shrinking for growth

Shrinking for Growth

Written By: David Oliva, RD Appliance Service, Corp.

Growth means expansion. Growth means hiring new employees and purchasing more equipment. Growth means more revenue and, hopefully, more profit. Growth is what so many business owners are trying to achieve. If growth is your goal then why would you ever want to shrink? 

Since I started working as a technician in 2002, the flow of work has been predictable and reliable. It was relatively slow at the beginning of the year and then around the end of June a switch would flip and it would be nonstop until the end of the year, and it continued that way for the next 18 years. Until March 2020. That month it all changed. After a few weeks of absolutely nothing happening we got busier than ever before. This coincided with the two technicians we had working for us deciding that they didn’t want to work in the field during a pandemic. So we were forced to shrink. I went out and did all the calls, every single one, and lived to tell about it. Until we could hire new techs. We were fortunate to find a couple relatively quickly. This involuntary shrinkage was a blessing in disguise. It forced us to review our systems, strengthen our processes, and rebuild the company in a much more comprehensive way. Because of it, we ended up with a more solid team and infrastructure.  

Call volume remained enormous all the way through 2021; no slowdown in the winter like every year in the past. During this time we hired three more techs and two more office staff.  2021 was our biggest revenue year ever, by a huge margin. It was our first million-dollar year,  and we blew past that benchmark. But when the end-of-year financial statements came back the numbers were disappointing. Profit was just about the same as in 2019, which had significantly less revenue.  

This coincided with ASTI 2022 (Annual Service Training Institute), in which I attended a class on cash flow management. The presenter was somehow describing my exact situation. When small companies approach one million dollars in revenue they frequently run into cash flow issues and discover that they aren’t actually making as much profit as when they had less revenue.  

I thought this over for a few days and ran through some numbers. I decided that the lowest performers in the company needed to go and we reduced our technical staff by two and our office staff by one, effectively shrinking by half. I dedicated 2022 to improving cash flow management and optimizing efficiency. I determined that we would not hire anyone else until those were straightened out. Through the year we worked on those things and developed even more robust systems. We ended 2022 with two fewer technicians, but with higher revenue and higher profits than in 2021. This was all because of intentional shrinkage. 

In January 2023, we set a theme for the year like we do every year. This year would be dedicated to growth, but this time, intentional growth from a much more solid foundation and a much more robust infrastructure. However, we didn’t know what was coming. The beginning of 2023 was a tough time for everyone. Nationwide, service company owners stressed over the enormous slowdown. And it was no different for us. It was very concerning. Fortunately, we worked hard on cash flow management in 2022 and had put aside enough cash to carry us through this slowdown. This year summer exploded as it had in the past.  

Although slightly delayed, our growth plan has seen plenty of action, 2023 has turned out to be a good year despite a terrible beginning. We mapped out a comprehensive five-year plan, opened up a new service area, and hired additional technicians and office staff. Now, we’re we are on track for another record year. None of it would be possible without first having shrunk, both voluntarily and involuntarily. Shrinking allowed us to rebuild a stronger and more resilient company, one better positioned to weather the frequent and constant changes to the market and the world post-COVID.

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