Breakpoints. Ashby Mike

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'.

DON'T die WONDERING

      Under-marketing

      A mistake related to small thinking – and they're all related, because with our thinking we create our world – is under-investment in marketing.

      To be fair, marketing is changing under our feet with the ongoing and rapidly evolving impact of the internet. But regardless of the changing landscape there is often a failure of nerve when it comes to marketing, which I think relates to that basic lack of confidence in ourselves and our businesses.

      The three marketing questions

      Most small businesses struggle to answer the first big marketing question: what business are you in? To make a choice is sometimes painful because we worry about what we're letting go of. In my own business, for example, are we in business education or advisory? Ultimately, the customer decides the answer to this. We might think we are in the business education market, but because of the way the market has been conditioned, our customers think of us as business advisers.

      And then there is the second great marketing question: where do I find you? You can have the best product in the world, but if no-one can find it, the business will not grow. I think one of the critical things that keep businesses small is a failure to achieve scaled-up distribution.