painful) to watch. When it finally achieved the growth target it was after, the wheels started to fall off. The board became dysfunctional and political, management lost focus on their core competency, customers and senior managers started drifting away. The company is still there but it's stalled. And it will stay that way until they get their thinking right.
Thinking too big
At the other extreme I have worked with a few people whose thinking exceeded their business. We've all met them: people with big ideas that are worse than pipe dreams, dreamers who fail because their ideas can't possibly succeed, people who are simply more confident than competent (listen to Tomas Chamorro-Premuzic's Harvard Business Review podcast on the dangers of confidence – delicious but disturbing). But dangerous as those people are to themselves (and others unfortunately), they are a small number compared to those who take the risk of doing nothing too grand.
No-one has said it better than Marianne Williamson who notes in A Return to Love:
Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? You are a child of God. Your playing small does not serve the world.
Be less afraid of thinking too big than of thinking too small. You're much more likely to undershoot your potential than overshoot it. You can afford to think bigger without much risk of your thinking exceeding your business.
Identify yourself
‘Identity' is a powerful explanation of attitude and behaviour. You are who you think you are.
There is an interesting piece of research involving returning lost wallets. The single biggest group of wallet returners reported that they did so because they just don't think of themselves as the kind of people who keep stuff that isn't theirs.
As I've got older I've got fitter and leaner. Part of what has happened is that I consciously make food choices based on the identity I've developed over the last few years – ‘I don't eat that kind of thing', ‘I prefer salads'. I don't even have to think about some of those choices anymore because my identity doesn't even let a question arise.
It's the same with being an owner of a small business. Do you define yourself as a small business owner or as a growing business owner? Because how you define yourself will define the choices you make. You will see or not see opportunities depending on how you define yourself. You will choose (or not choose) to do things based on how they align with who you think you are.
To say you are a small business owner is to define yourself as small, now and in the future. To define yourself as a growing business owner is to define who you are becoming. That's a much more interesting game to play, and this book is about you: the growing business owner. It doesn't matter if the numbers don't say that yet. They will.
The effects of thinking small
How does thinking small play out? Underinvestment in marketing, people, systems, business development, product development, actually pretty much everything! We never have resources to make a worthwhile investment because we keep trying to scrape by as opposed to investing in growth and profit.
Usually we hang back and put up with resource shortages because we are concerned about the impact of investment on cash flow and profit. And of course, when we do invest, we often have a surplus of resources until activity catches up. Then we're back to resource shortage again. This pattern is illustrated by figure 1.1, which shows the relationship between capacity and revenue.
Figure 1.1 : step changes
In figure 1.1, the jagged line is our capacity and the straight line is our revenue. It's a gross simplification, but the point is simple: if we don't increase capacity, the revenue line flattens out. This is where small thinking constrains the business. We decide we want to take some profit, we're not sure the demand is really there, we don't want to add to overheads, so we don't invest in capacity.
To grow, we need capacity, and that requires investment. When we invest for growth, we should of course try to do it as cost-effectively as possible. But there is no escaping that investing in capacity, either physical or human, means there is too much resource (cost) for a while. However, underinvesting creates a capacity shortage forever.
Here's the thing: while it would be nice to follow the revenue line and increase our resources to catch up, most often the decision you have to make is to increase resources ahead of the revenue. Because if you don't increase your capacity, you won't grow your revenue.
Resource shortages
It's not a chicken-and-egg situation: getting more capacity will allow you to grow the business. You can't grow the business when all your time is taken up doing jobs others could do better, faster and cheaper than you. Building capacity and capability (I'll come back to the distinction in part V) is how you develop the business.
The thing is that resource shortage can be quite hard to detect. You might be busy but you're not popping your rivets. There's not enough work for another pair of hands so it doesn't occur to you to bring in more resources. What you don't know is how much more you could achieve if you had more capacity, and that's the thing that most often stops owner-operators getting their lives back. Capacity can create growth as well as follow it.
I was in Melbourne not long ago. It's a fabulous city, but what struck me was that the infrastructure underpinning it actually dates back a long way. We had dinner on Southbank looking across the river to the vast Flinders Street station. That infrastructure – rail specifically – now serves 5 million people, but when it was built in the early 1900s, Melbourne was obviously much smaller.
The point is that they created far too much capacity for their needs then, but enough for some future they couldn't see. They're still doing it: the convention centre is enormously impressive but underused, and Docklands is a precinct without people. But there will be people one day. Partly because big cities attract population, but partly because the capacity is there.
I recall a Breakthrough member who had a real estate agency. She had no agents in her team when she signed a lease on a big premises, and it scared her silly. Every day she went to the office she was reminded of the need to fill that space with agents. That fear of failure and embarrassment drove her to focus on it intensely, and she filled the office in about three months. As the agents came in, so did the business. Quite quickly she was able to expand further.
Two messages from this:
• be prepared to invest
• avoid false economies: things that look cheap but are actually just ineffective and inefficient.
There's a postscript to that story. When the real estate boom came to an end, she was left exposed with some leases that she couldn't shift. She could have cursed herself for taking on the risk, but she worked out that she was still well ahead on a net basis: all the extra returns she made over the boom years, less the cost of the leases. But even more importantly, she wouldn't have missed the excitement, the challenge and the achievement for anything. She played big. As she put it, ‘the game was the thing'.
Under-marketing
A mistake related to small thinking – and they're all related, because with our thinking we create our world – is under-investment
