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John Warrillow

Two to 10 employees: no man's land Add to ...

Writing for The Globe and Mail over the past two years has been a treat for me but I've decided it's time to stop talking about running a business and get back to actually running one again. I've recently launched a new software business and will be dedicating my time to it and so this will be the second-last week that I will write my column. My last column will appear on Nov. 30. Thank you, readers, for sharing your time with me.

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Every morning, parents dropping their kids off at the Charles Dicken Annex school in Vancouver are encouraged to read with their children in the classroom from 9:00 to 9:15 a.m.

Deb Karby, a co-founder of Ugi Fitness Inc., loves this time with her kids. Lately, however, the reading has been falling to her husband, who has been taking their kids to school.

Ms. Karby, who has also become Ugi’s chief executive officer, simply can’t afford the time away from her startup.

It wasn’t always like this. Before starting Ugi, Ms. Karby worked as a freelance consultant. She made more money and had a lot more flexibility with her time.

Now, however, she is trying to scale up a business and it’s demanding more than 60 hours a week.

I think Ms. Karby’s experience is typical of a lot of entrepreneurs running companies with two to 10 employees – a valley of sorts – where you actually give up a lot of freedom in the short term to get a lot more freedom in the long term.

With a handful of employees, you have a lot more complexity than you would as a self-employed individual working from home, yet no management structure to deal with the mess.

You have no budgets and probably put most expenses on your credit card, so every expenditure must come through you.

In a company with two to 10 employees, every customer feels like he or she is entitled to speak to the owner. Every supplier wants the personal assurance of the owner that he or she is going to get paid.

You have to hire every employee, conduct every performance review, and even call the payroll company to get a new employee set up. And on and on.

In short, being in the no man’s land of a two- to 10-employee company is the worst place to be.

My only advice for Ms. Karby – and all others who find themselves stuck in this ugly trough – is to get past it as quickly as possible.

When you hit about 10 employees, you will likely start to see the light.

One or two people will rise to the top and allow you to delegate some of the decision-making. Customers will start to see that there is more to your business than just you. Suppliers will start to give you 30 days to pay, instead of insisting that you send their money through your personal PayPal account.

In short, you become a real business.

In fact, I think the lifestyle sweet spot – where you get the ideal balance of freedom and control over your time along with the opportunity to still make more money than you could ever charge by the hour – is probably somewhere around 10 to 15 employees.

That’s large enough to earn a decent living and have some people to delegate the minutia to, yet small enough to avoid two layers of management or outside investors, both of which trigger another layer of complexity that sends you back down into a new valley.

My friend and mid-market guru, Verne Harnish, calls the period between 10 and 50 employees in a company’s growth “the valley of death,” because so few companies actually survive the transition from one layer of management to the complexity of having two layers between the CEO and the front line.

That’s why many company owners choose to stop growing at around 10 employees and take a long, well-earned breather.

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.

Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT

Follow on Twitter: @JohnWarrillow

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