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6 Lessons on Becoming a High Impact Business

High growth biz Uncle Sam wanted to know:  What kinds of companies are America’s true growth generators? Is it corporate giants like Apple, Amazon or GE? Is it startups? Is it relative newbies such as Facebook.

After some exhaustive research, the answer was clear: “None of the above.

As it turns out, the real economic spark plugs in the U.S. are not big public companies. They are small, privately-held, fast-growing firms that already exist. These “high-impact” businesses are defined as firms whose sales and employee count have at least doubled over a four-year period.

Surprise! High Impact Includes All Industries

That’s about 350,000 businesses and the research shows they tend to be a bit younger (but still average 17 years old) and a whole lot more productive than others.  And they’re not just a bunch of high tech firms, either. They exist in relatively equal shares across all industries – and get this – even declining and stagnant ones! No single industry dominates.

That alone is both positive news and a huge lesson for startup entrepreneurs and other business owners who fear they can’t hit it big in more traditional businesses or industries. In short, you can.

Here’s another stunning finding of the U.S. Small Business Administration study: This relatively small group (less than 10% of all U.S. companies) of privately-held small firms accounts for all (not most, but ALL) net job growth in the U.S. economy. And get this: These high-impact businesses are also largely immune to ups and downs of the business cycle. Sound good?

Small Firms Dominate

But surely these must be the “bigger” small business, right? Wrong again. The vast majority (94%) of high-impact businesses have just one to 19 employees. Another 5.5% come in at between 20 and 499 employees, and a scant 0.5% have more.

In other words, a few hundred thousand businesses with just a handful of employees are having a bigger collective impact on job growth in the U.S. than all the corporate giants combined. Now ain’t that somethin’!

By now, you should be saying to yourself you’re either one of these firms – or you want to be. But how? For answers, let’s check in with Edward Hess, professor and Executive-in-Residence at the University of Virginia’s graduate business school. Hess has studied high-impact businesses for years and has an insightful new book called Grow to Greatness: Smart Growth for Entrepreneurial Businesses (Stanford University Press, 2012). He offers these six lessons on being a high-growth firm:

1)    Don’t grow yourself into trouble

Many small businesses flame out when they try to grow too quickly, as growth outstrips people, processes and controls. Cash flow is critical. Growth requires investment ahead of cash receipts. “Entrepreneurs must understand they might not be able to afford all available growth,” says Darden. Avoid the “grow or die” myth. A better approach is “improve or die.”

2)    Upgrade continuously

Remember this: What got you here, won’t necessarily get you there. In other words, solutions that work at one size business generally won’t work as you get bigger. Growth means continuous change. Hess has found that common tipping points that require adjustments occur at 10, 25, 50 and 100 employees. Top entrepreneurs and their teams know how to experiment, learn and adapt.

3)    Know when to back off

All private businesses face the same growth challenges. The most successful ones know how to pace their growth. Hess calls it the “gas pedal” approach. They know when to let up on the growth gas pedal to give their people, processes and controls time to catch up.

4)    Manage your risks

Growth creates stress on finances, quality controls, people and processes. It can dilute your business’s culture and customer value proposition. And it can even thrust you into a different competitive space. Understanding these risks is crucial to managing your growth pace and preventing your business from being overwhelmed.

5)    Get better at delegating

In order for your business to grow, YOU must grow, too. There’s only so much you can do yourself. That means you have to evolve from being strictly a doer, to also being an effective manager, delegator and leader.  Sometimes that’s hard to do or swallow, but it’s a must.

6)    Keep strategic focus

Having and keeping strategic focus is also critical to growing “safely.” The most successful high-impact firms focus on doing one thing that lots of customers need, and doing it better than the competition.

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New Help for Small Business Exporting

In 2006, total sales were just $64,000 at Loudmouth Golf, a small golf clothing company based, well, nowhere in particular.  (The company has no official headquarters; Founder Scott Woodworth still works out of his house in Sonoma, CA.) Now sales have topped $10 million at the 32-employee firm thanks to an approach of sourcing materials and selling finished goods globally.

Loudmouth has clothing made in China and sells it in golf-happy countries all over the world.  Employees are widely disbursed and all of them have Skype addresses on their business cards because international video calls are routine.

And Loudmouth isn’t alone. Thousands of other U.S.-based small businesses are busting into global markets thanks to a bevy of new tools, tactics and resources that are helping small American companies gain an edge overseas. They include all types of businesses, from family-owned hops farms in Washington, to a small Michigan-based firm that makes steering components for cars.

One major source of both money and advice is the Export-Import Bank of the United States. Earlier this year the “Ex-Im Bank” (as it is known) launched a new Global Access for Small Business program that aims to provide $9 billion per year in small business export financing so small firms can export more goods and services produced by U.S. workers. Over 1,000 small businesses new to exporting joined the program in its first six months and thousands more are expected to join.

