Episode 79: Crossing the Perilous Growth Gaps

Last week I discussed the key decision about hiring your first overhead role—and whether that should be a client facing account manager, or a market-facing account maker. While you might want to find one person for both roles—that never works out. If you try to economize that way, you may end up permanently struck in the growth gap.

But that’s not the only gap you’ll face in growing your creative business. There are other points along the path that have similarly difficult obstacles, which, if you aren’t prepared to maneuver, can likewise get you stuck.

Podcast: Play in new window | Download

When a creative advances their freelance practice into a growing firm they end up getting surprised by one business reality after another. The process of growing a business inevitably requires facing curve balls and side swipes. Many are unpredictable—you just have to be nimble and resourceful as an entrepreneur. But not all challenges should be surprises. But when we lack business experience we get tossed around by waves we really ought to have seen coming.

One of these predictable challenges is connected to growth stages. You see, businesses don’t typically scale incrementally. You’re not likely to hire one new person each year, on your way to growth. Rather you advance from one size tier to another tier rapidly. And as you are in those transitional phases, from one tier to another, there’s plenty of room for failure.

The first stage is simply going from a freelance practice into a small team. But that team is not likely to be just one to two. More often than not, you’ll go being a solopreneur to having a team of around four to six. This has to do with some simple resourcing math. You see, there’s an economic sweet spot for any service-based professional practice. A creative practice should always strive for an average utilization of 60% of all your available work time averaged across all team members. It’s very hard to achieve anything higher than 60% due to the necessary overhead of running a company. And, if you fail to stay close to that percentage, you won’t have enough profit to sustain your growth.

And so as your company grows you’ll end up needing to add roles, such as new business development, that will carry a very low billable utilization percentage. As soon as you add that role your overall company wide utilization will drop significantly. And if they’re successful at bringing in lots of new clients, you’ll have even more work to do, requiring more production staff. And so you’ll end up with something like three production roles for each overhead role.

Then, as even more work flows in, you’ll soon need another overhead role such as a project or account manager. While this role is not entirely overhead, they do tend to have lower overall utilization than your primary creative staff. And so your team needs to scale upward in order to keep overall utilization as close to that 60% target as possible. And therefore as a four to six person team moves forward, it soon becomes a group of ten to twelve.

A firm can stop growing at any of these levels, and remain a balanced and sustainable business. But it’s very hard to start moving up toward the next level in increments. If your staffing and roles end up out of balance, in terms of the ratio of overhead roles to production roles, you’ll have persistent problems with profitability, or with maintaining balanced work loads. You can’t remain in such an imbalanced state for very long. You’ll either be forced back down to the previous stage, or you’ll have to climb up to the next.

The next stage, from ten to twelve, moves up to the eighteen to twenty-four. And this jump involves some changes to basic overhead to production rations. That’s because at this size there will be significant adjustments to how your team functions. Larger firms require tiered management, tighter policies and procedures, and more reliance on systems. So new tasks, and new roles associated with these changes will have to be factored into your utilization math.

When you get on the growth path, keep these tiers and targets in mind. And as you move from one tier to the next, be ready for a strenuous climb. You’re going to need resilience, endurance, and focus until you reach that next plateau.

Until next week: don’t let the business of creativity overwhelm your creative business.