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Optimal firm size refers to the speed and extent of growth that is ideal for a specific small business. Optimal firm size is dependent on a variety of internal and external factors. For some home-based businesses, the optimal size may be the two founding partners—a husband and wife—if their primary operating goal is simply to bring in enough revenue for a comfortable standard of living, while leaving large blocks of time for family or travel.
But most companies are intent on expanding their operations. Growth of some kind, either in revenues, profits, number of employees, or size of facilities, is essential for almost every business. For many companies competing in rapidly changing industries, expansion (of manufacturing capacity, geographic presence, market share, etc.) may be imperative for survival.
Successful entrepreneurs and business experts agree that the key to finding the optimal firm size is to grow in a controlled way. In some cases, restraining growth is simply a matter of saying "no," or turning down new business. This is particularly true for service businesses that depend on the personal attention of the founder.
When turning down business becomes necessary, the entrepreneur may wish to provide referrals in order to maintain good relations with potential customers.
