Thinking about expanding your small business

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Small businesses that have survived the early start-up stages and have established themselves in the marketplace must devote some time to mapping out possible growth trajectories for the short, medium and long term. Business expansion can take the form of offering the same products and services on a bigger scale (either through owned branches or franchises); diversifying into complementary or unrelated product and service offerings; or adopting a new business model (e.g. outsourcing certain functions in order to focus on core services, entering into partnerships with other businesses to reach a bigger combined client base).

What are the critical factors for small business owners to take into account when making the decision of if, when and how to expand their business?

The first of these is the small business owner’s vision for the business. Some small business owners’ are content merely to establish a profitable, sustainable business and have no intention to scale up regardless of how successful they become. This may be due to: the small business owner’s desire to achieve and maintain certain standards relating to the quality and innovativeness of the product, service and customer care; the business owner’s wish to observe a certain work-life balance which would not be possible with a business expansion; and the business owner’s intention to create a working environment characterised by features such as informality and a flat organisational structure.

For those small business owners who want to expand their business, timing is crucial. Timing is important from the perspective of the maturity of the business (e.g. experience in delivering the product or service, having effective internal systems in place to manage operations) as well as the rate at which the growth takes place (e.g. quickly or slowly). Growing too quickly can result in taking on upfront costs (e.g. financing, equipment, staff, inventory, buying or leasing property, renovations) that the business cannot support. Growing too slowly can result in the business missing out on opportunities in the marketplace.

In addition to thinking about timing, specific questions small business owners can ask themselves to gauge their readiness for expansion and plan for it include:
• Is there sufficient demand for the product or service?
• Is the product or service suitable for mass roll out, or is it better delivered in the current small business setting?
• Will the additional revenue justify the increased costs?
• What can be done to minimize disruptions and ensure that existing customers continue to receive the same quality of service?
• Does my existing network of suppliers have the capacity to cope with an expansion? What can be done to address this?
• How will I exert control over an expanded business and ensure adherence to the original vision and mission statements?
• How will the expansion be financed?

Written by: Fadzai Munyaradzi for Simply Biz SA

 

 

