The generally accepted dogma among entrepreneurs is that bigger is beautiful. You’re nothing until you have some brand-name investors on your board and 50 employees at your command.
This “go big or go home” attitude leads to a lot of success stories, but I wonder how many would-be entrepreneurs fail because they think the only business worth having is one that is chasing a billion-dollar opportunity.
I’d like to propose an alternative approach: What if you got into business with a goal of growing your company to $2 million – not $200 million? What effect would a $2-million goal have on the way you’d think about building your company?
Do something you love
First of all, shooting for a $2-million business widens the field of industries you can get into. There is no need to limit yourself to starting a technology company or the next consumer Web business. There are plenty of successful $2-million companies in just about any industry you can think of.
A friend of mine owns a bike tour company and is having the time of his life. I’m not sure he’d feel quite as excited about running a tech company 10 times the size.
With a broader range of sectors to choose from, you can pick an industry you truly like, not just one you think will explode in popularity.
Keep all the equity yourself
By the time you have diluted yourself down with an angel and venture-capital round of investment to build your $200-million empire, you may wake up one morning as a minority shareholder in your own company and feel more like an employee than a founder – which is fine if you’re on your way to an initial public offering, but that may be only slightly more probable than winning the lottery.
A $2-million business, carefully put together over time, can often be bootstrapped with the owner keeping all of the shares for himself or herself.
Find just 10 wonderful staff
Staffing a $200-million company probably requires more than a thousand employees, and cutting a few corners along the way. A well-run $2 million business might get away with hiring just 10 people.
Think about how carefully you could pick your team, and how much you could nurture each one if your goal was to hire the 10 best people you could find.
Admittedly, a $200-million business – even if you are only a minority shareholder in the end – will probably make you richer, but there is a point of diminishing returns on being wealthy.
Bill Gates is famous for admitting he’d rather not be the richest man in the world. There are only so many cars you can drive or houses you can enjoy.
By contrast, a well-run, $2-million business in a sleepy little corner of the market could pump out 25 per cent in earnings before tax for a long time. So not only would you be earning $500,000 a year, you’d probably be running trips and cars through your company as legitimate business expenses.
Would you rather have a good shot at earning $500,000 a year for 20 years, or a slim chance at a $100-million pay day? I think most people would take door No. 1.
Live where you want
Just about any place in the country – even the most beautiful villages – can support a $2-million business, but a $200-million company requires infrastructure and a large work force usually only found in a big, congested, polluted city. Would you rather measure your commute in minutes or hours?
See your kids’ T-ball games
I imagine that building a $200-million-a-year business is a seven-day-a-week endeavour. The entrepreneurs I know who have built big companies lead a high-stress life. They have hundreds or thousands of employees to lead, multiple shareholders to appease, media to manipulate, customers to win – all of which adds up to a heavy burden that often falls on founders in the prime of their lives when their kids are still relatively young.
How much simpler would life be if you had a nice little $2-million business nobody much cared about, other than you and a handful of employees? How many ballet recitals could you go to? How many birthday parties could you be there for?
Financiers are famous for getting entrepreneurs to give up equity by asking them if they’d rather own “a small slice of a big pie or a big slice of a small pie.”
As you think about what you want your business to be, don’t dismiss the idea of a smaller company because it seems somehow less than what you are capable of.
I, for one, think there is something to be said for owning all of a tasty little pie.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. You can download a free chapter of his new book, Built to Sell: Creating a Business That Can Thrive Without You.
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