{"id":10629,"date":"2023-12-14T15:16:25","date_gmt":"2023-12-14T15:16:25","guid":{"rendered":"https:\/\/benrmatthews.com\/?p=10629"},"modified":"2024-07-26T11:10:17","modified_gmt":"2024-07-26T11:10:17","slug":"business-black-holes","status":"publish","type":"post","link":"https:\/\/benrmatthews.local\/business-black-holes\/","title":{"rendered":"Business Black Holes"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_68_1 ez-toc-wrap-center counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >On this page<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/benrmatthews.local\/business-black-holes\/#The_predictable_problem_of_business_black_holes\" title=\"The predictable problem of business black holes\">The predictable problem of business black holes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/benrmatthews.local\/business-black-holes\/#The_four_cycles_between_the_black_holes\" title=\"The four cycles between the black holes\">The four cycles between the black holes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/benrmatthews.local\/business-black-holes\/#How_to_jump_the_750k_black_hole\" title=\"How to jump the 750k black hole\">How to jump the 750k black hole<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/benrmatthews.local\/business-black-holes\/#Delegation\" title=\"Delegation\">Delegation<\/a><\/li><\/ul><\/nav><\/div>\n\n<p>Business black holes, the cycles between them and  how to&nbsp;jump&nbsp;your business into greater growth.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_predictable_problem_of_business_black_holes\"><\/span>The predictable problem of business black holes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Some 20 years ago I interviewed around 700 small businesses to discover whether the growth and stall trends I\u2019d previously been analysing in big business still occurred in the small business market. They certainly did \u2013 and they continue to follow the same predictable path today. What\u2019s more, the mathematics underlying all businesses work in the same way across industries, industry sectors and different currencies.<\/p>\n\n\n\n<p>All businesses go through predictable stall points \u2013 what we\u2019re calling \u2018black holes\u2019 because businesses can disappear into them for many years. In the small businesses market, that delay can be pretty catastrophic. Our understanding of these black holes, and what happens in between, has helped clients see why they get stuck and what to do to&nbsp;<em>jump<\/em>&nbsp;into far bigger growth.<\/p>\n\n\n\n<p>We\u2019ve also developed our understanding of the four trend cycles that occur between each black hole. Just think, if it takes two years on average to transition a cycle \u2013 and there are four cycles between black holes \u2013 you\u2019ve just added eight years to growing a business. If you\u2019d understood these cycles earlier you could have moved the business forward faster, or perhaps sold it eight years earlier.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Black hole #1: 80k<\/h3>\n\n\n\n<p>The first black hole occurs at 80k, usually when you settle on your first staff member. Given the size of the change, some people decide to stay within the 80k self-employed bracket rather than tip into 80k+ and start building their business. This black hole is the first point at which many businesses end up spiralling round and round.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Black hole #2: 750k<\/h3>\n\n\n\n<p>750k is the point at which people have typically built up a business to seven staff, each reporting to the founder. There\u2019s no business leverage without reporting lines, yet this idea often puts the owner into a quandary. \u2018I need someone who can sell\/manage staff\/service clients like me. But I don\u2019t think anyone is else is quite good enough!\u2019<\/p>\n\n\n\n<p>If the \u2018someone else\u2019&nbsp;<em>is<\/em>&nbsp;good enough, then the owner will have to consider releasing equity. It&#8217;s another big structural change and not everyone wants to make it. A business can grow quite nicely year-on-year until it hits 750k \u2013 only to spiral round this black hole for several years.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Black hole #3: 17m<\/h3>\n\n\n\n<p>At 17m a business is moving from an enterprise to a corporatized company, which is another massive shift. Managers in this size of business might consider creating a board with a non-exec director, and implement structural changes to release the founder from day-to-day management. The business will usually develop corporate-styled systems such as diligence, compliance and governance. It also formalises its processes, procedures and documentation.