Knowing When to Grow (continued)
Ready, Set, Grow
Before you push the “Go” button, you want to do your due diligence. Hopefully, you have integrated data into your business operations and can access Profit & Loss and Cash Flow reports, general sales analytics and other data streams that you use to monitor your business, such as customer volumes, lead conversions, etc. These will help you make informed decisions about the opportunities and risks associated with expansion and create a fundamental cost analysis to ensure the numbers add up.
The decision to grow should never be an emotional one. It’s easy to get carried away with the idea of a bigger space, a new location or a swanky new office, but decisions need to be based on reality, not emotions. Yes, the corner retail space may seem perfect, but how does it change the projections for your business? Even a couple of dollars per square foot can have a significant impact on your bottom line.
Timing is important, too. Expansion requires time, resources and energy. If everyone is already slammed, where is the extra bandwidth going to come from to expand your business, which may require changes to your supply chain, lead generation strategy, signage, marketing materials and even your physical space?
You also need to decide how you’re going to grow. There are two main ways: organically or inorganically. Organically is the usual method, as it simply requires you to find new customers for your existing products or add new products to sell to your current customers. Inorganic growth requires more planning and resources. This is where you move to a larger location, add a new location, acquire another business or move into a new line of business that is different from your existing business model.
A new SWOT can help
An excellent way to find out if you’re ready to grow and determine which kind of growth you should engage in is to run a new SWOT analysis to assess each growth strategy’s Strengths, Weaknesses, Opportunities and Threats. Additionally, the weaknesses and threats may help you determine the timing of an expansion.
You’ll also want to survey the existing market and your competitors again. A good tool for this is Commerce’s SizeUp tool. It can provide you with the data necessary to analyze various growth strategies.
Advantages of growing
Growing your business has distinct advantages. First, it can be easier to secure additional capital from investors or banks. Second, you can often negotiate better discounts and credit terms from suppliers since you’ve increased order volume.
From a recruitment standpoint, you may find it easier to attract top talent as you’ll be able to offer a more competitive salary and benefits package. In addition, candidates may prefer to work with a bigger business than a smaller operation, thinking it is more stable and that there will be more opportunities for job growth.
More volume means more inventory turns, which increases profitability. Products sitting unsold in a distribution center or warehouse are a liability, not an asset. More inventory turns translates into better terms from suppliers and higher margins.
With an increase in size comes an increase in complexity. The management of the business may become more time-consuming and costly. You may need additional layers of management to keep everything running smoothly.
If you’re known for your personalized service, growing may have an impact. As your customer base grows, you may not be able to know every single customer personally or provide that level of service they have come to expect. Maintaining this level of service may require you to add staff or improve onboarding and training to maintain consistency.
An increase in scale can require new equipment, fixtures, signage and inventory. This can affect your cash flow and put your company at increased risk of debt.
If you are planning to move to a larger space or knock out a wall to expand your existing footprint, you need to factor these into your costs into your calculations:
- Purchasing extra store fixtures or storage racks.
- Stocking additional raw materials, products and/or finished stock.
- Hiring additional staff
- Increasing your advertising, marketing and recruitment budgets.
- Improving access to handle additional traffic, including parking and waiting/reception areas.
If you’re buying another business, consider the cost of:
- Upgrading inventory, accounting and customer management systems.
- Buying additional licenses for existing software.
- Expanding, upgrading the IT network.
- Purchasing and standardizing workstations, computers and supplies.
None of these hurdles are growth killers. You’ll be able to address most of these in the planning stage before a single dime is spent. You’ll know the financials involved, the time it will take and the chances of success. Planning is the least expensive part of an expansion strategy. Take the time to research, analyze, question, assess and decide. You’ll thank yourself later.
As you plan for potential growth, remember that your various stakeholders come first. That means your customers, suppliers and employees. They make your growth strategy possible. If they aren’t at the top of your list of priorities, know that your competitors will be more than happy to snatch them away from you.
Before you spend that first dime on growth, make sure you speak with your suppliers. You may have to increase stock, product and raw materials or renegotiate delivery schedules and pricing. Catching them flatfooted will not win you any friends – or discounts. Make sure they have the capacity on their end, and if they don’t, line up other suppliers to fill the gap, even if it’s just temporary.
If you need additional staff to handle an expansion, consider hiring contractors, part-timers or freelancers. We cover this in more detail in Lesson 8: Scaling Your Workforce.
And whatever you do, not forget your current employees. When the time is right, clue them into your plans for growth and expansion. Don’t let them hear it out on the street or a friend’s social media post. You want to be the one to tell them and to control your story as to the whys and whats.
Take care of yourself. Growing your business will increase your workload and stress level. Consider delegating tasks when possible so you can concentrate on the significant issues. Realize that expansion has a finish line. You will complete the process at some point, but you may experience growing pains along the way. Don’t take it out on coworkers, friends or family.