign the primary responsibility of each task to one person.

3) Make sure that no two people are assigned the same tasks. Says Marks, "You think she's doing it, she thinks you're doing it, when in reality, no one is doing it."

4) Realizing that, due to unforeseen circumstances, you or your employees could be indisposed or unavailable tomorrow, make sure that at least one other person knows how to do each task, enabling the business to operate on a short-term basis until a new person is hired.

5) Follow your strengths. Make sure that you assign yourself the tasks that you do best, and be sure each task is assigned to the person most qualified to perform that task.

Worth Joining

The National Association of Home-Based Businesses.

For membership information, write to P.O. Box 30220, Baltimore, MD 21270, call (410) 363-3698, or contact them online (http://usahomebusiness.com).

Worth Reading

Get Out Of Your Own Way

By Dr. Mark Goulson

(Berkeley-Putnam, $13, 800-788-6262), presents ways to expel self-defeating behaviors that block your path to business growth.

The Business Planning Guide

By David H. Bangs, Jr.

(Upstart, $22.95, 800-829-7934), details the stages of business growth, and presents business plans to make the most of these stages.

Contact Sources

Gozdz, W. Enterprises, P.O. Box 5711, Ft. Lauderdale, FL 33310, (954) 452-9651.

National Association of Home-Based Businesses, 10451 Mill Run Cir., #400, Owings Mills, MD 21117, (410) 363-3698.

Small Business Success, 2550 University Ave. W., #225N, St. Paul, MN 55114, (612) 641-0988.

Strategies For Business Success, 380 Riverside Dr., New York, NY 10025, (212) 864-1093.

The Basket Connection, (503) 631-7288.

Tracy Williams, 8800 Ralston Rd., #204, Arvada, CO 80002, (303) 424-5451.