• August 14, 2013
4 minutes Read
About the time a business owner starts catching his breath, after wondering whether his business is going to take off, the next big question pops up: Should I expand? It’s a question that induces nearly as much stress, because it involves the same kinds of risks as starting up, frequently on an even larger scale. It’s one thing to go out on a professional limb and eschew a regular paycheck for the opportunity to assume full responsibility for every success—and every failure—of a business. Expansion, however, takes the responsibility to a whole different level.
Beyond here, there be dragons…
For one thing, most small businesses are born when someone decides that he or she can do it all him/her self, and the actual risks are less tangible. Sure, you’re giving up a regular paycheck, but there’s always the knowledge that you can go back to a “job” if necessary and be no worse for the wear, other than possibly being a bit behind in a few bills.
Expansion, however, usually represents an exponential increase in both energy and funds that the owner must devote. Especially in a tough credit market, most capital improvements (which seem to be a standard element of expansion) require that the business owner either self-finance or provide significant assets to secure the necessary funding. And an uncertain future looks a lot scarier when you’re betting your home or other treasured property on your ability to “do it right.”
So, when is it the right time to expand? First and foremost, you need to look inward, at the structure of your business. Is your business in a position where it can continue to function well on a larger scale? There are several factors that affect this. First of all, are your own efforts critical to the successful functions of your business, and would there be enough of you to go around in a larger operation? One of the biggest obstacles facing any small business is the ability and willingness of the owner to delegate functions to others. While the ability to delegate is typically perceived as an essential quality in a managerial-level employee, things are very different when you own—and are responsible for every aspect of—the operation.
The perceived need to retain control becomes more than just a personality trait; it is elevated to the stature of being an essential requisite for the business’s survival, not to mention being a reflection of the owner’s core mission and values. After all, this is your “baby,” and you don’t want to take any chances that might screw things up. Tough decisions here, but they are decisions you will have to confront if you are going to grow the business beyond its current state.
Secondly, you need to look closely, objectively, and even skeptically at the external factors that are inspiring you to think about expansion. It would seem to go without saying that you should think twice before expanding an operation based solely upon the demands of a single large customer (much less, a large order you think your company is going to land), but far too many businesses have been badly hurt or even destroyed because the owners believed that a single spike represented a long-term trend. Another factor to consider is whether your company has the ability to compete against others who are offering the same products or services, especially large operations whose operations are located in countries offering lower labor and regulatory compliance costs. It is interesting to note that Wal-Mart™, despite founder Sam Walton’s frequently touted “Made in America” marketing campaign back in the ’80s, has always leaned heavily upon its ability to obtain foreign-made goods at very competitive process. A number of their domestic suppliers apparently got into financial difficulties trying to maintain their status as preferred vendors despite the inevitable erosion of their profit margins in their attempts to meet Wal-Mart’s price demands.
Finally, it would behoove any business owner considering expansion of the business to consider whether expansion is really consistent with his or her business’s mission statement, much less the owner’s objectives and reasons for going into business in the first place. We’ve all heard the stories about businesses that rapidly grew to the point where the joy had gone out of the process. It’s a reliable plot for TV movies, and pretty much a cliché. But we need to remember that a cliché is, in reality, a truth that has been repeated too many times. If your greatest joy in your business is the personal relationship you’ve developed with a loyal customer base, you probably wouldn’t be too satisfied with a few thousand more customers, and you’d likely run yourself ragged just trying to maintain what would rapidly become an untenable level of personalized service.
On the other hand…
Let’s assume that you have done your homework, and are reasonably certain that the market your to-be-expanded business will serve represents a real trend, rather than a blip. Your company is structured in a manner that allows it to function smoothly without your having to keep your finger on everyone’s pulse and second-guess every decision being made in your name. You’ve looked at what your competition is doing, and are pretty sure that your company can do things better, at a higher profit margin, yet at a favorable price. Your financials are all in order, and even your banker thinks you’re making a smart choice in deciding to grow (and we all know how conservative bankers have become these last couple of years).
When all the ducks seem to be in a row, and you perceive the potential benefits as significantly outweighing the risks involved, it might be the right time to go ahead and make the leap. Just be sure to watch over the details of the business with the same keen eye as you did when you first started out. For all practical purposes, you are just starting out, on a new level and with ever-bigger goals. Do it right, and you just might emerge as one of those clichéd success stories. Perhaps not as big as Sam Walton, but big enough and successful enough to extend beyond your original dreams, while keeping with the values that matter most to you.
Photo credit: Lightspring/shutterstock.com
Stay up to date with the latest financial news.