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Exiting the GROWTH TRAP

Prefer video? Here's my Youtube video version of this same topic.

https://www.youtube.com/watch?v=YsLkULx4Zyk


All business owners will exit their business. Their desired method of exit is to either sell their business or leave it to their heirs. To do either one of these things, the business owner must grow it. Sadly, many small business owners fail to build a company that can function without them. I call this the GROWTH TRAP. You can’t grow, you can’t exit, and you have no time to live life. Today, I will help you understand how to extricate yourself from the GROWTH TRAP.



Most business owners start off as an employee working for someone else. At some point, they decide they can do better on their own, or they’re forced to do better on their own.


A traditional business requires a certain number of certain types of people, and the owner hires people to fill those roles. For instance, a typical restaurant may need four cooks, a prep cook, two dishwashers, four bussers, twelve servers, a hostess, an expediter, and a few managers. You may have a few gaps at first, but it’s relatively easy to fill, orient and train these folks with… typical job descriptions and a good interview and hiring process.


Occasionally, you’ll promote a server to a front-of-the-house manager or promote a cook to a kitchen manager. But for the most part, everyone knows their role and will do their best job at that role. If they don’t, you fire them and replace them with a someone else. Training is relatively quick, and your revenue is quite predictable.

This is NOT the type of business I am talking about today.


I am mostly concerned with businesses that require innovation, creativity, and a charismatic personality. This tried-and-true traditional business goes out the window when you’re trying to grow an innovative, non-traditional business. As the business owner, you’re the innovator of your company, and you feel like you’re constantly dealing with mediocre employees that don’t understand the nuances of your business. This is especially true with the marketing and selling functions of one of these kinds of businesses.


This was certainly the case when I grew my business, Ennovate Corporation. Ennovate was an Energy Service Company or an ESCo. In simple terms, an ESCo retrofits buildings with more efficient lighting, cooling, and heating systems and then guarantees that the savings associated with their projects will pay for themselves. These projects are called “Performance Contracts”. When I first started out on my own, I was a business consultant who helped utility companies start up their own energy service companies.


As I grew Ennovate into performing turnkey performance contracts, I had no money to hire each role required, and I didn’t want to go into massive debt… and no investor would be foolish enough to gamble on a small home office entrepreneur… so I often subcontracted to other solopreneurs or filled that role myself.


As Ennovate grew, and I got more cash, I had to hire employees. I hired engineers, construction managers, administrators, and salespeople. While I’m grateful for all these folks, the burden to innovate, and communicate with customers still fell on me. Each time Ennovate grew, or I explored a new innovation, I lost a piece of my personal life, until I was working constantly.


Ennovate Corporation was spread thin offering commissioning, sophisticated utility metering, free-lance engineering services for large ESCo’s, renewable energy systems, and over a hundred unique energy retrofits. Plus we were serving ten different market segments in four different states. The complexity was overwhelming. While we had profit and growth, it was seemingly unpredictable and unreliable where our next dollar of profit would come from. This is NOT the recipe for a successful exit plan. No business broker wants to sell a company that can’t demonstrate momentum in a specific niche market or where it’s next source of profit will materialize.


The GROWTH TRAP

I had created my own GROWTH TRAP. Here’s how the trap works. Due to poor cash flow, you hire task-masters instead of innovators. You convince yourself you can convert these task-masters into innovators, and so you try to pour your knowledge and experience into your new people. You promote your best innovators to managers, hoping they’ll poor their knowledge and experience into the people they lead. Meanwhile, you continue to innovate believing that innovation is the key to growing revenue and extricating yourself from the GROWTH TRAP prison you’ve created.

The primary lie starts from this notion that growing your products and services is a good growth strategy for a small business. While this can be a great strategy for a large company, it will kill a small business like Ennovate.


What about CORE ENERGY?

As a core energy coach, it’s important to connect today’s lesson with core energy principles. The two energy levels in play with this decision are” Level 3 – Acceptance; and Level 5 – Opportunity.


Level 5 entrepreneurs are the ones who most often find themselves in the GROWTH TRAP. A Level 5 person sees and aggressively pursues win/win opportunities everywhere they look. The problem is that most of their employees are not at Level 5. Most employees are trying to improve their own position and don’t see the opportunity their boss sees for the boss’s business.


