Reaching Business Critical Mass

The expression “ Critical Mass “ is often used nowadays to describe that tipping point where an organisation reaches the particular size needed to trigger one or more self-fulfilling events. It seems that if you work hard at building something up, eventually it adopts a momentum of its own.

Reaching critical mass creates a virtuous circle. Acquiring new customers is made easier and faster, which allows for reinvestment into the business and facilitates further growth.

If you take a supermarket chain as a prime example, it is not difficult to appreciate that a company with 50 stores is going to really struggle against one with 1,000 stores. The larger chain is going to be able to negotiate much better prices from its suppliers and will enjoy many economies of scale which will result in its prices being even keener. For instance, both chains may have a single buyer for breakfast cereals but the cost per store for the larger chain is going to be only a twentieth of that for the smaller chain. All these factors are bound to be reflected in prices charged to the end-user.

Similarly, bigger buyers of hotel rooms and event venues can, by virtue of their purchasing power, negotiate much better prices which can be passed on to their clients. For those corporates conducting above average numbers of conferences etc., these total savings can amount to quite significant sums.

Take European events organiser, Banks Sadler, for instance. With offices in major international business centres like London, Paris, New York and Dusseldorf, the company handles over 15,000 venue find bookings and 400 event management agency projects for major corporations, SMEs, public sector bodies and associations every year.

They reckon that their annual £100 million + buying power results in savings averaging 31% against published tariffs. These savings can either be passed on fully to clients, used to employ the very best staff on the market or a mixture of both. Either way it is the company’s clients that benefit and it seems that in certain service industries like this, size really does matter.

While it is difficult to reach critical mass in a tough economic environment, and particularly so for start-ups, this is where the fun and hard work often begin.