The key to expanding or growing your business is planning. Growing your business can be risky but the right strategy coupled with sound tactics can deliver stability, security and long-term profits.
Before you know where you‘re going, you have to know where you are, and that your core business is still performing well. It‘s time to review your progress: to see what‘s working well and what could be improved, to measure where you sit against your competitors, and identify where you want to go next.
Internal reviews of business efficiency, core activities, your financial position and an analysis of your customers and market will help you take a step back and think strategically about the future. It‘s vital not to neglect your existing customer base as they will underpin your growth and, equally importantly, provide the cashflow you will need during this phase. Don‘t forget to look externally as well: make sure you know where you are in the marketplace with a thorough competitor analysis.
Timing is critical to the success of any growth strategy. Before you can go ahead with a plan you need to ask yourself whether the business can cope with expansion or if it is already working to full capacity. Similarly, do you have the resources and systems in place to carry on running your existing business while targeting expansion elsewhere?
Once you‘ve assessed the current strengths, weaknesses, opportunities and threats to your business, and how well it‘s equipped to handle them, you can move on to the next stage: building a strategy for growth.
Going for growth
There are a number of options available to a growing business. The path you choose, however, will obviously depend on your current situation, the resources at your disposal, your market and your aspirations as a business owner. Remember, some businesses encourage a certain lifestyle, like work/life balance, making some growth strategies less viable than others. Other entrepreneurs may be happy to stick with a small but successful operation.
Increasing marketshare
To increase marketshare, a business has to either take customers away from its competitors or attract new customers. This requires a thorough understanding of both your customer base and those of your rivals in the marketplace.
Identify potential customer groups that may have a need for your products and services that you have not yet targeted. Also give some consideration as to whether your products or services could be used for other purposes and appeal to a wider market. This is particularly important if you own a seasonal business, for example.
’A detailed cashflow forecast is essential, not least because your
outgoings will rise sooner and faster than revenues. You need to make
sure there is enough money in the pot to keep the core business running‘
Analyse your competitors‘ strengths and check you have them too. If not, why not? Should you have them and, if yes, how can you get them? Consider why these customers buy from your competitors. What advantages do you have over your rivals that may attract their customers? How can you communicate your unique selling point more effectively?
Finally, if you are to pursue this course of action, find out what changes will need to be made regarding pricing, marketing, distribution and service levels. And, most importantly, could these changes upset your current customers?
Diversification
While many small businesses grow by taking opportunities to diversify, you should be mindful of risks. Businesses should assess these and the associated costs against the benefits offered by this growth strategy.
Diversification can take several forms, including offering new, related products or services to existing customers; selling to new markets using existing products; or developing new products for new markets. Successful diversification into new areas requires thorough market and customer research to be undertaken for any new product or service as well as a clear development strategy (including testing the market with new services or products).
While diversification can pose some risks – such as costly delays and mistakes owing to a lack of knowledge or expertise in the new area – it can also limit the impact of changes in the market on your business in the longer-term. If you supply one product or service and it falls out of favour with customers, you could be left very exposed. If you have two or more products or services and the sales of one of these drops, at least there will be revenue coming into the business through the other. However, you could lose track or dilute your core product or service if you diversify too quickly.
Generally speaking, diversifying with similar products or services and selling them to a familiar customer base is less risky than creating a product for a completely new market. Above all, make sure your approach is considered and balanced.
Joining forces
There are other growth options, of course. A business can also expand by joining forces with another company. While this can increase the administration involved in shared decision-making, for example, and cause staff and management issues, there are also clear advantages.
Successful co-operation can deliver diversification and organic growth using a larger skills and talent base; increased resources; an increase in marketshare; a sharing of the managerial load; and a bigger pool of contacts.
Partnerships and joint ventures in particular can provide many benefits, but it is essential that you draw up an agreement defining the terms of the partnership or joint venture to protect the interests of both parties. The venture or partnership must be a win-win situation for both.
Mergers and acquisitions are more suited to established enterprises and these transactions will involve commercial lawyers and considerable legal work. An acquisition is when you buy another business and end up controlling it, while a merger is when you integrate your business with another and share control of the combined business with the other owners.
The benefits of joining forces with another business are numerous, but you must make sure your business is ready. Make sure you are ready too as choosing this growth strategy may bring other issues with it, such as increased responsibilities and sharing control.
Funding expansion
Sound financial planning is the foundation of any growth strategy. Start by establishing how much investment is required to fund the venture; when it will be needed; when it will be available; and when and how great a return on the investment can be expected.
A detailed cashflow forecast is essential, not least because your outgoings will rise sooner and faster than revenues. You need to make sure there is enough money in the pot to keep the core business running. It‘s a good idea to build in some surplus too, as most projects take longer to bear fruit than originally predicted. Detailed forecasts regarding sales, working capital and sources of seed – and even second-round funding – need to be drawn up.
Businesses looking for capital investment have three main avenues: their own resources (cash or savings), debt finance through a bank, or equity investment from a venture capital firm. You can also see if any development or enterprise grants or loans are available in your area.
Having considered your situation and chosen your strategy, you must return to your trusty business plan. Amend the plan to fit your new direction, detailing objectives, forecasts and deadlines. This will help you focus when following the course of action you have chosen for the business.
Remember, it is important that you choose a growth option that best suits your business model. Your business will also need more resources than finance alone when implementing a growth plan. You should take into account issues and costs such as staffing, training, premises, technology, outsourcing and whether your customer-service systems will be able to cope with the planned expansion. These may be challenging times but they can be exciting and rewarding too.
Jonathan Sharp is a business adviser for Business Link Devon and Cornwall
