Handling Capacity

Too many times our clients have called and said something like: "We are so busy, it looks like it's time to add someone. Can you help us think through the right person to add, and how their role should be structured?" We usually back up and say: "Let's walk through whether you really need someone. First, why are you adding someone?" "Well, we are very busy." The conversation continues in that vein, as we probe for the real reasons. Often the principal feels like they are being pushed toward growth because clients need more stuff. That's not a good reason. You don't want to let growth happen to you (growth is defined here as adding employees, not increasing revenue. If you can add revenue without adding employees, go for it). That's not to say that you shouldn't grow, but rather that growth should follow careful consideration. One way to make sure that growth makes sense is to follow a stepped decision making process that first leads you through the alternatives. Next time you are tempted to add staff, walk yourself through these steps.

• First, do you have some lower level clients that should be phased out? It's easy, and natural, to become attached to clients who might have been a good fit for your firm in the past, but whose needs have not kept pace with your abilities. Unless a particular client is of a sufficient size to a) make money and b) do effective work, consider moving on. This might involve sitting down with them and explaining the situation, giving them a chance to provide you with more opportunities in the relationship. If that isn't possible, introduce them to a smaller firm. The fact that a particular client doesn't provide you with a lot of volume is not as important as providing you with profitable work. That's the key, and if they don't fit, phase yourself out of the relationship, providing additional capacity for your overflow work. This is always the first thing to consider before adding staff.
• Second, make sure that you are charging for all of your time (either in the estimating or the invoicing stage). There's no point in adding staff in order to subsidize even more clients!
• Third, raise your prices. Money is a wonderful filter, and it makes sense to be less busy at a higher rate than to be busier at a lesser rate. Raise your prices before adding people, too, so that your client base will have a chance to settle in. You'll find out who is going to stay around and who isn't.
• Fourth, make sure you can fund this growth with cash, whether that will cover build out expenses, employee acquisition, new workstations, or the increased overhead from this point forward. Spending cash will be a good discipline and also ensure that you can cut back if that growth decision needs to be reversed.
• Fifth, ask yourself whether you are comfortable inching more towards management and away from "doing." Your role will change just a little bit with each new employee (particularly when you expand beyond 5 total employees for each senior person at the firm).
• Finally, if you are comfortable with growing after stepping through this five-part checklist, go for it. But remember that "no" can be a beautiful word.

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