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May 16, 2018

Small Businesses With Greater Revenue Experience More Growth Challenges

Small businesses face a number of challenges to growth, and the obstacles appear to increase as ventures grow their annual revenue.

Findings from our City National Small Business Report identified several challenges to the growth efforts of small businesses. With unemployment currently below 4 percent, it was not surprising to see "access to skilled labor" among the top challenges, with competition and revenue also leading the list. Nearly 32 percent named competition as a challenge to their growth pursuits, while close to 31 percent cited revenue and 30 percent noted access to skilled labor.

When we segmented the survey results by respondents' business revenue, some noteworthy differences appeared. We found that a greater proportion of businesses with $3 million or higher in revenue experienced hurdles to their growth pursuits, compared with smaller enterprises.

Could the difference be a simple matter of "bigger business, bigger problems"? That may be an oversimplification, but not entirely off-base.

"I think businesses become more complex as they get bigger," said David Cameron, head of business banking at City National.

"Generally speaking, small companies don't have as many departments, they typically have fewer relationships with vendors and customers, they have fewer employees, and the competition isn't as fierce," he said.

Smaller firms typically compete within very limited markets and have a relationship-driven niche most commonly maintained by the owner, Cameron noted.

"Companies beyond the $3 million revenue range are competing in a larger market and owners are forced to rely more on their key employees to develop and maintain valuable relationships," he said.

"The larger the market, the more competition - and the competition tends to be bigger companies," Cameron added.

In addition, once companies reach higher revenues and have moved beyond establishing themselves, they may be more focused on expansion, which can be difficult. “They recognize that they've built a business, they have a platform and now it's ready to grow," he said.

Competition, access to skilled labor and revenue are "all correlative to one another," as companies need skilled labor to produce the goods to drive sales, and they compete with each other for that labor, Cameron noted.

If your business experiences any of these challenges, read our Small Business Report, which includes resources that might help your business find ways to overcome some of the hurdles involved in growth.

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This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.