Growing Your Business Without The Growing Pains
Thursday, July 3, 2014
So your business is running well, but like many entrepreneurs you probably also want to stretch out and grow.
That means you need to do one of three things: find more customers, get your existing customers to buy more, or get them to buy more frequently.
For many operators, ‘growing your business’ really means staking out new territory and new customers and clients.
But more importantly, you first need to be established in your home market. It's at this point you might also like to think of yourself less as a business owner, with your sleeves rolled up and working hard in the business, and more as an entrepreneur, looking at opening up new territory, and marketing more creatively.
So, while it might sound a little bit cheeky, analysing your own business is a great (and overlooked) starting point.
"You might be surprised to hear that a lot of people don't know what really makes their own business so successful," says Brian Keen, a veteran adviser who's run a string of his own businesses, developed franchises for others and who now spends his time advising people on setting up and running businesses.
Keen specifically advises business owners starting down the path of growing their business to first analyse their organisational structure, and identify the basic roles that everyone does.
"With small and medium-sized businesses, a lot of those roles have overlaps where there are inefficiencies. If you're trying to grow your business, even if it's only opening up a new store five km away, it's important for the owner of the business to start leveraging themselves out of hands-on roles, or it won't work," advises Brian.
This might seem simple but Brian says he's seen plenty of mistakes made that might have been avoided if only the reality check of having to show someone else your new business plan had been applied.
Big Business approach, Small Business rules
He'd get no arguments from Jason Daniels, a partner with big accounting firm PricewaterhouseCoopers. It takes careful planning to minimise the risks in growing your business interstate, as he explained in a Courier Mail article, using one of his successful Brisbane clients as a case study.
This retail business owner had decided to "test" the Sydney market, after opening seven new stores in three years.
"The beauty of this client is that he understands why his business works, including having a checklist for opening new stores," Daniels wrote.
Here's some of the thinking behind that checklist: Does the store and location tick all the boxes? Look at demographic information. Where your potential customers are likely to come from? Other practical factors include the visibility of the store from the road and the style and size of the store and the types of stores nearby.
Daniels' client also kept away from major competitors. "He didn't want to go head to head in the same area [as big brand names] while establishing his footprint in a new market," he advised.
The next step was to work out what it would cost to open that store, and how much to run it for a year. "We had to factor in all overheads and wage costs. We also built in a margin of error in case the product mix changed and the gross margins were below budget," Daniels wrote.
Daniels said his client had factored in the time he needed to fund the new store until it reached break-even point, and then started making money.
Go with the flow
It's important to give your business the money it needs to grow, without starving it of current cash flow.
The financing options are similar to those when starting a new business, and that may involve going back to bankers and other funding organisations with a solid business plan.
You'll need to show that your existing operations will be able to fund any new debts you take on, and possibly commit to closing down the venture after a certain time if it proves to have been a misplaced idea after all.
One of the obvious drawbacks in growing a business, especially where the new outlet might be 1000 km away, is that no matter how much planning, set-up costs for a clone of your successful home ground operations are likely to be so high as to make it unviable in the short term.
Luckily, there are less risky and expensive options for small businesses to move in stages. For instance, the WA Government's Small Business Development Corporation has been promoting "business incubators", recognising that successful small businesses help to create jobs and stimulate the economy.
The aim of these programs is to reduce the failure rate of start-up businesses by providing low-cost space to accommodate between 15 and 50 small businesses. Those that prove worthwhile ‘graduate' from the facility within two or three years.
During this time, the owners have access to business advice and support services for the purpose of getting their business off and running.
Or, if you're running a service business, and not quite ready to commit to leasing new premises while you test the market, consider running a virtual office.
As reported on the Dynamic Small Business website, this is is a different kind of workspace model that offers the use of a premium local address, phone number and answering service from local receptionists, access to business lounges, meeting rooms and secretarial support around the world, for the fraction of the cost of having an established office.
Recruitment of staff, along with managing cashflow and lack of personal time, is one of the top three big ticket items small business owners have to overcome. If you can't spare a trusted manager to grow your business operations into a new region, you'll need to recruit locally.
"Write down what's in your head, because you can't just set up and employ people without giving them a clear idea of what they're supposed to do," says Brian.
He also counsels that outside help will take away the stress of recruiting.
"I've never shirked from paying recruitment firms. The problems [with expanding operations] are often because you've hired the wrong people. Just because you like them, doesn’t make them right for your business."