If you’ve run a small business for any length of time, you’re probably left shaking your head after hearing how small business is often misrepresented. There’s no shortage of information. Some of it is helpful. A lot of it is not.
One major point of confusion is that there’s not even consensus on the definition of a small business. Some sources, like the U.S. Small Business Administration, define a small business as 500 employees or less, while others say it’s 300, 200, 10 or five. This is not only confusing -- it’s a problem.
Why the conventional definitions of small business are problematic.
Each stage of business has its own challenges, and small business owners can be easily confused by all the conflicting information out there. It should go without saying, but the challenges a business of 200 employees faces are vastly different than those with 10 employees.
What’s worse is that many companies market their solutions as built for small businesses, when really they’re built for a certain larger segment within the broader small-business definition. Rather than get clear on who they’re serving, they’re the equivalent of the one-size-fits-all sock that we all know really only fits one size -- and it’s not all. You only need to have that sock heel pulled up to mid-calf once to know how frustrating that can be.
So why does defining the true stages of small business matter? Because the alternative ends up creating a ton of wasted time, money and resources.
Sorting through the confusion
At Infusionsoft, we’ve had the privilege of working for and serving thousands of small businesses for a decade and a half. A core value of our business is that "we empower entrepreneurs.” One of the ways we do that is by giving helpful, practical and actionable knowledge to small business owners. This means we’re committed to sharing all we’ve learned about the small business landscape in an attempt to cut through the noise and confusion, so that small business owners are empowered to succeed.
Here’s what we’ve found: “small business” is not a one-size-fits-all category, and there are distinct stages to a growing company. As a company grows in both sales and employees, there are challenges in each stage. Over the years, we’ve worked hard to build a realistic definition of each. We want entrepreneurs to understand what they’re up against, and what they need to tackle next in their business.
I have empathy for the small business owner, because I’ve been through the complexity myself. It can be hard to get focused amidst conflicting messages. I hope that our outline below of each business stage will help you better navigate the small business landscape -- and your place in it.
Stage 1: Solopreneur
This is where you’re doing everything from customer service to sales to taking out the trash and everything in between. We’ve found that generally solopreneurs are bringing in $100,000 or less in annual sales.
The solopreneur challenge: There’s never enough time in the day to get it all done. In this stage, tools that help efficiency and productivity are key.
Stage 2: New employer
This is the stage where a solopreneur brings on a key partner and possibly an additional employee or two for support. Financially, this is the $100,000 to $300,000 annual sales range. At this stage, the business grows in complexity. You need a key partner who can be the yin to your yang. If you’re a dreamer and visionary, this key person may be a numbers-cruncher who keeps things straight.
The new employer challenge: Continuing to generate sales. Bringing on employees and partners requires more revenue, and this requires ramping up your sales machine and processes to bring in that extra cash. Here, formal sales training can be helpful, as well as a tool like a customer relationship management system to help you better manage your leads.
Stage 3: Steady operation
Once you get beyond the complexity of the partnership phase, you employ four to 10 people and your business generates $300,000 to $1 million annually. As your sales have grown, so has your need for a bigger team. This creates the need for greater sophistication as well as focus not just on new customers but your existing ones.
The steady operation challenge: Marketing and customer service. You need marketing to continue driving sales, and you need top notch customer service to keep your customers. Above and beyond customer service is often what differentiates companies at this stage. As for marketing, you need to get beyond the Highest Paid Person’s Opinion (otherwise known as “HiPPO”) on a cool campaign idea and actually show that your marketing efforts result in real sales. This is when you start investing in marketing automation platforms and metrics systems that allow you to really drill down into what’s working and what’s not -- as well as the employees with the expertise to really fine tune them.
Stage 4: Seven-figure business
This stage puts you at the $1 million to $3 million mark, and your team is 11 to 25 people strong. Now people in the community are paying attention. What used to be a one-person operation is now an inspiration of success within the community.
The seven-figure business challenge: Relinquishing control. Up until this point, you’ve had a finger in all of the pies. Chances are you’re suffering from founderitus -- the need to be involved with everything. This stage is a real test. If you are going to continue to grow and sustain your business, you have to get used to the idea of letting go of the wheel and trusting others to move the business forward.
Stage 5: Growth company
At this stage your company has grown to 26 to 100 employees and is generating $3 million to $10 million in annual sales. You’re becoming a global player and a leader in your market. Lots of eyes are watching -- both to learn and to take you down.
The growth company challenge: Company culture. Good company culture makes happy employees, which in turn makes happy customers, which results in happy shareholders. This is a complex stage, and it’s important that you have the right kind of leadership that can communicate and inspire your teams to get fantastic results while honoring who you are at the core. Because when the pressure comes, it will be easy to make compromises -- and compromises kill a growing business.
A call to get clear
In each of these small business stages, we’ve identified the size of the company, its unique features and some of the challenges that each stage will face. If you are a small business owner, and you resonate with the boundary markers of small business, I’d encourage you to communicate the importance of understanding each stage of business.
To those of us serving small businesses through our products and services, my hope is to shed more light on this issue so that we can correct the misalignment in the market and give small business owners the tools and resources that they need in order to succeed.
Here’s my challenge to you: Articulate who you’re really serving. Don’t do the one-size-fits-all. We’ve done this ourselves. We know who we serve -- stage 2, 3, and 4 businesses -- and we often turn away businesses that don’t fit into those stages.
Why do we do this? Because we believe in small business success. After all, when small businesses succeed, that means individuals and communities are succeeding along with them. And that’s something I think we can all get behind.