When we first start a business we are that business's most valuable asset. We are chef, cook, and bottle-washer.
If we grow things right, the business becomes our most valuable asset.
It makes money while we sleep.
That reversal is at the heart of the 3-cycle approach to small business management.
In the first (Traction) cycle, the focus is on growing sales and internal capacity. In the second cycle (Growth) the focus is on volume and profit, and the expansion of systems and growing a team. In the third cycle (Enterprise) the focus is on developing an enterprise with an independent management layer; a business that generates passive income for the owner and is a saleable asset. We call this an independent enterprise.
The approach is simple: once we have confirmed the market is interested in what we have to offer, our priority is to create an independent enterprise by delegating relentlessly.
The Traction Cycle, confirming market traction, maps onto what Les McKeown calls 'Early Struggle' in his excellent book Predictable Success. At this phase we test if we have a business at all: does anyone want what we have to sell?
Once that is established, we improve your business by delegating. It becomes a repetitive cycle of growing capacity (cash, talent, and systems) and growing demand (market share) in a challenging, often stressful see-saw motion that goes on for several years.
How do you know when you have 'arrived'?
Our definition for the 'right size' of a small business is simple.
Your business is the right size when everything that needs to be done is getting done, and everything that is getting done is getting done by people who enjoy what they are doing.
We work on the assumption people who are doing what they enjoy are generally working from a place of strength. Usually people who hate doing bookkeeping suck at it.
Along the way on this journey the owner must see increasing financial return on less time invested and an increasing amount of time leading the business instead of driving it from within. The rhythms for the owner slow down as the earnings pick up.
Read more: Alignment In Business
Effective business management works with goals and timelines. How long should all this take?
The Traction Cycle, or Mckeown's "Early Struggle", typically lasts from 1 to 5 years.
If you are doing things right, by year 5 you should be developing good systems and a small team to delegate to. You are in the Growth Cycle.
When your systems and team are in place, and you start to see a decline in the need for you to be present every hour in your business, you are in the Enterprise Cycle. If everything goes as it should and luck is largely on your side, you could be there by year 10.
How long it really takes depends on when you start focusing on growth, and the level of risk you are comfortable with. This is an investment strategy. Get in early and take smart risks.
Want to learn more? Download our free blueprint for growth: Six Things That Will Absolutely Improve Your Business!