How Small Should Your Business Be in 2023?

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As technology and globalization have advanced, so have our expectations for what a company should look like.

If you're looking for some guidance about how much growth might be reasonable for your company over the next year, then this episode will be a helpful resource. I've put together important factors to consider when considering your company's growth trajectory. These factors help us find the balance between making sure your business is sturdy enough for whatever happens next and staying small enough so that you can keep up with everything your business requires. 

So whether you're just starting out or thinking about expanding your business, tune in to learn how to set the right expectations for your company and its growth.

Specifically, this episode highlights the following themes:

• How to build a healthy business
• How to set quarterly and annual revenue targets as a business
• Recommended books that  can help you set goals and grow your business

Recommended books:

• Company of One by Paul Jarvis
• The Infinite Game by Simon Sinek

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And if you have a guest in mind who you think would be a great fit for this show, drop me a line at hello@honestpodcasts.com. 

Transcript

Travis Albritton  0:00  
How much growth do you want to see in your business in the year 2023? We're coming up on the end of 2022. And as a business owner, or as someone on the marketing team, this is something you're thinking about, right? What are our annual goals? What do we want to hit? How do we want to hit them? What is healthy growth look like? If you're doing budgets, January to December, you've probably already thought about all these things. And the question I want to ask is, how much growth do you actually want? Is it 10% growth, 20%, or 100%? How are you measuring that? Are you measuring that in profit? Are you measuring that in the size of your team? Are you measuring that in top line revenue? How are you measuring growth? And how do you determine what kind of growth you want to see? And a caveat to that, something really important, how do you optimize that growth outside of top line revenue? How do you actually focus on growing your company in a way that's holistic, where you're also taking into account your own emotional health and well being, the pace of the work that you and your team are doing? How you're paying your people? And are you paying them above market value or are you keeping your 18 players happy and engaged? All those things. So in this episode, we're gonna dig into what does healthy growth look like? How do you determine what that number should be, and some best practices to consider next year?

Travis Albritton  1:10  
Welcome back to the Honest Marketing Podcast where you learn proven strategies to grow your business without selling your soul. I'm your host, Travis Albritton, and in today's episode, we're gonna be doing something that's kind of practical, but much more of a mindset type of episode. And so when you think about marketing, a lot of it comes up here, it starts up here in your brain, you're thinking about creative ideas, creative executions, campaigns, and things like that. But it also starts with the idea or the thought of what the goal is, what is it that you're actively pursuing, with any kind of marketing sales promotion that you're doing? It's not just for the sake of it, right? You're not just putting together a marketing team or marketing campaign, and just hoping good things happen, or not tracking the results of your campaigns. And so, we first want to start with what is the target. What are we aiming for? If you're trying to grow a company to $10 million of top line revenue versus trying to grow to a company to half a million dollars in top line revenue, you're gonna have totally different approaches to solving that problem, right, to actually hitting that goal. And so, in this particular episode, I want to dig into some of the mindset stuff that really helped unlock some things for me personally and as an entrepreneur. And I'll tell you, once I made this particular shift that we're gonna talk about today, it really opened up my eyes to a new way of gauging business success. And that's a really big thing. If you're an entrepreneur, seeing yourself as a part of your business, really identifying with it. And seeing a part of your identity is linked to your business, it really does feel like a child. It really does feel like an extra kid and it is because of how much you invest in it, and how important it is to you. Now, the book that really shaped my perspective on what is healthy growth look like. Probably the most is Company of One by Paul Jarvis. It's fantastic read. I highly recommend that every entrepreneur, pick it up, especially if you're in marketing, you get a lot out of it, too. But the reason that this book was so instrumental to the way that I think about business growth, is because in this book, which is tailored towards solo entrepreneurs, but really has a lot of applicability for leading teams and larger companies is questioning growth. Questioning of growth is actually best. And so in his book, Paul Jarvis' Company of One is simply a business that questions growth, a Company of One resists and questions some forms of traditional growth not on principle, but because growth isn't always the most beneficial or financially viable move. Now, that last piece, financially viable move. When I first read that, at first, I wasn't sure if I believed it, right? Because if you can go from 500,000 a year to a million a year, that's good. Like, why would you not want that kind of growth? But then he starts to unpack all the things that typically are associated with scaling. And there are some trade offs to growth, there are some things to consider.

