Creative Equity Partners Inc. co-founders and partners Adrienne and Oren KatzTIM FRASER/The Globe and Mail
Each week, we seek out expert advice to help a small or medium-sized company overcome a key issue.
When Oren and Adrienne Katz wrote their business plan for Toronto-based Creative Equity Partners Inc. back in 2005, the husband-and-wife team had a specific growth trajectory in mind.
The co-founders planned for their brand and marketing agency, which creates strategies including website, digital marketing and social community development, to slowly build to a team of six, serving about 10 clients, over five to seven years. By the 10-year mark, they figured they'd double that staffing to a dozen, with an increase in clients as well.
Seven years later, they have achieved the first part of their plan, and more – and now they are wondering whether they should go ahead with the second phase, or put the brakes to their company's further growth.
Business has been booming, Mr. Katz says. Revenues have been consistently rising, up 30 per cent in 2010, another 40 per cent in 2011, and they expect a further 40-per-cent increase this year over last year.
The growth has come thanks to positive word of mouth from a roster of about 15 clients – more than their original plan expected – which range in size and cover a wide variety of industries.
"The nature of our business is that you are rewarded for solid strategic and quality design," Ms. Katz says. "Your work is meant to be shared with the clients' target market, and when they like it, they will often ask 'Who designed this for you?' This has led to increased business."
In fact, the company, which changed its name from BrandDesignStrategy in 2007, is now turning down business, Ms. Katz says.
The partners have found some real benefits in being small: agility, control and being able to offer personal service, Ms. Katz says. They are especially hesitant to grow too big to be able to work consistently hands-on on clients' projects, which they've done since day one. "That has really worked for us," Ms. Katz says. "Clients like that they get to know us and we get to know them. We answer our own phone, and clients feel like they are getting the real deal."
As well, "because we don't have a huge machine to manage, we have been able to free ourselves from some of the big-company headaches," Ms. Katz says.
Continuing to grow, on the other hand, also offers enticements. For one, says Mr. Katz, they wouldn't have to turn away business, which makes them feel like they are losing control over their ability to make choices about which work they take on.
More important, however, is negative perceptions about the company's size – and a fear that they may lose some clients who will outgrow them.
"Some of our success has led to growth for a number of our clients. This has in turn created a need for us to grow with them in order to continue to service them. How ironic that we succeed based on growing our clients' [businesses] and then worry that they will outgrow us," Ms. Katz says.
Concerns that some prospects are expressing about Creative Equity being a smaller company also cause worries that the firm won't be able to win bids from larger customers. "Bigger clients who we are attracting with our work are wondering about our small size," he says. "We may be at the point where we need to grow our team to grow our clients."
The Katzes aren't married to their business plan – they know that a firm's strategy can change over time.
The Challenge: Should the firm grow or not? How can the co-founders best make this decision?
THE EXPERTS WEIGH IN
Ajay Agrawal, Peter Munk professor of entrepreneurship at the University of Toronto's Rotman School of Management
Whether they should grow depends on three things. First, industry dynamics. If your industry is mature and stable, then you can likely stay a six-person company and be successful. But if the industry is changing rapidly, then what might be very feasible to be competitive as a six-person company today might be different a year from now.
Second, talent. My guess is what's going to determine who succeeds in this industry is who can attract talent. With staying small, there's little room for employees to grow. If the firm is growing, people can be challenged.
Finally, whether there are scale economies in this business. You can spread big costs over many more projects when you're a big company.
But all that has to be weighed against the fact that they like being free from having to manage a lot of people.
My ultimate recommendation would be that if they want to stay small and they feel they can keep top talent despite being small, they should be very sensitive to their bidding on new projects. If they start losing more and more bids, they'll know their formula isn't working.
Pat Latour, Calgary-based senior vice-president, financing and consulting, Prairies and West, Business Development Bank of Canada
We see this a lot in the clients we deal with. If it were me in their shoes, I would grow. They have executed on a five– to seven-year business plan, they're where they want to be, they've built a portfolio of clients who are growing – and who may outgrow them.
The hardest part of building a business is getting new clients. They've worked so hard to foster a relationship with clients. They should choose to grow with them. If the other companies are growing, I doubt if they'll keep the same decision makers on their side anyway. [The Katzes] will have to hire well, and learn to delegate – that's the tradeoff. But if there are service issues, both sides can escalate it to the original relationship. That's common, we see that all the time.
Phoebe Fung, owner of Calgary-based Vin Room
I went through a similar situation when deciding whether to expand my wine bar. For us, an expansion fits with our strategic goals – to create value and build a sustainable brand – as well as my personal goal of offering personal touches. I love being on the floor and interacting with guests. I can't do that as much as I used to, but I still can.
[The Katzes] love that they can be involved in each piece of work; if they expand, it won't be each piece, but it'll still be some. I know where they are coming from – they like the control of being an entrepreneur. When you start out, you're the chief cook and bottle washer; a jack of all trades and master of none. But you can't do that when you want to grow, so as we are expanding, I've had to learn to balance working on my business, not just working in the business.
Expansion is one means to fulfill a strategic plan, but you can be very successful being a small and nimble company. It's okay to be small, create value and do something you're passionate about. You should never expand for the sake of it. See if there's market need; check if it aligns with your goals; create a structure for it; and work to maintain your culture.
THREE THINGS THE COMPANY CAN DO NOW
Keep an eye on the bidding process
If the company begins losing more bids than it did in the past, that could mean its current formula is no longer working.
Think about customer acquisition
Getting new customers is the hardest part of building a business. The company needs to decide how it will fare if its once-loyal customers outgrow it.
Refresh business and personal goals
Take some time to rethink their goals and determine if growth will help or hinder achieving them.
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