Expanding your business
All businesses need to grow. In fact the definition of a successful business is one that is growing. If you are not moving ahead, you are falling behind.
Most businesses have some capacity for growth. They can accept more customers without any major structural change in their business. This is especially true of new and young businesses that need growth to reach profitability or even break-even.
However, major expansion must be considered carefully since sometimes it changes the nature of your business.
Businesses (as do many things in life) follow an S curve. Slow growth at first, then higher, sustained growth, until the final phase-maturity. Hopefully, the sustained growth can be maintained for sometime, since maturity can be no growth and the precursor to stagnation or decline.
Continued growth is not easy. It requires the constant search for new ideas, new products or services, and new business approaches. It requires expansion.
What are the kinds of expansion?
Probably the first occurs when a business takes on employees. The nature of the one-person business changes to now include supervision and training. Security becomes an issue, especially if employees are handling cash. Whether you want to or not, you become involved with the employee’s personal life, especially the factors that affect their work. Filing for government agencies such as withholding, social security, workers comp, etc. takes effort. With proper management, you can leverage their efforts for grow so this type of expansion can be worth it.
Another major expansion is the second location. Sometimes this can provide economies of scale and sometimes it becomes a disaster. If you are running your one-location business because you are great with customers, have all your procedures in your head, are doing “everything”, a second location may not work. You need to have systems in place for employees to follow. You need to be a good trainer and boss, allowing just the right amount of delegation. If you have some unique skills that make your business a success, this may not work for you. Sometimes management of the first location suffers because of the attention needed to the second. Franchises can work because all the procedures and operations are in place. In fact many franchisees own several stores and become an Area Developer.
Launching a new product or service is expansion. However, this new offering must be compatible with your other offerings. It should be something new that you provide to your same market (your market niche). It must work with your distribution and marketing systems so that you are not duplicating these efforts.
Sometimes you might decide to expand your marketing efforts with new ideas a big ad campaign, direct mail program or even hiring a sales force.
Businesses expand when they take on significant new debt.
In all these and other situations where significant expansion occurs there are two main factors to consider. First the added revenue generated by this expansion must be considerably higher that the cost. This can be a complicated calculation involving revenue projections, fixed and variable costs, obsolescence, changing market conditions, and lack of complete data. A second significant issue, which is harder to quantify, is the impact on management’s time.
The only way to look at the affect of any proposed expansion is to revise your business plan (you do have one don’t you?). Look at some projections, alternate scenarios, and determine what happens to your financial position.
Expansion is the road to significant growth but it must be completely evaluated. The business plan is the tool to help. Remember, there is no status quo.
This article was written by Seattle SCORE Chapter member Fred Parkinson for the Kitsap Sun in Bremerton.