Three general problems when expanding a business
Expanding a business is like investing in the stock market. You're taking dollars, which could be more secure elsewhere, and risking them in an effort to generate greater long-term profits. In the short term, the effort may cost you money. But the plan is that eventually it will pay off in a greater yield. Just as it's foolish to invest in the stock market in an effort to get out of debt, it's also crazy to expand a business in order to cure it of an ailment.
Even then, I encourage people to think twice about expanding. For an expansion to be successful it can't be ad hoc; there needs to be a plan. For instance, perhaps your business has succeeded selling trendy shoes in a college town. Is your next step to open another trendy shoe store in another college town? Or do you open a more mainstream shoe store in the same town as you're currently located? Then again, maybe you should expand your inventory to include more than just shoes. Any of these strategies could work, but thought has to be given to which plan makes the most sense.
Every fear and dilemma about expansion that people bring is a misconception masking their lack of understanding about the nature of expansion. Therefore, the solution to every problem and fear about expansion is to become an expert. You first need to know your current business and market like the back of your hand. It's essential you figure out exactly what has been the key to your success and then determine whether or not that key can be duplicated. You next must become an expert in industrial, geographic, and demographic trends. For instance, if you're planning on opening shoe stores in the Sunbelt, maybe you'd be better off specializing in comfortable walking shoes for aging baby boomers rather than platform sandals and Dr. Martens. Finally, you need to become an expert in management. It takes a different personality and a new set of skills to run two retail stores than it does to manage one.
I'm afraid I won't have a life if I expand the business.
It's not uncommon for entrepreneurs to have trouble making the switch to become managers; and make no mistake about it, once you expand you must become a real manager. Your feeling undoubtedly is that you can make the switch, but in order to make a rational decision you need to look at the issue in another way: do you want to adopt a different role?
In addition to becoming an expert in your business, industry, and market, and the relevant geographic and demographic trends, you also need to become an expert in the alternatives to expansion. Rather than expanding this business you could sell it and start another. Alternatively, you could extract all the profits from this business and use them to fund another business, which you then spend most of your time launching. When the new business is ready to stand on its own you can simply fold the old one. Either is just as valid a business strategy as expansion, and both are more in tune with an entrepreneurial personality.
Won't I lose profits if I expand?
This problem generally is that you don't feel comfortable investing your ready cash in a long-term project. Rather than focusing on the hypothetical loss of capital you need to instead look at the specific numbers and make a rational decision based on them, rather than on abstract fears.
In addition to becoming an expert in your business, industry, and market, and the relevant geographic and demographic trends, you also need to become an expert in the finances of expansion. Speak with your industry contacts and use their input to develop a detailed plan. Then, sit down with your accountant and develop an accurate breakdown of exactly how much the expansion will cost and how long it will take. Turn next to the finances of your current operation, and determine what the effect will be of drawing down the funds you need for the expansion. Be conservative in all these estimates, creating a built-in margin for error. Study the numbers carefully. Get input from your family, friends, staff, professionals, mentors, suppliers, vendors, and even friendly competitors. Focus on the additional investment of time that will be required.
Won't service fall off if I expand?
Generally the actual problem is that you're afraid you won't be able to find staff people who provide customer service up to your standards. You are never going to find a clone of yourself. As the owner of the business you have more of a stake than anyone else could have. Instead, simply try to find good staff people who you can teach to provide excellent service.
In addition to becoming an expert in your business, industry, and market, and the relevant geographic and demographic trends, you also need to become a management expert, skilled in the hiring and training of staff. Seek out and speak with the owners of businesses whose staffs you find impressive. Ask them how they hire and train. If you don't feel you have the skills or patience to be a good human resources executive, consider farming out the task. Head-hunters can be used to poach your competitors' best people. Contact human resources and sales force training consultants and investigate their services. If you decide you'll need to hire professional help just make sure you factor the added cost into your projections.
tags: business
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