The Normal Ebb & Flow

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I’ve observed this enough times that I figured it’s time to write about it. My ventures span nearly a hundred industries (via private clients, equity holdings & outright business ownership) and I have serviced several thousand students & clients over the last few years.

The reason I’m sharing is not to be braggadocios but to prove the point that this is not a pattern I’ve seen once, or twice… but many dozens of times. I’ve seen it in our business portfolio. I’ve observed it in client businesses. I’ve noticed it in the markets…

Here is the pattern: one year on, one year off.

It is not logical to grow at blinding speed year-after-year with no breaks in between. Nor is it safe.

All things grow in bits and spurts… slowly at first, then astonishingly fast. Then slow again — a quick stabilization period before speedy growth hits again.

The 3 Rules:

1. Hurricanes

Picture a business growth like a hurricane. You have the storm, the eye, and then the storm again.

Businesses can rise (and fall) the same way.

It’s important to know when you’re “bottoming out,” so to speak (in the ‘eye of the storm’), so you can prepare for the pace on the other side.

I can think of many times a business of ours has grown exceptionally fast. Then it will slow down.

What is happening? Why is it happening?

Sometimes it’s by design, other times it isn’t. In most cases, it is simply a gift — the pace slowing down for just a bit, to prepare and get ready for the growth on the other side.

The way to deal with this is to diligently spend time thinking & looking at patterns. Know when you’re slowing down due to your own poor decisions, versus when you are simply in the eye.

If there is no attribution on your end, sometimes it is best to just shore up the foundations and enjoy the rest.

2. Optimizations

Things cannot (and usually will not) grow / scale forever without proper time to optimize.

You can find dozens of businesses that grew too fast for too long without proper time to build systems. They are no longer in business.

You don’t want to be guilty of this. Yet many business owners try to avoid down-seasons (when they should be optimizing so they can stay in the game for another run).

There are ‘market caps’ for small/medium businesses. Here is how I describe them:

The point at which a business’ size/growth rate is no longer worth it, due to the risks being presented from growing too quickly.

I’ve found (my internal opinion only) that most businesses need at least 1 year per every 3 to not grow at maximum.

If you push past this ratio, you hit market cap, and your entire venture becomes risky due to poor optimization.

There is a vast difference between something growing at maximum rate versus something growing at optimal rate. Optimal is better (but usually slower).

3. Stabilizations

Stabilization seasons are different than optimization seasons. If optimizing is slowing down and fixing systems/processes/people — stabilizing is building wider & deeper.

You optimize so you can speed up again. You stabilize so you do not die when the dry seasons come.

Right now, one of our businesses is stabilizing and by that I mean we are looking for acquisitions to widen our base.

We don’t need the business to grow any faster, nor do we want to optimize it so that it can get bigger. We want it to be SAFER.

Optimizing is the prep work needed to grow the tree taller. Stabilizing is the prep work that gets the root systems deeper and deeper in the ground.

While optimization tends to happen every 1-2 years, stabilizing is something you should be attempting to do at all times. There is no “off season” for it.

Final Thoughts

Our firms are always growing and we have a near-constant stream of new equity leads to sort through.

If you are interested in partnering with me, Chris (my business partner) or any of our leadership team at Evans & Welch, send me an email with what you’re building and what you’d like to see happen over the next few years.

I will shoot back a reply and someone on my team can set up a time to talk strategy.

-T

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