November 19, 2018
With as much media coverage as the stock market gets, it’s hard to imagine that there are fewer than 4000 companies whose stocks are actively traded on it. There are another 15,000 whose stocks are traded over the counter, but not on the New York Stock Exchange. In total, this makes fewer than 20,000 publicly traded companies in the U.S.
Considering the U.S.’s roughly 30 million companies, this means that far less than one-half percent of all companies in the U.S. are publicly owned, leaving more than 99 percent privately held.
Companies are usually privately owned for very specific reasons. The owners don’t want to be accountable to a board of directors. They don’t want to answer to a group of stock holders they don’t know and who usually weren’t involved in growing the business. They don’t want to be responsible for reporting quarterly earnings when they might have higher personal priorities than focusing on the next quarter’s earnings. The list of reasons is endless and as varied as the people who own the companies.
These are what could be referred to as “lifestyle businesses”—those set up and run by their founders primarily with the aim of sustaining a particular level of income in order to enjoy a particular lifestyle. Dollars are a convenient metric for measuring progress, but for these companies, they’re usually not the goal. Even if the primary driver is to achieve financial security, dollars are simply the means to that end.
If winning the next customer, earning the next dollar, answering to stockholders who demand continued growth, or even trying to live up to someone else’s expectations aren’t the primary drivers for these businesses, what is it that determines their ultimate size? Why do some of them grow into behemoths that employ hundreds or even thousands of people while others chug along day in and day out, perfectly happy with only a handful of employees?
While I haven’t yet located any research that addresses this specific question, my three decades of working with small business owners leads me to believe the answer lies within three general areas that I call the three Cs.
1. The owner’s Competence to grow the business beyond its current size.
2. The owner’s Confidence in the business decisions he makes.
3. The owner’s Comfort level with the business and his lifestyle.
Rarely is only one of these areas the sole driver. It’s usually a combination of two or even all three.
Naturally, there are other factors that will influence the ultimate size of a business. Among them are the age and health of the owner, significant events, or distractions in the owner’s personal life. While these may impact the size of the company, many of them also influence one or more of the three Cs.
Over the next few weeks I’ll explore these areas in greater detail, diving deeper into each and expanding on how they play out in a business. I’ll also offer suggestions on how to overcome the constraints that each of them can hold.