6 Lessons on Becoming a High Impact Business
Uncle Sam wanted to know: What kinds of companies are America’s true growth generators? Is it corporate giants like Apple, Amazon or GE? Is it startups? Is it relative newbies such as Facebook.
After some exhaustive research, the answer was clear: “None of the above.”
The real economic spark plugs in the U.S. are not big public companies. They are small, privately-held, fast-growing firms that already exist. These “high-impact” businesses are defined as firms whose sales and employee count have at least doubled over a four-year period.
That’s about 350,000 businesses and the research shows they tend to be a bit younger (but still average 17 years old) and a whole lot more productive than others. And they’re not just a bunch of high tech firms, either. They exist in relatively equal shares across all industries – and get this – even declining and stagnant ones! No single industry dominates.
That alone is both positive news and a huge lesson for startup entrepreneurs and other business owners who fear they can’t hit it big in more traditional businesses or industries. In short, you can.
Here’s another key finding of the U.S. Small Business Administration study: This relatively small group (less than 10% of all U.S. companies) of privately-held small firms accounts for all (not most, but ALL) net job growth in the U.S. economy. And get this: These high-impact businesses are also largely immune to ups and downs of the business cycle. Sound good?
But surely these must be the “bigger” small business, right? Wrong again. The vast majority (94%) of high-impact businesses have just one to 19 employees. Another 5.5% come in at between 20 and 499 employees, and a scant 0.5% have more.
In other words, a few hundred thousand businesses with just a handful of employees are having a bigger impact on job growth in the U.S. than all the corporate giants combined. Now ain’t that somethin’!
By now, you should be saying to yourself you’re either one of these firms – or you want to be. But how? For answers, let’s check in with Edward Hess, professor and Executive-in-Residence at the University of Virginia’s graduate business school. Hess has studied high-impact businesses for years and has an insightful new book called Grow to Greatness: Smart Growth for Entrepreneurial Businesses (Stanford University Press, 2012). He offers these six lessons on being a high-growth firm:
1) Don’t grow yourself into trouble: Many small businesses flame out when they try to grow too quickly, as growth outstrips people, processes and controls. Cash flow is critical. Growth requires investment ahead of cash receipts. “Entrepreneurs must understand they might not be able to afford all available growth,” says Darden. Avoid the “grow or die” myth. A better approach is “improve or die.”
2) Know when to back off: All private businesses face the same growth challenges. The most successful ones know how to pace their growth. Hess calls it the “gas pedal” approach. They know when to let up on the growth gas pedal to give their people, processes and controls time to catch up.