Yesterday I came across this interesting article by Susan Reid at AmEx Open Forum about why you should stay within 2 degrees of separation when starting a business. She argues that you may end up feeling overwhelmed with everything you’ll need to learn just to get up-to-speed if you stray from 2 degrees of separation.
For the most part we agree with this. After all, there are number of benefits of staying within your comfort zone when it comes to starting a business – you have less of a learning curve; you can operate the business yourself and save on employee cost and most important you will enjoy what you are doing.
Difference between operating and managing business
There are situations where it makes sense not worry about 2 degrees when starting a business. To understand why, you need to know the difference between operating a business and managing it. While they may look similar there is a subtle difference between the two. You are more hands-on when operating a business – called owner operated business model. This may not be the case when you are managing it. In this instance you may be running the business absentee and hiring the manager and employees to operate the business. The skill set required in both cases are different to some extent. In an earlier post we showed what it takes to succeed in running absentee business.
In the book The E-Myth Revisited author Michael Gerber makes an excellent point about why many small business owners get frustrated by the demands of running a business when they start business that is simply based on their hobby. He argues that owning a business involves more than just selling your hobby. He also makes recommendation on how you can succeed by putting system in place so that your employees can perform the task with the same degree of excellence as you would.
Pros and Cons of operating and managing business
While owner operated business model gives you the ability to start it with limited resources; the growth is clearly limited. After all, you can be hands-on only at few places. It is a good model if all you want to do is own a family business that doesn’t have to be big and provides sufficient income to manage your personal finances.
Managing the business with employees and managers, on the other hand, gives you the ability to grow. It also provides you flexibility to take care of other tasks. However, it comes with higher risk and potentially lower return.
Our recommendation
So when does it make sense to stray from 2 degrees of separation when starting a business? If you have big goals and plan to scale your business beyond just one unit we think you should not be limited to 2 degrees of separation. Of course, you need to be a good people manager who can get the best out of its people. Also, be prepared to accept the lower return compared to owner-operated model and may be higher risk. Owning a franchise business makes perfect sense in this case because of the systems and operating procedures the franchisor have put in place to be able to run the business absentee.
On the other hand if you are more hands-on type who cannot let go and if you do not have ambition to grow big you should focus on staying within 2 degrees of separation.
Of course owning any type of business is a challenging task. Not everyone is prepared for it. Check out this post on what it takes to be a small business owner to find out if you are.
What do you think? Can you open a restaurant even if you are a lousy cook?
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