When you’ve been in business for a while and gone through the various business cycles, you realise that growth does not always equate to profitability or financial stability.
Growing your firm by focusing on branching out into new regions, launching new services, enhancing your technological capabilities, and/or bringing on more employees may have taken precedence over other priorities.
Let’s face it, when we see businesses with a large number of employees, our first thought is, “Wow! Their company must be doing well.” So, you may have taken a like-for-like approach to your business, hiring more employees in the hope that it would grow, but it has had the opposite effect.
Perhaps the small voice in your head questions your ability to grow, or you suspect that you are growing yourself out of your business?
As a business owner, you probably despise the idea of “shrinking” your company when you should be increasing sales, customers, or workforce.
But what if shrinking was the answer to strategically growing?
That’s right, downsizing in order to become more efficient and well-organised for future growth.
It may not appear to be the most logical plan, because who wants to shrink or downsize?
We are conditioned to believe that growing is the only way to succeed. However, in many cases, businesses must take a step back, reassess and refocus before taking two steps forwards.
Debunking the stigma
Getting rid of the negative connotations associated with downsizing is a necessary and important first step.
According to popular belief, “larger is better” and “smaller is weaker”. A company’s decision to reduce its workforce (e.g. downsizing its commercial office space or reducing the number of employees) might be viewed as a failure. However, this isn’t always the situation.
When it comes to long-term success, downsizing and revisiting your business ideals may be the best options in many circumstances.
What if your firm is already too large, too complex, too unmanageable, and too inefficient? These are reasonable things to ask. Suppose your business is stagnant because it is unable to accommodate more customers or clientele?
There are a lot of successful businesses that have shrunk in order to expand their operations.
Most of the time, it’s the smartest move a business can make for its future success and wellbeing.
Let’s have a look at Heinz to see whether you agree with me.
When Heinz decided to focus on ketchup, sauces, and frozen foods in 2002, it sold off its non-core product range. Heinz remained steadfast in their belief that less was more, notwithstanding the unfavourable reaction from shareholders. When it launched the inverted bottle packaging that year, it solved the problem of squeezing “the last bit” of sauce out of the bottle for consumers. Heinz ketchup sales jumped by 6 per cent in the year following the redesign of the packaging, while the whole industry only increased by 2 per cent. With an eye towards spurring tremendous growth in the food business, Heinz sought to weed out products that didn’t fit in with their basic values.
So, how can you tell if it’s time to downsize your business? Here are a few signs:
Finance is suffering
If your company is having financial difficulties, you need to examine your spending and profit margins more closely. A lot of the time, businesses waste money on items they don’t need, especially if they’ve grown too much. Due to the lack of suitable procedures and processes, they often wind-up wasting money.
Expansion is going nowhere
Because your model isn’t conducive to growth, your expansion efforts don’t function. This is a warning indication. It’s time to take stock of your company and figure out what’s been slowing it down.
Things are getting too complex
It’s only natural for things to get more complicated as your firm grows. However, if you are continually putting out fires and dealing with one crisis after another, the intricacy might become overwhelming.
You may simplify your life and get back to the basics by downsizing.
Customer service is in danger
It’s common for firms to grow too quickly and not be able to keep up with demand. As a result, the expansion becomes overwhelming, resulting in long wait times, unanswered phone calls, and unhappy customers who decide to go with another business. Prior to pursuing new customers, you should work on retaining your current ones.
Hiring becomes a struggle
In the event that you’re struggling to locate high-quality personnel, it may be because your company lacks career advancement, flexibility, or the proper culture. A company that is both small enough to be controllable and reasonable in size but not too big, is ideal for most employees. Downsizing might help you attract the best and brightest employees by making your workplace more appealing.
At times in business, less is more
Businesses often neglect or misinterpret the “reduce to grow” concept. It’s not the same as going out of business or failing. As a result, it is possible for a business to benefit from downsizing. If it’s done right, it may be a win-win situation for everyone involved, including the customers.
So, how can we demonstrate that less is more in business?
Here are some of the advantages of downsizing:
Focusing on your key abilities can help you get more done
With too many workers or service offerings, it’s easy to get caught up doing everything and not be exceptional at any one of the things you offer.
You’ll be able to focus more on the services and products that pay off if you cut back on some of this.
Investing in your staff and providing them with more possibilities for training and development allows you to retain them longer.
It’s a great way to cut costs
With a larger workforce comes increased expenditures and problems, and if you have multiple sites, you’re probably paying rent and overheads at each of those locations as well.
You can use the money you save here to invest in areas of your firm that will help you achieve your new growth goal.
It can help you become nimbler and more responsive to change
Because of the rapidly shifting digital landscape, it is essential for companies in today’s business environment to remain flexible.
For this reason, small businesses have always had an advantage in adopting new technologies before their larger counterparts.
It can help improve your customer service
The last thing anyone wants is to see their business suffer as a result of poor customer service. Cutting back and narrowing the scope of your business can improve the customer experience, which will lead to increased customer loyalty while you are preparing for strategic expansion.
Additionally, you can put the money you save into technologies like a CRM platform, which can help you better engage with your clients.
It is easier to focus on hiring the best people
More staff are needed to keep a large company running. The problem is that not all these people will be excellent performers.
Due to the scarcity of talent, some firms are being driven to hire ordinary or even below-average performers at higher pay rates to fill the positions.
Over time, this can become a big issue when it begins to affect the overall quality of your personnel, budgets, and, once again, client experience.
Prioritising high quality over low quality
When it comes to downsizing, how does “quality over quantity” fit in? Even though it’s straightforward in theory, many firms have difficulty with this. Attracting high-quality customers, employees, and systems should be your first goal.
A good place to start is by reinvesting your downsizing funds into training and development for your workforce. Taking advantage of training opportunities has been shown to increase productivity in the workplace by more than 8 per cent.
Downsizing does not imply cutting back on technology. In fact, the exact reverse is true. Now is the time to create digital processes that will benefit your staff and your clients. Improve human-computer interaction by utilising and maximising automated processes that can deal with big volumes.
Quality products and services will always be available from larger and more well-known firms. However, in today’s economic environment, it has been demonstrated that size does not necessarily matter. Customer satisfaction and employee morale are more important than everything else.
One of the best examples is Under Armour’s remarkable recovery after implementing the “shrink to grow” method.
With the introduction of COVID-19 in 2020, Under Armour’s growth rate dropped, but it rebounded in 2021.
In order to maximise profits, it cut retail inventory, raised prices, cancelled plans to move into big flagship stores, and stopped major sponsoring programs. A change from growth to profitability was made.
Despite their multi-billion-dollar status, Under Armour and Heinz were able to recognise their limitations by eliminating endeavours that did not improve their core.
Backward is the new forward
Success in business does not have to be a one-way street. Getting bigger is often seen as the only path to progress. In today’s business environment, this isn’t necessarily true.
For many businesses, shrinking is the only way to be successful. They’ve come to understand that a more focused and well-trained team may lead to leaner operating expenses, better customer service, and a higher standard of work.
There is always a risk with any decision. Reducing the size of your company should only be done for the correct reasons and with a strategy in place to assure its continued success. There are several ways in which a well-executed downsizing strategy might benefit a business. Just keep in mind that quantity isn’t as important as quality.
When quality is present, the numbers take care of themselves.