<\/p>\n\n\n\n<p>At 750k the business couldn\u2019t grow further without setting on more people. Now it can\u2019t get bigger without corporatizing.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Black hole #4: 170m<\/h3>\n\n\n\n<p>At 170m the business\u2019s markets will shift from small deals because the only way to reach the big numbers is to go global and\/or partner with other corporations.<\/p>\n\n\n\n<p>Everything has to up-scale and by 170m the business is dealing with banks at a very senior level. The business now needs effective supply chains and channels to market. Some people will resist this move and say, \u2018Our client base has changed completely in the last 10 years. We used to have a lot of small stuff on the books and now it&#8217;s all big deals. I liked it better before.\u2019<\/p>\n\n\n\n<p>Big deals differ significantly from small deals and require a different skill set to move into major corporations or operate on a global stage. Businesses at this size need far more infrastructure investment such as improved technology, enhanced HR provision and so on.<\/p>\n\n\n\n<p>170m is a critical point because there is no turning back from becoming a corporate once you\u2019ve pressed the button. After helping one business grow to 170m the CEO asked us about his new role. We said, \u2018You can&#8217;t be running the business day-to-day any more because your role is on the global stage. Instead you must let the heads of business lines run their businesses. And remember, you have senior non-exec directors on the board now. If they want to sack you they can.\u2019<\/p>\n\n\n\n<p>We added, \u2018But if you get this jump right, the business will hit 220m and continue to fly.\u2019<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Black hole #5: 700m<\/h3>\n\n\n\n<p>A 700m business is transitioning one of the biggest business chasms because the next important number is 1.2bn. Adding 500m to a 700m business is an immense step requiring major structural changes.<\/p>\n\n\n\n<p>While the CEO of a 300m turnover business is still close to that business, the CEO of a 1.2bn or 3bn business is no longer managing downstream personnel. Instead of the usual CEO-business interaction this CEO will be managing many other CEOs \u2013 a different job entirely.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Why do these black holes occur?<\/h3>\n\n\n\n<p>Most black holes are due to insufficiencies in the underlying organisational structure, but several other factors also tip a business into a black hole. Businesses neglecting to expand infrastructure and services like accounting and legal, in parallel with their core growth, will soon constrain further progress.<\/p>\n\n\n\n<p>Avoiding black holes requires structural changes \u2013 and it\u2019s important to remember that until you\u2019ve completed these changes the increased revenues won&#8217;t follow.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_four_cycles_between_the_black_holes\"><\/span>The four cycles between the black holes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The same four cycles \u2013 points where investment is needed \u2013 occur between black holes. Each cycle requires an important, but subtle infrastructure change. To show how these cycles operate, let\u2019s focus on growing a business from 1.5m to 12m.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Sales<\/strong><\/h3>\n\n\n\n<p>The first cycle after each black hole (in this case the black hole at 750k) is always a sales issue.<\/p>\n\n\n\n<p><strong>At 1.5m:<\/strong>&nbsp;all the big deals are probably still coming through the founder, even though a junior sales person may be employed to help. With this limit on capacity the business can&#8217;t grow any bigger.<\/p>\n\n\n\n<p>At a conference when I say, \u2018It&#8217;s now time to put on a salesperson who\u2019s as good as you,\u2019 you can hear the audience gasp loudly. \u2018Someone as good as me?\u2019<\/p>\n\n\n\n<p>But even if you can find them, how do you incentivise? What happens if they start earning more than you? Just think\u2026you\u2019ve spent years building the business and now someone is getting more out of it than you!<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Channels<\/strong><\/h3>\n\n\n\n<p>The second cycle after the black hole is always a channel issue. For example, how do we get our product to market and how do we service clients?<\/p>\n\n\n\n<p><strong>At 3m:<\/strong>&nbsp;the client base is still probably attached to the owner, which comes back to bite them at this point. Remember when you were still handing your card out saying, \u2018If ever you have problem just call me.