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22 comments
    I think that the temptation to want to grow too quickly is inevitable. As a young business you are constantly looking for business you are constantly thinking about the next project to keep you moving forward. The interesting question for me is after how long do you know you are reading for expansion? is it when I have an established client base when Im comfortable with my turn over and I know I have the potential to take it to the next level?
    Great question! I would be very interested to here from any business owners that have expanded as to when the best time to do so is.
    A client base is one thing but are they the right clients? That is are the sales you are making replicable? If they are then you may have achieved product/market fit. And until you've achieved product/market fit you will struggle to expand as you'll be pushing your offering on your customers instead of having them pull it away from you.
    Patrick how did you know when you had achieved a market fit and that your business was sustainable enough to expand? It can be quite an investment doing so and tricky to know when to strike.
    What has your journey as an entreprenuer been in terms of expanding your business can you pin point parts in your journey of building your business that you can identify as growth points?
    I think for me the business is still withiinthe first 5 years of operation and although I registered my business in 2011 its only in 2015 that I started being operational so that's like what my third year this year? I can track growth but it has been a slow rise and its been trial and error along the way. So there's definately a difference between growth and expansion. Though they may seem to mean the same thing
    There were a variety of reasons we expanded. Although I champion the idea of deliberately working towards product/market fit that's not the only factorthat caused us to grow. We had to grow with our clients and partners as they demanded more of us. Our partners took us into new geographies and bigger clients so it was demand-led growth to a large extent. Once we were in those new geographies we started to realise that the majority of our ideal addressable market was actually overseas and we scaled to meet that demand accordingly.
    A note on finance... Some entrepreneurs are really good at raising funds for their business. Perhaps more so than they are at making money within the business. The temptation will always be there to raise funds to alleviate the daily pressures you're experiencing. But you have to be honest with yourself and ask What strategy am I funding? And does this strategy lead to a more profitable future? Becuase if you're raising money to stop worrying about your bills you probably don't have a growth strategy yet that's worth funding.
    Very interesting article - it really makes you think... I agree with Khanyithat the temptation to want to grow too quickly is inevitable - you get excited as a business owner and want to jump into everything feet first!
    I've run my business for 10 years now - a lesson that I've learnt is that growth happens in spurts and not leaps. Sometimes as a growing business just tackling your operations and putting process and procedures in place as a sign of growing as a business and business owner.
    I've run my business for 10 years now - and a lesson I've learnt is that business growth does not happen in huge leaps but a series of spurts. Sometimes just putting operationalprocesses and procedures in place is a sign of growth for a business.
    Great thoughts Patrick. How would you guide a small business ownerthat is starting out with a big idea and just needs that initial cash injection to boost them?
    That's a great point. You can grow in maturity and capability in many ways before the revenue catches up. Here are a few things that came before revenue for us: • Robustness and stability of our tech platform • Customer experience capability • Product quality • Governance • People development And much more! And we wouldn't have been able to service to the major multinationals that we do until these and other capabilities were in place.
    I bootstrapped my company as opposed to raising start-up capital. As a young company I didnt want to rake up unnecessary debt so I grew my operation in relation to the growth of the business itself. I ran my company from home until I was ready to move into an office. I bring on staff on a project-to-project bases that has a fixed term and a budget for that period so far thaat strategy has managed to keep my finances in check and also enabled me to focus on building the business without the pressure of paying monthly salaries yet to full time staff. This of course is also dependent on the type of business you are running. Im in the medi aand communication space so we offer a service as opposed to selling a physical product. If I was running a different type of company say a bakery or a plumbing company start up capital would have been essential - whether my own or borrowed - to get the business going.
    In our online business we have found that growth has been painfully slow. We made a lot of costly mistakes in the beginning and so organic growth was our only option. The positive side is that we have been able to manage the challenges associated with growth such as premises and staffing. Cash flow remains the number one impediment but it forces us to think long and hard about wheter we can take on a product line or advertise in a specific area.
    Wisdom & grey hairs definitely came first!
    I agree Michela the carrot dangling in front of our noses can take our focus off what needs to be done. It's always better to stick to the plan!
    Its interesting that you should say that I would have thorught that online businesses are growing exponentially because everyone is turning to online for just about everything now. Do you find that there is already a saturation in your field or cautious investment on the customer's part?
    Yes! And when you don't have a plan the dangling carrot can take you into areas you didn't really want to delve into.
    Is it possible that sometimes we dont trust our own businesses to try and take on big clients big ideas etc and so we keep getting smaller jobs that take the same amount of time and people but dont make the same money. Trust yourself and your business and try boxing above your weight Love the famous but true story of the millionaire James Caan from UK Dragons Den who needed a good names and a good address to attract the right clientelle so he made up a name Alexander Mann and hired a cupboard in Pall Mall Londons best address and the rest as they say is history. When people wanted to meet he did it in the coffee shop across the road and be boxed clever to become a huge recruiting business in the UK
    Is it fear or more about growing proportionally to your ability to deliver in terms of capacity staffing experience? I would think that taking on too much to soon is just as dangerous as playing small in a big sea where there are many fishes to catch...How does one strike a balance? I like that story of James Caan - he is ambitious and understands the value of Gorrilla Tactics!
    The time to quit is always too soon. I attend numerous business seminars that showcase sucess in abundance shares failures and the 'How to' process. What is evident and backed by the financial guru himself - Robert Kiyosaki - is that one should create multiple streams of income. At least 1 active based income and look at creating a passive / aset based style income. For simple reasons: 1. If you are the incomegenerator in an active based quadrant what happens when you are removed from the equation? 2. Market trends fluctuate 3. Passive income is the best form of remuneration. Is'mt that the type of income we live on at retirement? Now bring that type of income closer in terms of timeline - break the 40 year work trap. Far too often people put ALL their efforts into one avenue - the small business that they started for mostly sentimental reasons. Be brave to diversify. Fortune favours the brave! The best way to create additional streams of income is to link into networking businessor MLM as they leverage your time by working in teams which suits those 'busy' people. No not all are pyramid schemes so don't get the crucifix out. The new busines words are DISRUPTION and PLATFORM. I cannot remember who the author is of a book called 'Rise of the Robots' which was a recommended read (I do not have a copy yet) Some other books that puts perspective into place are Cash Flow Quadrant and The Business of the 21st Century - Robert Kiyosaki - worth a read! All the best.