Travis Albritton  3:58  
The major question, and the major mind shift for me was, how small do I want my business to be in 2023? And I do this every single year. How small do I want it to be? How small do I want it to stay? And I don't have shareholders. It's not a publicly traded company. So I don't have that kind of responsibility. It's just to me, as the sole owner of my company. How small do I want the business to be? Because when I first got started as an entrepreneur is always about how big can I grow this thing? How many clients can I get? What or how much revenue can I get? How much recurring revenue can I get? And starting to tie my self worth as a business person, as an entrepreneur in the marketplace to that number. Because businesses is a game. And what's one way to keep score? How much money are you making? And we start to gauge the effectiveness or the value someone in the marketplace based on how much money they can earn or bring in for their business. But this also trickles into our annual and our quarterly goals as a business. So how do you set quarterly and annual revenue targets? How do you actually do that? Most businesses pick a big number and go for it, where they say, hey, we grew 50% this year, let's grow another 50%. And it all sounds fine on paper. But when the rubber meets the road, then it's not always as clear cut as, oh yeah, we'll just increase the revenue, we'll double it. And that means we'll doubled our profits as well, unlikely. And so the question behind that is, how do you actually arrive at that number? What are the factors that go into that? And there's the practical stuff like, well, we need to pay our people. We have specific growth goals, we want to get a new facility, we want to invest in this new infrastructure and that costs money, those kinds of things.

Travis Albritton  5:35  
But often, it's also ego. How you feel about yourself plays a big role in the number that you set as a revenue target. Bragging rights, being able to play that game and say, hey, you know, let's keep score. How much money did you make last year? This is how much money I made last year, seems like I'm better in business than you. Even if it's subconscious. Even if you don't want that to be a part of the equation it often is. Because when someone asks, how's your business doing, you want to be able to say, oh, we hit seven figures last year. Just as like an offhand comment. Like, of course, like we just were seven figure business, we're an eight figure business, we're a nine figure business. And there's a certain amount of bragging rights that comes with that, where when you're talking and interacting with other entrepreneurs and business owners, it's kind of like a way of discussing the health in the growth of your business and how successful you are, right? And so we can choose revenue targets, not based on what we actually need, but on what we would be excited to brag about to others. PR, being able to say, hey, we hit this revenue target, get some press out of it, and for people to feel like we're a legitimate company now. We're not just a mom and pop shop. And then self worth, tying it back to as an entrepreneur, as a business owner, you typically see yourself attach to the identity of your business. That your DNA runs through how the company operates, and what it stands for, right? If it's a values oriented company. And so all of these other factors, these human elements play a role in shaping how you choose quarterly and annual revenue targets. But if we take a step back, it's boring to recognize those aren't actually the things that make or break a business. It's, are you meeting all your financial obligations? Is there a healthy profit margin? Do you have margin in your business baked in to help alleviate the ebbs and the flows of month to month? And are you in a position to be able to sustain the business long term?

Travis Albritton  7:34  
Another author that I follow that I really really love in the leadership space is Simon Sinek. And he recently published a book called The Infinite Game. We're talking about that there's two kinds of game theory, there's finite games and infinite games, where a finite game has fixed player, fixed rules, and an agreed upon objective. So football will be a finite game, because you have two teams, same number of players, they both agree to the rules, and the game ends at a certain point. Whereas an infinite game, you have known and unknown players, there are no set rules, and the only purpose of the game is to keep playing the game. And that's what businesses. Businesses are infinite game. If you think about some of the big titans of industry from even just 100-150 years ago, the Rockefellers, the Vanderbilts. They're not here in the same way, now as the Amazons, the Apples of the world. Well, guess what, 100 years from now, Apple probably will not be the company we know it is today, Amazon will not be the company that it is today. They might not even be around anymore, but other businesses will pile up in their place. And so as a business owner, your primary objective is not necessarily to hit a certain revenue target is to stay in the game. It is to have a business that still exists one year later. And so from that perspective, when you start talking about revenue targets, growth targets, how much do we want to grow this year compared to last year, that is really, in my opinion, the thing that matters most. How can we continue to exist as a company, helping our clients, serving our customers, providing a great quality of life to our employees, and enjoy what we do. Then you create a revenue target out of that, because if you start there, with what do we want the day to day experience of working in this business to be like, and then you extrapolate out a revenue target, that actually has meaning it's actually tied to something real, that's going to have a tangible impact on your business. It's not some arbitrary number, like, oh, a million dollars sounds good. So we'll hit a million in revenue this year. And if not, it was a failure. But if you only need $600,000 this year in order to meet all the other needs that you have in your business, stay in business, be really happy, going extra vacations with your kids, $600,000 is actually better than a million. Creating the extra stress to try and scale to that level. Now, if you need a million in order to stay in business, then you actually want that target to be a little bit higher, and we're talking about some other things to consider. But that is how I have started approaching revenue targets. And I'm gonna break down, like the specific things that I look at, and the specific percentages that I pay attention to within my business and my different expenses. But from a mindset perspective, if you can shift away from picking a revenue target out in the distance, and then just chasing that, because it sounds like a good number, to instead, taking a moment to reflect on the things that matter to you, as the business owner, as someone who has a vested partner in the business, if you're an employee, and considering what would be the best possible outcome for our people, for the people that we serve with our business, that would allow us to be healthy, to have a healthy profit, to be able to be in business long term. And then let's choose that as the revenue target. I think that is gonna be a much healthier way to do business in 2023 and beyond. And you're not creating unnecessary stress and anxiety around fake numbers that you can change.