The two Ex-Im Bank products most used by small business exporters are export-credit insurance and working capital loan guarantees. The insurance protects the business from risks of an overseas buyer not paying, and helps small U.S. firms extend credit to international customers. Working capital loan guarantees cover 90% of the outstanding balance of working capital loans to exporters, backed by export-related inventory and accounts receivable.

The Export Business Planner, a new and free online tool developed by the U.S. Small Business Administration (SBA), is also helping small business owners who are interested in starting or expanding overseas sales.

The Export Business Planner can help with these key tasks:

1)    Determine if your business is really ready to start exporting, and how to get ready if you’re not.

2)    Learn about export training and counseling services.

3)    Access global market research and trade data.

4)    Connect to export financing opportunities.

5)    Create a customized export marketing plan for your business.

6)    Tap into other exporting resources.

You can access Export Business Planner at www.sba.gov/exportbusinessplanner. It’s a PDF file that you can download, customize and update regularly as you develop your own export plan. 

The SBA website (www.sba.gov) also has a wealth of helpful information on importing and exporting for small business. Click on “Find exporting opportunities…” on the home page for access to these topics:

  • Exporting or importing specific products.
  • International trade loans for small business.
  • Explore Exporting.
  • Trade Agreements.
  • 6 Steps to Begin Exporting.
  • Financing Your Small Business Exports.
  • SBA Export Express for Small Business.
  • Export Working Capital Program.

For details on how your small exporting firm can benefit from Ex-Im programs visit Ex-Im’s small business website (www.exim.gov/smallbusiness). You’ll find all of the basics plus helpful videos such as “Ex-Im 101 for Small Business” and “Intro to Exporting.”  Or contact the nearest Ex-Im Regional Export Finance Center at (800) 565-EXIM. Ex-Im also sponsors regular webinars which you can locate in the “Training and Education” section of exim.gov.

Another good resource is the export.gov website which is dedicated to helping U.S. companies export goods and services of almost any kind. This site is packed with export info, including extensive sections of export opportunities, licenses, regulations and logistics, problem solving solutions, basics of documents and paperwork, foreign market overviews, state and regional trade groups and an FAQ.  You’ll find opportunities broken down by industry, along with trade leads and lists of international trade events.

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New SBA Study says IRS Small Biz Audit Crackdown is Bogus

Ten years ago, a landmark IRS report claimed that small business owners under-report income by $80-100 billion yearly and account for over half of the U.S. “tax gap” of owed by uncollected taxes.   As a result, small business owners have been subjected to increased audits and reporting requirements, including the controversial new 1099 rule.

But now for the truth:  A new study just released by the U.S. Small Business Administration (SBA) Office of Advocacy says the IRS crackdown on the backs of small biz has been bogus all along.  And that comes from independent research commissioned by the Feds themselves – not some anti-tax business group.

After reviewing 10-years’ worth of IRS small business audits related to the innocuously-named “National Research Program” (NRP), outside researchers found that a mere 1% of all issues examined resulted from intentional failures to report income properly. Yes you read that right – one percent. In other words, 99% of income underreporting is unintentional, and undoubtedly the result of a vast and utterly confusing array of tax rules and regulations.

And here’s the real gut punch for biz owners:  While small business was tagged as the tax cheating culprit, the new study says that large corporation tax gaps are scarcely being measured at all, and that the IRS has been using estimates dating back to the 1970s and 80s to calculate corporate noncompliance.  What’s more, says the new report released by SBA:  “The IRS focused its tax-gap study on individual tax returns, and on returns not subject to withholding or third party reporting, which skewed the study unfairly toward small business.”

Over the last five years, audits of returns typically filed by biz owners have soared, while those for corporations with $10 million or more in assets have actually dropped 13%.  These are figures reported by the SBA itself.

But which type of audit pays off the most for taxpayers – small biz or big corporation?  No contest.  According to the new whistle blowing report, the IRS collects an average of $9,350 per auditor hour spend examining big biz returns, but only $1,034 per auditor hour spend auditing small business.

The new study concludes with this:  Unlike large corporations, small businesses lack the resources and expertise to negotiate with the IRS.  Indeed, 71% represent themselves in audits. They are overwhelmed by the complexity of the tax code.  Only aggressive outreach and education designed to help small businesses understand their tax filing obligations will significantly reduce the tax gap attributed to them.

BizBest will email the full 54-page report in PDF, free of charge, to anyone interested. Email your request to editor@bizbest.com, and be sure to include the email address you’d like the report sent to.

Copyright © 2000-2011 BizBest® Media Corp.  All Rights Reserved.