Level 3 entrepreneurs are trying to pay the bills and looking for simplification. This is the energy level that’s most appropriate when you find yourself in the GROWTH TRAP. Level 3 is a GROWTH mindset. It looks for achievement, but not innovation.


I know what you’re saying. You say, “But Jeff, higher energy levels are better… are you really advising an entrepreneur NOT to innovate?”


Yes, I am. Because, if you don’t nurture your core business, and grow it, you’ll become stressed out; your employees will be confused; and your business will ultimately fail.


The ESCAPE

As hard as it sounds to any innovator, if you’re stuck in the GROWTH TRAP, the first thing to do is to stop innovating. At least stop adding new products and services… and stop adding complexity to your sales process.


There are four ways to extricate yourself from the GROWTH TRAP…

  1. Pay top-dollar to hire product or service category leaders. In some cases, this means giving these leaders equity instead of salary. Your product or service category may need improvement. Or it could need a strong marketing tactic to build interest; Or it may need a repeatable fail-proof sales process. Whatever is needed to fully develop that category of product or service for your company is the job of this highly paid professional. It is your job to reward this person based on the success of their product or service category.

  2. Develop a sound growth strategy that you can sell to investors to fund negative cash flow. Most amateur viewers of Shark Tank™ can tell you that there are a few imperatives to getting one or many sharks to invest in your business. The first is that you must have a clear vision of a profitable future. The second, is that the only thing standing in your way to this grand future is a chasm of negative cash flow. The third, is that the investor can give you a bridge over your cashflow chasm; in return for a large share of the profit vision that awaits you on the other side of this bridge. If you can create a financial plan that blends with your current business operations that describes these three variables, you will gain the investment you need to achieve your vision. If you fail at any one of these three imperatives, you will need to figure it out on your own.

  3. Create a simple sales process with a single-entry product or service. The key word here is “simple” or “simplification”. Level 5 people tend to complicate things. Level 3 people tend to simplify. The key in any business is to simplify while remaining unique. If you simplify to the point of being a commodity, you’ll compete on price. No one wants that. I’ve found the easiest way to simplify a complicated small business is to create a single-entry product or service. One of the most prolific computer companies did this a long time ago. Dell Computers has a simple marketing process… You want to buy a PC, you start with a stripped-down framework. Your starting point is usually as simple as a laptop or a desktop computer. Then as you learn about benefits of each feature, you add features to this framework. By the time you’re done, you went from buying a $500 desktop, to a $3,000 powerhouse. Dell’s key to success is not trying to sell the $3,000 powerhouse computer in step #1. In your business, think about the “foundation” of what you sell. Don’t talk about anything else but this “foundation” to prospective customers. Once they understand your base offer, then educate about additional services that you offer. This will make your sales and marketing much simpler and will allow your company to still offer many products.

  4. Eliminate some of your company’s products and services. If you haven’t found a way to implement ideas #1 through #3, it may be time to get rid of the excess baggage in your company. Determine which products and services make your company the most unique, are most desired by customers, and generate the most profit. Get rid of the rest. This can go for your customer segments as well. Mike Michalowicz, the author of The Pumpkin Plan says, “Plant the seed that you know has the very best chance of making it, and then focus your attention, money, time, and other resources on that tight niche until all of your entrepreneurial dreams come true.” This will drive you Level 5 entrepreneurs crazy, but it’s the only way to build a business that will ultimately bring you success, wealth and peace of mind.

You can do one or all four items. But it won’t be easy. Level 5 entrepreneurs are convinced that there are so many great things out there, there must be a way to do them all. Three of the four steps that I recommended allow you to achieve success with multiple ventures. I can guarantee you that if you don’t follow any of these recommendations, you’ll remain in the GROWTH TRAP until your company crashes. Don’t do that!


I hope you’ve learned how to extricate yourself from the GROWTH TRAP. My name is Jeff Schuster with Mechanics & Mindset Business Coaching. If you’d like to learn more about how I coach my business owner clients and their employees, visit my website at www.mmbizcoach.com.

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