Travis Albritton  11:00  
So how do you grow a healthy business? And really the question beneath this, and beneath how small do you want your business to be is, what does enough look like for you? When you know that you have enough? Is it Jeff Bezos? Is that level of wealth is that when you will say, okay, I have enough, I no longer have to strive for more growth? Is it Elon Musk where you're buying social media platforms left and right? What does enough look like for you? And typically that number is, is smaller than people expect. Because even if you list out things, like I want to drive a Ferrari, I want to have like two vacation homes and X, Y and Z. There are ways to have that lifestyle for significantly less than you think. So put all that into consideration as we break down what enough looks like when I think about it for my business. For Christ Centered Marketing and for Honest Podcast. So the first thing I look at is my monthly nut. What are my fixed expenses? And what do I need to bring in revenue wise to cover all those fixed expenses? So that's salaries, that's software subscriptions, that's annual renewals, like for taxes and IRS stuff and things like that. What is the equipment, expenses that I expect to have, whether it's gear, or different capital investments, and then I break that down into a monthly nut. How much do I need to earn every month to break even on the things that are fixed, then you have your variable expenses. So that would be things like marketing budgets, ad spend, sponsorship campaigns, things that you can choose to increase or decrease based on what you're bringing in, but it's not fixed, it's not going to drive you out of business, in the short term, if you don't invest in those things. So Facebook Ads, if your whole business is based on Facebook Ads, then it's probably a good time to diversify. But you can throttle up and shift down how much you're spending on Facebook Ads based on what you're bringing in. And so you have your monthly nut. And then you have what's your your fixed expenses, and your overhead and things like that. And then your variable expenses would be things that can increase or decrease over time, and you want to choose a number that's reasonable. Choose a number that's going to allow you to continue to operate, continue to grow at a healthy level, whatever that healthy pace looks like for you, and what you decide is going to be best. And that's the next piece, then you have taxes. So corporate income tax, would be the next piece of the pie. And even though the corporate income tax will range depending on what you can write off and things like that. Multiplying your revenue by 15% is usually a good rule of thumb, just to make sure that you have your taxes covered. And you're not going to owe the IRS or the government something at the end of the year. And if you are in a state with state corporate tax, then that's also something to consider. And then profit. Profit is also very important in a business. If you're always running right on the edge, just scraping by paycheck to paycheck, anything that negatively impacts your business immediately puts you in a downward spiral, right? It immediately becomes a threat to the long term viability of what you're doing. And so since that is the thing that we want to preserve more than anything, you being able to continue to show up and have a business to work on. You need profit, you need margin, and you want all the things that you sell to have margin baked into them. You don't want to sell things that cost. You don't want to, even if you're in a wholesaling industry where you are, you know, selling to vendors that then sell to customers, you still need enough profit margin that you have some cushion, to be able to put away money in a rainy day fund to pay off debts that you have, and to be able to weather any kind of financial storms. Because most people are of the same line that, yeah, the world is entering or already in a recession at this point in time. And so people are gonna get a little bit more clingy to their 100 money. And so there may be times in periods where you actually need to tap into those savings, but you can't build that up unless you have profit baked in. So you add all those things up. And what, that is how you determine what your monthly target is for revenue. And then you multiply that by 12. And that's your annual target. And then for me what I've seen in a couple different places, as far as like what is a good profit margin to aim for, it really does depend on your industry. If you are a grocery store, one and a half percent is industry average for profit margin, which is really, really slim, like you're barely scraping by, because you're a commodities business, right?You're competing based on, okay, I can go to Walmart and get it for this price and I can go to public and get it for this price. But if you're not in a commodities business, and you have staff that are either producing a service or products, you at least want 20% to 40% profit margin. So that allows you to have that cushion in that margin. But it also allows you to invest in the future, and to really safeguard yourself and be financially healthy. So you don't have to go to debtors in order to make ends meet. This is to kind of bridge the gap when things happen. So here's an example of a business. So let's say that you every single month, you want $50,000 in revenue, and you've decided that is the healthy number for you and the growth you want to see in 2023. So that would typically look like $20,000 to $30,000 in overhead, hopefully being on the on the shorter end. But if you have a more personnel, intense business or service based business, you might be on the higher end of that. Your variable expenses like marketing budget, somewhere in the $5,000 to $10,000 per month range. As far as ad spend and paying for branded content and things like that. Your taxes, if we just apply the 15% rule to 50K, that would be seven and a half thousand for the month. And that would leave you with somewhere in like the $10,000 in profit range. When you break all that down with some, you know, napkin math. So that would be a healthy business. If you're doing 15 or 50K a month in top line revenue, and you're pocketing 10% or 10K or  20%, after taxes and paying all your expenses. That allows you to continue, to work on the company in perpetuity, and you're gaining two and a half months or three months somewhere in there, operating expenses for every year that you are operating at that level, at that revenue target. That's a healthy business. 

