WHAT IS THE DEFINITION OF AN ULTRA-SMALL BUSINESS ENTERPRISE?
In real simple terms, for the Ultra-Small Business Alliance in the United States, www.USBA.us, the definition for qualification (eventually membership) is that:
The founder is still the sole owner and in full control of the entity.
The entity has less than 21 employees.
The founding owner typically leads the entity about 40 to 80 hours a week.
The services or products are legal, ethical, and good.
The entity is located inside the United States of America.
WOULD YOU LIKE A MORE COMPREHENSIVE ANSWER?
It seems that most definitions of small business depend on the perspective of the definer.
Everybody has an opinion, including me. So, why not grab a cup of coffee or tea, and take a mental walk down the following path with me?
WHAT IS AN ULTRA-SMALL BUSINESS REALLY ABOUT?
For an answer, let’s use the viewpoint of a founding owner-operator and the dynamics of the formation of an enterprise. There are always exceptions to what follows, but the basic truths do not change.
The enterprise (entity) is an extension of the vision, abilities and resources of the owning founder. There are some major hurdles that tend to act as a practical boundary between an ultra-small business and the next phase of business growth in size. Those boundaries may be defined by seeking the answers to some key questions:
PRACTICAL BOUNDARIES OF ULTRA-SMALL ENTITIES
WHAT IS THE PERSONAL PRODUCTIVITY OF THE OWNER AND PERSONNEL?
As a solitaire owner, the personal productivity and commitment to the enterprise by the founder must far exceed that of most individuals. This usually translates into working 80 hours a week on the enterprise instead of the typical 35 to 40 hour workweek of wage earners. This includes the time to get customers that will pay a fair price for what they are getting, which is no small task.
Frequently funds for hiring help are not available, so the solitaire owner must generate revenues that are adequate to fund the capital and up-front expense of the first hire. This means generating enough cash from personal productivity to cover the payroll, employment head taxes and burden of regulatory compliance imposed by government on the very first payroll dollar (also, real estate, property, personal income taxes, etc., on the owner tend to siphon off vital cash generated during this phase and slow down the process of growth).
Put another way, the solitaire owner must do the work of two people, and get results, to generate the funds for the first hire (unless the time comes from an unpaid family member, i.e. spouse, which is frequently the case). This is basically a double effort of normal productivity, and most are not willing or able to do this – hence the failure rates of start-ups.
Now comes the magic of enterprise development (as you learn this, you just might discover the secret of your own future success): Two people only have to do the work, and achieve the results, of three to generate the revenue to make the second hire. That is only half of the extra effort the founder had to put forth. Then those three only have to do the work, etc., of four to make the third hire. This is only a third of the extra effort originally put forth by the founder. My point should be coming into focus now.
Just think, when there are ten working and achieving results, they only have to do the work of eleven to generate the revenue for the next hire. That is only a 10% extra effort. Get the idea? People are capable of a lot more than most like to deliver and in an ultra-small enterprise, that is what is done. The larger the headcount, the easier it is to cover the cost of the next hire – if productive ability is not allowed to slip. Hence the founding owner is the key, as he or she actually knows what can be done by focused energy (accomplishment instead of activity).
WHAT IS THE REVENUE GENERATION BY OWNER AND PERSONNEL?
Revenue producers in an ultra-small, human working time based service operation, i.e. no manufacturing or product resale, must bring in at least three times the gross revenue dollars per hour than the gross cost of a payroll employee elsewhere for the same work content and productivity. It is better if the multiple is five times, but competition will usually gnaw away at that level of multiplier. If product manufacturing or sales are involved, the gross revenue figures must be higher. Many potential employees will seek the best pay for the least effort. You can figure out what happens.
WHAT LIMITS THE SPAN OF CONTROL OF A FOUNDING OWNER?
By the time the enterprise headcount grows to about eight, they only have to do one more hours productivity per day than most to add the next person. In many operations, just the introduction and wise use of computers, or curtailment of time-wasters (personal phone calls, long lunches, etc.) will allow further self-financed productive head count building (if a customer base exists in the practical market range for the entity, and it is not already saturated with competitors).
If the group can grow to about eight personnel, another set of boundary forces will come into play. Usually they are not well recognized. Those who have first hand experience and backgrounds in the enterprise development sector usually grasp this very quickly: there are limitations regarding the effective direct span of control of any one individual over other individuals.
As the company headcount figures grow, a set of very important dynamics about human capacity for direct leadership starts to impact on the growth of the company. Perhaps the military has learned this lesson quite well: when it sends a patrol out on its own into the harsh fields of the unknown, the patrol usually has a leader and eight personnel. One of the most masterful leaders from all of recorded history, as noted in the all-time best-selling Book, with His great knowledge, still limited His span of direct control to twelve dedicated persons.
So once past twice this base headcount figure of about eight or ten, i.e. twenty personnel, allowing for situations where a spouse is involved, the founding owner must pass off some direct control to another, and the dynamic of high productivity driven by the owner transitions into building headcount to offset the loss of individual productivity (instead of accomplishment, activity expands to fill the time available; and the next part of the cycle is underway. The endeavor is no longer an ultra-small).
This means that the owning founder must start to transition in operating style from entrepreneur in direct control to being a professional at management and leadership. This transition is a major barrier. Frequently the owning founder is very capable in the delivery of the service or manufacture of the product, i.e. the technical aspects of what the customer is paying for. There may also be some reluctance to give up this control, which is another barrier.
The entities that keep growing are the ones where the next level of leadership operates with the same mindset and initiative as the founding owner – and that is a rare attribute for most anybody on a payroll. Those that have that attribute also want to own a business, and usually are headed in that direction when they get the chance.
The message should be clear: the direct span of control of the each level of leadership of the company will impact on its growth cycle, and the phases of its growth within that cycle. The impact and limitation of this force on the growth of small business is described by what I call the "Nucleus Concept of Small Business Development", and is spelled out in my private business development reports.
MORE TO COME
This is a personally funded web site. The foregoing are just a few of the basic truths that provide a frame of reference about enterprise building (extracted from the draft of a book I am writing about the subject; I am availabe as a speaker on these matters, simply give me a call for details). The vision is for those who care and qualify to come together to become a heeded voice directed towards those who seem so busy that they cannot even take the time to read the legislation they impose on us. Maybe someday they will be willing to take the time to heed the wisdom of the Real Voice.
If you wish to help me make this happen, here is a simple way that is a fully legitimate business expense at a fair price based on comparable resources used for self-paced instruction: go to www.MasteringYourMarketing.com, download an order form and follow the instructions on the form.
If you want to know more about me, go to www.JohnCRandall.com. If you wish to communicate, please use a letter in the mail to me at P.O. Box 2800, Mechanicsville, Virginia, 23116. If you wish to talk on the phone, please include your phone number and a suggested time of day to try to reach you. Sadly, abuse of electronic communications by a small group of others makes this a necessary mode for communications by this ultra-small entity.
THINKING ABOUT STARTING YOUR OWN BUSINESS?
Don’t. Keep your day job. Then prepare yourself. To gain some insights, go to www.ToDoFirst.com, another personally funded web site for your benefit. If you want to avoid some mistakes frequently made by others, go to www.BizBungle.com. More will be posted here later, or feel free to write me for a follow up conversation.
FLASH
This hit my desk early in December 2009: Fortune Small Business, a very informative publication for the past decade, gave its “Hail and Farewell” as its corporate parent, Time Inc., threw in the towel on the magazine. Hmmmm: Opportunity?
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