The importance of sizing a business

The more time passes, the more I realize how relevant it is to properly size a business.

Thomas Osborne
Thomas Osborne
09 November 2022 Wednesday 19:43
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The importance of sizing a business

The more time passes, the more I realize how relevant it is to properly size a business.

The size too often ends up being the result of a series of decisions, such as the countries in which we decide to operate, the products and services to market, the number of customers we want to sell to... And, as a result of all this , the business ends up having a certain dimension.

It is as if the dimension of the business were a secondary objective or, rather, a Second Division business element.

Well, the size of a business, from my particular point of view, is a fundamental aspect that very often explains its success or failure. Many companies fail because they are poorly sized. Both above and below. Oversizing is a big problem when sales fall or in times of crisis. And the lack of dimension is also when a company gains access to certain clients or decides to market certain products and services that require a relevant structure.

The dimension should be one of the main business decisions or, at least, a kind of checklist that serves to validate or rule out certain objectives or strategies.

I remember an occasion when, with one of my businesses, an SME in the consulting sector, we managed to develop a continuous information service on the main KPIs of the then incipient telephone market. We managed to get almost all landline, mobile and internet operators to subscribe to it. However, in less than two years we had to cancel the service. We were not big enough to compete in that market. Not that we were too big. We were too young.

Once accepted that the dimension is not a consequence of a series of decisions, but must be a decision in itself, it is worth asking how we define dimension. Are you referring to turnover? To the number of workers in the workforce? To the infrastructures? To the transport elements? Should I include the number of suppliers or collaborators?

From my point of view, the dimension is the set of assets and people that suppose a recurring disbursement. The dimension translates into the amount of resources for which the business is responsible for a long period of time and that, reducing them, supposes an additional expense, either in the form of compensation or early amortization.

A businessman once told me that expenses enslave you and profits make you happy.