Travis Albritton  17:15  
Now, if you wanted to scale that business to seven figures, let's say we double it to 100K, you don't just double all your overhead, sometimes you have to then create layers within the layers that you already have in your organizational structure to manage all the extra work. So now it's not just you at the top, and the people doing the work. Now it's you plus a layer of management plus the people doing the work. And so instead of overhead being 50% of your expenses now 65% of your expenses. And when you're marketing, and you're spending money on ads, once you burn through the low hanging fruit, it costs more to acquire customers. And so scaling their costs more. And so in taxes are pretty fixed, like you still gotta pay taxes. So as a percentage, let's say going from, you know, 50K in revenue to 85K in revenue, you go from 10K in profit to 15K in profit per month. So you've just added a bunch of liabilities because you've increased your fixed expenses by a certain amounts in order to support the work at that level. But you've only increased your profit by $5,000 a month. Is that worth it? Is that good growth? Is that healthy growth? Only you can say, right? It really depends on your goals, your needs, what you want out of your business. But that is where you start to question, what does healthy growth actually look like? How small can my business be and still meet all of my goals? And all the things that I want to get out of the business. Whether as an owner, or as an employee. Who has a handle the wheel of helping guide? What those revenue target targets are? That is how you answer this question. That is how you decide how small should my business be in 2023 for maximum happiness, contentment piece and no stress. Because if you can operate your business that way, it's always gonna be fun. You're always gonna love working on it, because it's something you get excited to come into. It's not just okay, how do we make ends meet this month? We're trying to grow 50% because it sounds like a nice round number. But we're really struggling to get there. And now we get to hire this extra person. And we don't have the money to do that but we need to in order to grow. And why, is it ego? Is it, you know, a sense of self worth that comes from a higher revenue number? Those are all things that we should take a step back and reconsider and make sure that we are in the right place in our mindset as we're coming up with these numbers. So how small should your business be to support your ideal lifestyle without introducing unnecessary stress and complexity? That is the million dollar question. Bigger is not always better. Oftentimes, it's worse. You can have a seven figure business. But if your burn rate is 20% more than what you're bringing in, you're running out, you're gonna run out of business, you're gonna run out of cash and so top line revenue isn't everything. You also want to consider all these other things, and then answer the question, what does enough look like for you? When do you know that you have enough, to be satisfied, to be content, not content in the sense that you've settled the content in the sense that you can be at peace with where you are, and excited about where you're going? What does that look like for you and for your business? And what's your risk tolerance? How much are you willing to live on the ragged edge of paycheck to paycheck, month to month, on the verge of hyper growth or bankruptcy? And that's only something you can answer. But hopefully, this provides an alternative way of thinking about it. That it's not just pick a big number and go for it. But let's really consider what is most important to you, as a business owner or someone on the marketing team, and how you can shape your revenue target and the trajectory of your company, to not just be something that grows by a large amount this year, but can be in business 10, 20, 30 years from now, and still serving people at a high level. So I hope you've enjoyed this podcast so far in 2022 and get a lot of really exciting content coming out in 2023. Thanks for sticking around. And as always, be honest.