To grow big or small?

Shelter Chieza Change Management
I remember having a discussion with one of my learned colleagues on the latitude that our local companies have towards growing big or small. Do we really have choices as businesses? As you grow your clientele base, you may start noticing that you cannot be everywhere all the time. The moment you start bringing in other supporting staff and agents, the dynamics get a little bit different.

It may become a challenge to grow and still maintain the same quality of the products or services you offered before.

Other companies may have a goal to grow big, and increase their revenues as much as possible while others find more success by maintaining a certain manageable size yet realise the same revenues of bigger companies.

I remember reading one of the most recent statistics by a research consultant that showed that companies in Zimbabwe with 10 to 20 employees tend to be the most profitable based on return on assets.

The advantage is that smaller companies are able to absorb more risk. Naturally a company growing must be able to find adequate capital investment.

Many companies are following suit and finding other investors who must, however, abide to the country’s indigenisation laws.

However, it means that any little amount of profit has to be shared on a 51 /49 percent pro-rata basis.

It does not necessarily mean that the bigger the company the more successful it is.

If you realise that 10 more hands are needed for a particular job, you are not saying that you are doing better than others. It simply means you feel the need to increase your capital investment.

Additional human labour is referred in some circles as human capital, hence it is handled the same way as purchase of computers, vehicles, tables, chairs and other capital goods.

Therefore if your business is big, your cost of hiring an additional employee may be lower than in a small business. That is why you realise that big business can hire more.

It’s because if there is an increase in revenues, capital reserves are being used to hire more people and grow the company.

Unlike a small business which may not have adequate capital reserves to hire more and more people.

It is a huge ordeal to hire more people in a smaller business.

So, what then is the perfect size of a business for profitability ?

This discussion hinges on the types of industry.

The service industry differs to the manufacturing industry.

Outside issues to do with automation, you may need more hands in the manufacturing industry than in real estate for example.

For other companies, growth can be limited by outside factors such as finding the right people to do the work. If I run a plumbing and fitting business, I may be heavily reliant on contract workers.

I can have five full time employees and about 100 people on contract. Having more contractors to deal with at any point in time renders inefficiency to the business.

So ultimately, how big or how small should your business be depends on the type of business you are in.

Till next week, may God richly bless you!