\u2019 Now the channel problem kicks in because you can&#8217;t get any bigger without releasing the client base.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Product<\/strong><\/h3>\n\n\n\n<p>The third cycle is always a product line issue, whether design, architecture or extension.<\/p>\n\n\n\n<p><strong>At 6m:<\/strong>&nbsp;product lines usually start to bite, which is where margin comes into play. One business owner said, \u2018When I was smaller I could undercut the bigger guys to win business. But now they\u2019re taking business off me because I&#8217;m the guy with the general manager and 23 trucks on the road.\u2019<\/p>\n\n\n\n<p>Size and infrastructure will eventually squeeze your margins because you\u2019re now a middle market \u2013 not a small market \u2013 player. And middle market players have fewer clients to chase. You&#8217;re not a corporate so you won\u2019t win deals because of size and you&#8217;re not small enough to win deals on price. Now you\u2019re starting to ask, \u2018How do I develop product lines that\u2019ll give me the margins?\u2019<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Brand<\/strong><\/h3>\n\n\n\n<p>The fourth cycle is always brand because at this point it\u2019s lagging behind the size of the business.<\/p>\n\n\n\n<p><strong>At 12m:<\/strong>&nbsp;the brand is probably still that of a 750k business. I asked one business, \u2018Do you recall when you last did brand, back at 600k or 700k? You went off to a printer, spent a few pounds on business card design and called it your \u201cbrand strategy\u201d. Now you&#8217;re turning over 12m, but don&#8217;t look the part. You\u2019ve built up the product lines, but you need to re-invest in your brand to look like a middle market business.\u2019<\/p>\n\n\n\n<p>These four cycles \u2013 points requiring investment \u2013 always occur in the same order (sales, channel, product and brand) after a black hole. In the example given here i.e. growing from 1.5m to 12m, the next black hole occurs at a predictable 17m \u2013 and the four cycles will all begin again.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_jump_the_750k_black_hole\"><\/span>How to jump the 750k black hole<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>750k-1.5m is a significant point for any business \u2013 because it\u2019s a predictable black hole. Businesses commonly move from 750k to 1.2m or 1.5m only to fall back over and over. Why? Because they don\u2019t have the right organisational infrastructure to&nbsp;<strong>jump<\/strong>&nbsp;the black hole.<\/p>\n\n\n\n<p>A 750K business typically employs around seven people and by 1.5m it\u2019s usually reached 10 or 12 people. Studies show that leaders can have direct relationships with 10 or so people, but beyond that it\u2019s necessary to introduce another layer of management.<\/p>\n\n\n\n<p>And that&#8217;s where businesses of this size come unstuck. The owner wants to keep growing their business \u2013 but also wants to maintain the relationships they had at the start. Staff also want to retain their personal relationships with the boss because they can tap directly into the energy of a start-up business.<\/p>\n\n\n\n<p>At this point everyone knows what everyone else is doing because the 750k-1.5m business is based on \u2018who does what\u2019.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Growing beyond 750k \u2013 the problem of a \u2018who\u2019 based structure<\/strong><\/h3>\n\n\n\n<p>As the business grows towards 1m, the owner begins to employ more staff to help \u2013 perhaps an admin person, then maybe someone for sales, and so on. We call this the \u2018who\u2019 model, where named individuals pick up various tasks.<\/p>\n\n\n\n<p>In a meeting someone might ask, \u2018What about marketing?\u2019 Everyone shrugs. It seems no one is doing marketing so the owner says, \u2018That must be mine.\u2019 Because everyone has a job description except the owner, new tasks readily drift in their direction. Later, someone asks about HR. Again everyone looks blank. So the owner says, \u2018That must be mine too.\u2019<\/p>\n\n\n\n<p>Anything not covered by a \u2018who\u2019 is left for the owner to pick up whenever there\u2019s a problem. As a result, the business owner becomes totally reactive in desperately trying to keep the various business plates spinning.<\/p>\n\n\n\n<p>As the \u2018who\u2019 based business grows, the owner simply adds more individuals for the tasks they can no longer handle. This tactic costs more, yet still doesn\u2019t lead to growth. It also leaves the owner at a loss in terms of what to do to get \u2018unstuck\u2019 and move forwards.