When Faith Wilson decided to start her own real estate brokerage three years ago, she quickly realized that size does indeed matter.
In the case of her namesake firm, Vancouver-based Faith Wilson Realty Group Inc., it wasn’t a case of bigger is better, but instead big enough to handle clients without spreading herself and her employees too thin.
Given that her name is on the door, clients expect to have some dealing with Ms. Wilson when they buy or sell homes. “As my client base grew I recognized I couldn’t split myself,” says Ms. Wilson.
Today she has a team of 11 to 15 real estate agents and a handful of support staff, including a marketing agent and administrative workers. The company has about 18 employees, who together can handle about 125 transactions per year.
“That’s our magic little number,” says Ms. Wilson. “After that it would be fragmented, and where that fragment would start to come would be in our service to our clients. Even though you think it would be better. I need to still, as a business owner, be connected to our clients.”
It’s long been a dilemma for small businesses across Canada: How big should they grow while still maintaining the quality of the products or services being offered? For some companies, the goal is to grow big, sell more stuff and make millions. Others find more success by maintaining a certain size.
A recent Statistics Canada study shows that firms with 10 to 20 employees tend to be the most profitable, based on return on assets.
“These firms have characteristics that distinguish them from other size classes and possibly help them to outperform,” says the study, citing lower debt-to-asset ratios as one of the key reasons.
Part of the rationale is that smaller firms tend to take on more risk, so the reward is higher when the business succeeds.
A growing firm also needs to invest more money into the business to gain scale. That can often mean taking on new investors, which means profits are distributed among a great number of players.
The perfect size for profitability often depends on what industry and product or service the business is in, says Douglas Cumming, a professor at York University’s Schulich School of Business. He says companies that count more heavily on intangibles such as goodwill, in industries like real estate, for example, may have different considerations for size than more tangible industries like manufacturing.
Growing companies often get into trouble if they lose control over how the company is run, cautions Mr. Cumming, which can occur when they take on outside investors. Some may want a stake in the company or have a say in how the company is run, which can affect profit.
“It can be a really good thing to have ... but it all depends on whether the company is ready to be at that stage or not and whether the owners [or] founders are willing to give up some form of equity that typically also involves giving up some kind of control rights,” he says.
For other companies, growth can be limited by outside factors such as finding the right people to do the work.
Jim Myers, chief executive of JEDA Mechanical Ltd. in North Vancouver, says his business depends on being able to find pipe fitters, plumbers and other skilled labourers to work on the projects his company brings in.
Today he has about eight people working in the office and between 80 and 130 contractors in the field, depending on how many projects he has on the go at one time.
“Quality labour … is my biggest barrier to growth. I don’t want to take on a lot of work and have insufficient labour in the office or out in the field … otherwise the risk goes up,” he says. “I have to assess the risk of our labour with every job that we take on.”
For Mr. Myers, the more people he hires, the less efficient his business can also become. That’s because there are more people to pay and manage. Management style and operations also play a huge role in improving profitability.
“If you mismanage something because of your growth, you can lose money,” Mr. Myers says. “A well-run company that manages its labour and projects properly can be successful, but your risk does go up if you don’t have the quality labour … We can grow and we can take on more work, but it’s really dependent on the industry.”
In order to handle what she believed was a real estate service gap in the market, while also keeping Faith Wilson Group at its current size, Ms. Wilson decided to start up an affiliate brokerage, Infinite Real Estate Services.
Infinite has hired on about 10 real estate agents since it opened a year ago, and the plan is to grow it to around 40.
For small business owners, the ideal size depends on a number of factors, including what stage of growth they’re in, as well as near-term direction of the economy.
“The perfect size depends on the kind of business that you are running,” Ms. Wilson says.