BUSINESS STRATEGY & GROWTH • February 1, 2016
2 minutes Read
You’re an entrepreneur who’s persevered past the startup phase. Congratulations, you’ve survived. Now it’s time to begin thinking about growth and possibly expansion. A successful expansion can improve profit margins, create a competitive advantage, and allow you to capitalize changing market conditions. But that doesn’t mean it’s an easy process. As you consider expansion, be aware of these seven potential pitfalls that can derail your business.
1. Stretching beyond your niche. Often, when owners try to expand their business’ focus, they end up diluting it instead, adding products and services that aren’t clearly aligned with the original venture (think of a jeweler who adds an in-store cafe or a caterer who gets into wedding photography). Before you take on a new business, develop the one you already know. Augment your target marketing or geographic service area first, and then, perhaps, think about your core products.
2. Over-expanding. It’s good to dream big, but be sure to let your three-to-five-year financial projections guide the pace of your expansion. Growing beyond your company’s current financial resources and/or the market’s demand can put your whole business at risk. Instead, use your historical growth rate and market data to plot your trajectory.
3. Choosing the wrong funding source. Know the difference between debt and equity funding before starting your money hunt. Do you have the cash flow to afford a big loan? If not, taking on an investor in exchange for part ownership may be a better solution. But what are the terms of that investment? Have a discussion with your accountant and advisory board before committing to anything.
4. Doing too much yourself. Sure, DIY projects can save you money, but bringing a project in-house can cost you a lot of time, and, especially in the case of technology, your homegrown system may not be as effective as what is already on the market. Weigh the time and resources that will have to be diverted from customer-facing work against cost-savings before nixing the idea of buying an existing solution.
5. Hiring too quickly. In expansion mode, you may feel like you need more employees, and you may become less picky about their skill sets in an effort to keep up with demand. Employees will make or break you, so slow down on the hiring. Getting the right people in place, with the right backgrounds and experience, is so much more important than simply having bodies in chairs, or on the manufacturing floor.
6. Trying to go it alone. Everyone needs a team of advisors to turn to for recommendations and guidance. Even a casual advisory board made up of your accountant, lawyer and a management consultant can help prevent poor decisions.
7. Keeping quiet. If you have big plans that will impact your employees, customers, and vendors, tell them! Trying to roll out a new product line while keeping your biggest supporters in the dark can only end badly. Help fuel your growth by announcing your grand plans to get those around you excited and involved.
Photo credit: Fon_nongkran