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Growing beyond 750k \u2013 the solution of a \u2018what\u2019 based structure<\/strong><\/h3>\n\n\n\n<p>To get through that 750K-1.5m black hole and into the next layer of growth, a business must improve its infrastructure.<\/p>\n\n\n\n<p>First, we need to define all the \u2018whats\u2019 \u2013 the various business functions. This step ensures every \u2018what\u2019 is identified so that nothing is missed. Once identified, the \u2018whats\u2019 can be assigned to staff members.<\/p>\n\n\n\n<p>When identifying business functions, we usually find they don&#8217;t change significantly as the business grows. Because a functional structure can grow with your business, it becomes a vital foundation for any fast growing business. That\u2019s why functional infrastructure is so important in the&nbsp;<em>Jump<\/em>&nbsp;methodology when working with our clients.<\/p>\n\n\n\n<p>When a business continues to be \u2018who\u2019 based, it\u2019ll keep appointing more people until it runs out of money. But that ad hoc approach fails to address&nbsp;<em>all<\/em>&nbsp;the necessary functions. Eventually the business spirals back down and can\u2019t grow beyond this point.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Something is missing!<\/strong><\/h3>\n\n\n\n<p>Because the business owner doesn&#8217;t have a job description they\u2019ll keep saying, \u2018I guess that task must be down to me.\u2019 Being so reactive prevents them developing a fully proactive approach to the business. It\u2019s not surprising that so many business owners become burnt out.<\/p>\n\n\n\n<p>One of my clients ran a business that kept getting pulled back. He eventually said, \u2018I have an urgency addiction\u2019, which captured the problem perfectly. He felt important solving every problem because he was the best at it. All those spinning plates kept him busy \u2013 and also away from planning.<\/p>\n\n\n\n<p>This situation was stalling the business until we helped him build a better functional structure and&nbsp;<em>jump<\/em>&nbsp;his business out of the black hole.<\/p>\n\n\n\n<p>Another client had founded a small legal practice. He would take work home \u2013 even though he had several small children running about \u2013 rather than spin plates in the office. The chaos at home was better than dealing with the office stresses.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Business turnaround<\/strong><\/h3>\n\n\n\n<p>After working with him to improve business functionality he told us, \u2018The business is absolutely turned around and has now doubled in size.\u2019<\/p>\n\n\n\n<p>Simply introducing the \u2018what\u2019 based structure and work flow systems allowed him time to think, to improve his client analyses and increase profitability. For the first time he could plan effectively and drive the business forwards.<\/p>\n\n\n\n<p>The big move from a \u2018who\u2019 to a \u2018what\u2019 based structure is the absolute key to bust through the 750k-1.5m black hole.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Delegation\"><\/span>Delegation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n\n\n<p>The difficult art of delegation and how to maintain control of your growing business.<\/p>\n\n\n\n\n\n<p>Business owners know intuitively that they need a way to delegate. But how to do it well? We commonly see two approaches: hands off and hands on \u2013 neither of which is ideal.<\/p>\n\n\n\n<p>One owner might say they need a marketing manager, for example. They find someone with good experience and typically pay them more than any other employee. \u2018You\u2019re an experienced marketing manager \u2013 off you go!\u2019 they say to the new employee.<\/p>\n\n\n\n<p>The owner drops everything on this new person and then disappears. Yet in saying, \u2018It&#8217;s all yours\u2019, the owner still has a set of expectations even though they haven\u2019t voiced them.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Training, giving direction and setting expectations<\/strong><\/h3>\n\n\n\n<p>Three months down the track the owner will ask the marketing manager, \u2018Where are my results\u2026and where are all my new clients?\u2019 The marketing manager replies, \u2018Well, marketing takes time and I\u2019ve got to build a plan.\u2019 But the owner is disappointed. \u2018I thought you were experienced and I need those results now. Don&#8217;t you understand?\u2019<\/p>\n\n\n\n<p>This approach isn\u2019t effective delegation and it isn\u2019t very good communication either.<\/p>\n\n\n\n<p>If the owner has been delivering a function themselves, they know exactly how they want it doing. They could explain what they\u2019ve done previously and perhaps suggest working together for a while. This alternative approach would help induct and train a new employee while also setting clear expectations.