Xero economist Louise Southall has spent about twenty years working in and around small business. On The Good Builder Podcast she named the specific headcount band where operators struggle most, and explained why it is a structural gap rather than a phase.

Most discussion of why building businesses stall points at the owner. Not enough delegation. Too much time on the tools. A reluctance to let go.

There is truth in that, and it is well covered. The ceiling in a small building business is frequently the person running it.

What is less often described is where the ceiling actually sits.

Louise Southall is an economist at Xero, working across the Xero Small Business Insights program. Asked on The Good Builder Podcast about technology adoption across different business sizes, she named a specific band without being prompted for one.

“I always feel like that small business size from about five to about ten, twelve is really hard, because things have got a lot more complicated, but you don’t necessarily have the ability to employ a business manager or someone like that.”
LOUISE SOUTHALL, ECONOMIST, XERO

That sentence describes a gap rather than a growing pain, and the distinction matters.

Complexity Arrives Before the Revenue to Absorb It

A building business with two or three people runs on proximity. Everyone knows what everyone else is doing because they are usually in the same conversation. Coordination happens without a system because the system would be slower than just asking.

That stops working somewhere around the fifth or sixth person, and it does not stop gradually.

Southall described what starts demanding attention as headcount climbs.

“As the business grows and you start employing people, then you need to start looking at tools that can help you manage that,” she said. “So tools that can help manage project management, making sure you’ve got the right people on the right site at the right time. Even managing leave and those sorts of things, that becomes much more complicated the more people that you add to the business.”

Each of those is a genuine management function. Scheduling labour across concurrent sites. Tracking entitlements. Keeping job costing current. Making sure someone is accountable for each build rather than each build being everyone’s problem.

In a larger business, those functions belong to somebody. At eight staff, they belong to the owner, on top of everything the owner was already doing.

The revenue at that size does not usually support hiring a person to take them off. So the work does not get delegated. It gets absorbed, and it competes directly with the estimating, client contact and site presence that actually generate margin.

The Same Pattern Shows Up Further Up the Business

This is not only an owner level problem, and TGB has heard a version of it recently from the other end of the org chart. Bold Living general manager of construction Rod Gibbs has argued that the residential supervisor role has roughly doubled in workload since 2016, driven by more complex designs, additional compliance and the rise of independent inspections, while job counts largely stayed where they were.

The mechanism is identical. The task list attached to a role expands while the resourcing attached to it does not, and the shortfall is met by whoever is holding the role working longer.

At five to twelve staff, the person holding the role is the owner, and there is nobody above them to notice.

Why the Skills Are Genuinely Different

Southall has spent roughly twenty years working in and around small business, and her observation about who struggles is not about capability.

“There’s a lot of people running a business who are really good at the trade. So they’re fantastic plumbers, they’re fantastic bricklayers, they’re carpenters, really, really good at that trade,” she said. “But to be a good small business owner in the industry, you almost need to approach it like you’re doing a second apprenticeship. You are learning all the skills that are needed to run a business, which is very different to being really good at your trade.”

It is a framing that lands close to how Brisbane builder Rod Frampton has described the same thing on the podcast, in arguing that a builder is really a business owner who happens to operate in construction.

Southall approaches it from the outside, across half a million small businesses rather than one industry, and reaches the same place.

“Not many businesses are going to fail because the trade itself is not good,” she said. “It’s more that the cash flow isn’t coming in quick enough, or being maintained.”

The second apprenticeship framing is useful mainly because of what it implies about timing. An apprenticeship is served while doing the work, not before starting it, and nobody expects competence in year one.

What Fills the Gap Before a Business Manager Can

If the constraint at five to twelve staff is that the business needs management capacity it cannot yet employ, the practical question is what covers the interval.

Southall pointed to external expertise bought by the hour rather than by the salary.

“Ultimately the decisions in the business are down to the business owner, but an accountant or bookkeeper can guide you through and help you ask the questions,” she said. “They’re like a coach for your business. They help you ask the right questions, and they also understand what you’re trying to get out of your business, because every business owner has a different reason for why they started the business, different objectives.”

That last point does more work than it first appears to. A sole trader who intends to remain a sole trader and an operator intending to scale to fifty homes a year need different structures, and neither is a lesser ambition.

Southall also named two sources of the same capacity that cost nothing beyond time. A colleague already running a business at the next size up, and industry networking groups where operators at the same stage compare how they have solved the same problems.

Az has made the point that this answer surfaces repeatedly from people who have built substantial businesses. He recalls asking an experienced residential developer what makes a good builder and receiving a two word reply: a good accountant.

It reads like a joke until it is read as an answer about capacity. At the size where a business cannot employ a finance function, it buys one in fractions.

The Tech Stack Is Supposed to Change

Technology is the other thing that stretches management capacity at that size, and Southall was specific that the right tools are different at each stage.

For a sole trader or a two person operation, her emphasis was mobility.

“Particularly for construction, you’re often not in an office. You’re trying to do quotes, invoices, chasing payments on the run,” she said. “So looking for tools that allow you to have that mobile element are really useful.”

At eight or ten staff, the requirement changes to coordination and integration, which is a different category of tool rather than a bigger version of the same one.

“What you need in your tech stack will change as your business grows,” she said. “So that’s why it’s important to think about, okay, what do I need right now? What are the things I’m trying to solve right now? And then as your business gets more complicated, have something that you can add to.”

The implication is that a platform chosen at three staff is not a failure if it needs replacing at ten. It was correct for the business that selected it. The mistake is buying for a size the business is not yet, and paying for complexity that adds administration rather than removing it.

An Industry Already Built for This

Southall closed on a point that is easy to miss, and it is a more optimistic reading of the sector than it usually receives.

“The industry is a lifelong learning industry. That’s what I love about construction,” she said. “You invest in skills from apprenticeships, you’re constantly hiring apprentices, you’re constantly improving those skills in your business, in your industry. And I think that sets construction in good stead, because as lifelong learners you can also be improving those business skills all the time.”

Construction is one of the few industries where structured, multi year skill acquisition is the normal entry path rather than an exception. Every builder who came through a trade has already completed a long apprenticeship in something difficult, under supervision, while working.

The five to twelve stage asks for the same thing again, applied to a different set of skills.

The stage is hard because of a structural mismatch between when complexity arrives and when the business can afford to staff for it. That mismatch is real, and it is worth naming rather than treating as a personal shortfall.

It is also temporary. Businesses that get through it do so by buying expertise in fractions, choosing tools that fit the size they are now, and treating the business side as something still being learned rather than something that should already be known.

The full conversation with Louise Southall is available on The Good Builder Podcast.

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This article contains general information only. It is not financial, legal or taxation guidance, and it does not take account of any individual business circumstances.

Author: TGB Editorial