Most business owners are not Derek Trotter, but many share Del Boy’s ambition when they start out; they see themselves at the helm of a multi-million pound business, perhaps even a multi-billion pound business.
But here’s the harsh reality: statistically, only 4% of business owners ever reach the £1million mark, and only 10% of £1million businesses ever reach the £10million mark (that’s 0.4% of all business owners).
So what’s getting in the way of 2.5 million UK businesses punching through that £1million barrier?
Multi-award-winning business coach Shweta Jhajharia puts it down to something called the Complexity Ceiling.
“The first year of the life of a business is the most critical,” says Shweta. “The start-up year defines whether a business has any survival potential and whether it has the potential to reach the £1million mark.”
Shweta points out that no formal education or qualification is required to starting a business. On one hand, that’s great. Anyone can do it. On the other hand, the ease with which people can start their own business can lead many people to assume that what they already know will see them through. However, it most cases, new business owners discover they have a lot to learn, and much of their first year is spent finding their feet.
And if a business makes this kind of start, it builds the pillars that support the ceiling it will eventually hit. “A business reaches this ceiling when it becomes trapped in what is sometimes called the Hindu Rate of Growth,” explains Shweta. “That’s an average growth rate of around 3% each year, which, most of the time, is just enough to keep pace with inflation. If a £500,000-size business grows at 3% every year, how long will it take to cross the £1million mark? The answer, despite the magic of compounding, is 24 years! Many business owners will have already looked at succession or retirement before those 24 years are up.”
For a business to reach the £1million mark before its owner starts yearning for more time on the golf course, it needs to employ new systems to allow growth to happen. “But because of the way many businesses operated as a start-up, further improvement and growth is too complex for them to handle and pursue,” says Shweta. “What allowed many entrepreneurs to run a successful small business simply cannot support larger, more complex teams and issues.”
So what can someone with a great business idea do to ensure their start-up makes the best possible start?
The advice from Shweta is simple: find out what you don’t know: “For example, a key skill is mastering 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 must be fluent in. It’s not enough just to understand these numbers, they need to be leveraged for every decision in the business. 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 decisions and calculated risks that will lead to sustainable growth.”
But how does a fledgling entrepreneur find out what they don’t know? They ask. Mike Smith from Ripley Training says “one of the most efficient way is to access training like Finance for Non-Financial Managers, Leadership and Sales and Marketing to help you to develop and enhance your skills and knowledge. Accessing external training and follow up coaching can give you a clearer view on your business and how you plan for the future. If time is on your side, you could also combine this approach with joining a local chamber or networking group and learn from your peers.”
Whichever route you choose, here’s to this time next year …