<\/p>\n\n\n\n<p>At the other extreme lies the micro-managing owner who doesn&#8217;t provide enough freedom, responsibility or accountability. As a result, the new employee is likely to move on quickly and all the owner\u2019s recruitment spend is wasted.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Gaining control<\/strong><\/h3>\n\n\n\n<p>For businesses to sustain growth, they must develop effective feedback mechanisms \u2013 ways of monitoring and reporting \u2013 to complement their new functional structure. Ask yourself, \u2018When I&#8217;ve given someone the responsibility for a task, how do I know they\u2019re doing it the way I want?<\/p>\n\n\n\n<p>Monitoring and reporting works for every level of functionality. But it&#8217;s vital to start thinking about these aspects of bigger businesses early, before introducing your own management structure.<\/p>\n\n\n\n<p>These feedback mechanisms return control to the owner, which is exactly how they felt when they had a direct relationship with their small team of employees.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Adding leadership capabilities to your professional ones<\/strong><\/h3>\n\n\n\n<p>Most business owners started out by being the best at what they do. If it&#8217;s an accounting practice they\u2019re an excellent accountant or if it&#8217;s a legal practice then they\u2019re an excellent lawyer. But everyone must go beyond their professional capabilities if they\u2019re to grow the business. In particular, they need to be thinking six to 12 months ahead of the business. And to create some head room they must adopt a functional structure.<\/p>\n\n\n\n<p>This change towards a functional structure and feedback systems is the first step in moving beyond your own technical specialism. While an owner will always be intricately involved in their business, their role needs to change with growth.<\/p>\n\n\n\n<p>This is an important time because the management structure change is visible right across the business. But this structural change is often a tough time for everyone and some people might leave because it&#8217;s no longer the business they joined. If people do decide to move on, you need to recognise that it\u2019s a normal part of any developing business.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Like the sun<\/strong><\/h3>\n\n\n\n<p>It\u2019s often at this point that business founders come to fully recognise their key leadership role. People have joined the business because they want to follow&nbsp;<em>you<\/em>. When it comes to setting the business culture, you\u2019re like the sun \u2013 the energy source and driver of the culture through your own behaviour.<\/p>\n\n\n\n<p>The future success of the business is totally dependent on how you manage this structural transition because your behaviour is so influential. The first functional change lies with you before the rest of the business can follow suit.<\/p>\n\n\n\n<p>Remaining totally reactive to whatever happens in the company will slow growth and tip the business into a predictable black hole.<\/p>\n\n\n\n<p>Consciously introducing a functional structure right from the beginning enables your business to&nbsp;<em>jump<\/em>&nbsp;this black hole \u2013 and makes it well prepared to fly into the next phase of growth.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Business black holes, the cycles between them and how to&nbsp;jump&nbsp;your business into greater growth. The predictable problem of business black holes Some 20 years ago I interviewed around 700 small businesses to discover whether the growth and stall trends I\u2019d previously been analysing in big business still occurred in the small business market. They certainly [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2567],"tags":[],"class_list":["post-10629","post","type-post","status-publish","format-standard","hentry","category-agency"],"_links":{"self":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts\/10629"}],"collection":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/comments?post=10629"}],"version-history":[{"count":1,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts\/10629\/revisions"}],"predecessor-version":[{"id":10842,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/posts\/10629\/revisions\/10842"}],"wp:attachment":[{"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/media?parent=10629"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/categories?post=10629"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/benrmatthews.local\/wp-json\/wp\/v2\/tags?post=10629"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}