Why businesses choose to not grow.

• Author: White, Doug
• Position: WORKPLACE

It's undeniable that small businesses comprise the growth engine of the United States economy. The Small Business Administration reports that there are 22.9 million small businesses in the U.S., and the Bureau of Labor Statistics notes that small businesses produced 90 percent of net job creation from 1996-2007.

Thus, for the U.S. to recover from the economic slowdown of recent years, and for unemployment to be driven down, small business will need to lead the way. But for a variety of reasons, not all small business owners choose a path of growth.

The Harvard Business School teaches that the primary objective of a business in a capitalist system is to create shareholder value. To oversimplify, businesses increase shareholder value by increasing the bottom line. To be sure, if a business has financial investors, there is a fiduciary obligation to grow the bottom line.

When conducting research for a new book, the authors here interviewed owners of more than 100 small and mid-size businesses. Many of them had made a concerted decision to not expand, saying that growing is simply not something they wish to do, or feel they can do.

Reasons for Choosing To Not Grow

Three primary reasons are behind the decisions:

1. Avoiding risk and maintaining a lifestyle. One concrete contractor, with revenue of about $2 million annually, said his business enabled him to make a very nice life for himself and his family, even allowing time to pursue hobbies that he loves.

   As a businessman, he is highly respected in his industry and there is usually more work than he can accept. Even when times are tough, he keeps his crews busy. There is little doubt he could grow his business significantly if he decided to do so.

   That would mean buying more equipment, hiring more people, perhaps working longer hours and definitely delegating significant decision-making authority to new managers.

2. Avoiding regulation. Through hard work and excellent customer service, a local bank had grown its assets exponentially, hired many employees and created good jobs.

   As the number of employees increased, the head of human resources told the president about rules and regulations, in particular, when employing a minimum of SO employees, the firm would be subject to the Family Medical Leave Act (FMLA).

   After gaining a thorough understanding of the complexity of complying with FMLA rules, the president decided to curtail the growth of his bank. He wasn't opposed to extending the benefits of...