Is Bigger Better? What the Data Says About Business Growth

Business owners have always wrestled with the question of scale. Is it better to stay small and nimble, or to grow larger and gain the advantages that come with size? Recent analysis of client data sheds new light on this debate, revealing distinct differences between companies with revenues above $10 million and those with revenues below that threshold. While success is possible at both levels, the dynamics of growth, profitability, and flexibility shift significantly.

 

The Moving “Black Hole” of Growth

For years, advisors have referred to the “black hole” of businesses with revenue between $1 million and $5 million—a range where many companies struggle to maintain profitability. Adjusted for inflation, that challenge has shifted upward. Today, the pressure point appears to sit closer to $2 to $7 million. Costs are rising, markets are more competitive, and the demands of scaling have changed. Businesses that remain in this range often find themselves squeezed between higher expenses and limited ability to raise prices, making growth more challenging to achieve.

Inflation is a significant factor. Since 2020, cumulative inflation has surpassed 20 percent, fundamentally reshaping cost structures. What worked for companies five years ago may no longer be sustainable, which means the growth milestones business owners used to measure themselves against may no longer be applicable.

 

A Tale of Two Groups: Above and Below $10 Million

By segmenting client data into two groups—those with revenue above $10 million and those with revenue below—it becomes clear that size significantly influences outcomes. Larger companies reported a 13 percent year-over-year increase in top-line revenue, while smaller companies barely grew by 1 percent. That difference is not just academic. A growth rate above 10 percent typically enables a business to keep pace with inflation, reinvest in its operations, and maintain profitability. Growth of less than 5 percent makes it difficult to build momentum or improve margins.

The divergence is even more pronounced when examining gross margin. Larger companies increased gross margin dollars by 12 percent, almost in step with their revenue growth. Smaller companies improved only 2 percent. While modest improvement is better than none, such limited progress does little to offset inflationary pressures.

 

The Role of Team Structure and Market Share

Why do larger companies find it easier to maintain growth and margins? Part of the answer lies in organizational structure. Once a business surpasses $10 million in revenue, its team typically changes. Leadership roles become increasingly specialized, allowing companies to dedicate resources to specific areas such as sales, marketing, and operations. This added “horsepower” will enable them to capture greater market share and withstand competitive pressures.

Market reputation also plays a role. Well-established companies can raise prices without as much resistance because customers see value in the stability and credibility of a known brand. Smaller businesses, by contrast, may struggle to justify price increases without risking the loss of clients to larger, more established competitors.

That does not mean smaller businesses are at a disadvantage without options. Many are turning to fractional support—engaging subject matter experts on a short-term basis to build processes or strengthen capabilities without the full-time executive’s cost. This hybrid approach enables smaller firms to access expertise while remaining nimble, and reserves permanent hires for when scale truly demands them.

 

Operating Expenses and Profitability

The analysis also revealed differences in operating expenses. Larger companies spent 49 percent of their margin on operating costs, while smaller companies spent 56 percent. The gap makes sense: certain expenses, like software or leadership salaries, do not double just because revenue does. Larger businesses can spread these costs across a greater revenue stream, creating efficiencies that smaller companies cannot always replicate.

Profitability also favored larger firms. Companies with revenues above $10 million reported a profit margin of 17 percent, while those with revenues below $10 million earned 12 percent. Although both groups are paying attention to labor efficiency and overseeing costs, the difference in scale allows larger companies to reinvest more aggressively and absorb challenges more easily.

 

Strategies for Businesses Below $10 Million

If you are running a company below $10 million, the data does not mean you cannot grow or remain profitable. Strategy and discipline matter more than ever. Smaller companies should focus intently on increasing gross margin dollars, identifying which products or services generate the greatest returns, and doubling down on those areas.

They should also use their agility to their advantage. Smaller leadership teams can often pivot faster than larger organizations. While bigger firms may take months to align on a decision, smaller ones can gather the right people in a room and make changes in a matter of days. This nimbleness allows them to respond more quickly to shifts in customer needs or market conditions.

At the same time, smaller businesses must be quick to cut losses. Adding labor or overhead represents a much larger percentage of expenses in a $5 million company than in a $20 million one. When a new hire or investment is not producing results, leaders must be willing to make adjustments rapidly to protect profitability.

Playing Offense for Larger Companies

 

For businesses exceeding $10 million, the current environment presents opportunities to take the offensive. With more substantial margins and greater profitability, these companies can increase spending on sales and marketing, pursue geographic expansion, or diversify offerings to capture new market share.

The key for larger firms is to avoid complacency. While scale creates advantages, it also brings risks of overhead creep and slower decision-making. Leaders must remain vigilant, striking a balance between growth initiatives and disciplined expense management.

 

Learn More

Want to learn more about real-world examples of how businesses are navigating the challenges of scale? Mike Maxson and Brandon Gray share client experiences and practical insights on the differences between companies above and below $10 million in revenue, as well as the strategies that are helping each group succeed.

Listen to the latest episode of Profitability Playbook: The Simple Numbers Podcast to hear how business owners are managing growth, leveraging resources, and making smart decisions in today’s economy.