29 Nov 5 reasons to grow your business and 5 reasons not to
As a successful business owner with a great revenue stream, your natural instinct may be to expand your operations and grow your business. But it isn’t always the wisest course of action to continually look to expand. Conversely, if you have kept your business small, always looking for incremental, organic growth, you may be missing the fact that that scaling up would help out a huge customer segment crying out for your product or service. Here we look at the key reasons why you should grow your business, and the key reasons why you shouldn’t. We hope the key takeaway from reading this, is the decision as to which course of action is right for you in 2106/2017.
Expanding your target market, product line, operational structure or locations of your business carries inherent risks: as does remaining stagnant around competitors, and getting it wrong can have serious consequences. There are different ways to grow your business; each being more suitable for different types of business, market, industry, product or service.
– Organic growth
Organic business growth is typically not a quick enterprise, and is usually safer and more stable than growth via acquistition. The strategy of organic growth is to make your current business model more productive while managing costs and controlling growth. Organic growth can include selling:
- to new customers
- a new line to your existing customers
- in new geographical areas
- via additional sales channels
- a greater volume to bigger markets/customers
It can also mean recruiting fresh talent or upskilling your existing workers to develop your company’s offering.
Undertaking these methods of growth generally carries less inherent risk and complexity and typically is more predictable. For example, to sell your existing product range to new customers or new geographical areas, you may need to expand your existing sales force or simply launch a new marketing campaign.
Buying another business offers a faster, albeit more risky way to grow your business. The business you acquire could be one of your competitors, or a business that complements your offering. Acquiring a business with similar turnover to your own can be a quick way to double your revenue.
– Joint Venture
Entering into a Joint Venture offers a stable and mutually beneficial way to enter new markets, increase your customer base and and find an additional talent pool with local/product knowledge. Businesses entering into a joint venture usually have mutually complementary offerings which can help grow both enterpises.
– Licensing & Franchising
If your brand is well recognised and has enough equity, then licensing out your product or service may be the answer. Allowing licensees to sell your product allows you to get cash for their sales, with low cost involved in the initial set up. And it can expose your brand to new domestic and overseas markets.
Franchising offers a slightly different spin on the idea of licensing. With low investment and potential high revenue from motivated franchisees, this suits businesses requiring less control over auxiliary operations.
Reasons to grow your business
There are many reasons why growing your business may be the right decision. The reasons that apply to your business will dictate the path your growth takes. Therefore it’s extremely important to fully understand your motivations.
1. Respond to market demand
You’ve conducted in-depth market analysis and know that your product or service is well-suited to the needs of the current market. Your analysis has shown that the market is large and concentrated enough to want enough of your product at the price you need to sustain your growth aspirations.
In this situation, expanding into other locations, and taking on extra staff will allow you to build on your current success. You can increase your market share, and capitalise on your growing brand equity to potentially become market leader.
You may currently have to turn work down due to lack of capacity. This is another good reason to consider taking on new people and growing your business.
Funding this type of expansion adequately requires careful planning to avoid unsustainable costs or overstretched commercial capacity. Many businesses turn to facilities such as supplier payments finance to bridge gaps in cash flow that rapid growth can create.
2. New Markets, Competition and Innovation
Many small companies fail because they do not provide a good enough reason for a person to switch from their current supplier to the new product or service. If you’re struggling with tight competition and an undifferentiated proposition, then expanding into new markets may be the answer.
Expanding into new markets can help your business establish a presence in locations where there is a particular need for your product or service. This can help to reduce the effect of saturation and tough competition in your existing market.
If you’re looking to stay within your existing market, a move to a larger premises or additional locations may increase your production capacity and help you drive away your competitors.
Growth can also take the form of innovation. Investing in the redevelopment or enhancement of your offering can differentiate you from your competitors and increase your chances of continued success.
Growing your business helps to establish a stronger brand identity, further helping to stave off competition. Franchising, licensing your products and services or expanding into carefully chosen new product areas allows you to spread your brand. As the number of locations and products increases, your brand identity develops, and your revenue grows.
3. Increase stability
As businesses grow, they tend to become more stable. A one person business with limited streams of revenue is much less stable than a business with multiple locations and dozens of people on staff.
This stability is also partly due to the way your business is perceived. As your business grows, people believe that you are more likely to be around throughout the lives of their products to supply spare parts and honour guarantees. If you grow your business you are likely to sell more products and services to this market segment.
Expanding your operations across different markets and locations also spreads your concentration risk from market fluctuations and downturns. As does broadening your supply base.
4. Increase Profits
Being a larger business means you can take advantage of economies of scale. Larger businesses can often get bulk discounts and better supplier credit terms, meaning costs are driven down and profits increased.
A larger turnover can also mean a greater potential for profit. With the profit margin improvements that economies of scale can provide, many growing businesses see their profits increase alongside their operations.
Expansion or investment is often undertaken to combat narrowing margins or falling sales. One of the most effective ways of boosting sales can be entering the export market, and there is plenty of information available on government websites to help.
Finding the right people to help you run your business is crucial, and a challenge for many business owners. Growing businesses tend to attract the best people. The opportunities and challenges that a successful, growing company can provide for their staff make them very attractive. Being a part of a growing business is often an invigorating and professionally fulfilling experience.
Also, once your business has reached the point where you are delegating management and operational decisions to others, the business no longer has to depend on you. This allows you more time to dedicate to personal pursuits.
Reasons not to grow your business
Many business thrive on continued growth and expansion, or at least require it to remain competitive. Others do not. They simply remain in what Stuart Goldsmith calls ‘stasis’ – taking the option of purposely not growing past a certain point.
And there are many reasons for business to feel that perhaps growth isn’t for them. Things can get complicated.
1. Increased Risks
With growth comes more financial obligations to both the business and your team. The danger is that you may hire people and buy fixed assets, then not increase your revenue to meet your increased cost obligations.
There is also the risk of too much cash being tied up. Possibly in the greater amount of stock required on hand to fulfil the increases in demand that your growth creates. Higher sales numbers will be required to bring the cash coming in.
There is also the risk inherent in approaching new markets, locations, or expanding your product or service range. You may find that your product or company culture is simply not suited to the audience. The costs involved in attempting this growth make failure a huge risk for relatively smaller businesses.
Growth through acquisition also carries risks, and successful integration can be challenging for businesses used to operating independently.
If you do decide to grow organically by using new distribution channels, be sure that you’re generating new sales rather than simply taking from your existing sales channels.
2. Increased workload and stress
Growing a business is tough and requires sustained hard work and absolute commitment. When you grow your business, it tends to increase pressure on staff and resources, as well as finances and management teams. Growth can mean working longer hours, bigger responsibilities, more complicated structures, and more advanced training and supervision of staff and operations.
The stress accompanying venturing into unknown territories also means that decisions can often be made on an emotional basis rather than on sound strategic and financial considerations.
This all makes a serious impact on your lifestyle. The decision to grow your business should therefore be considered in the wider context of your family and work life balance. Be sure the timing is right for you.
3. Drop in quality
As your business grows and you receive larger and larger orders, your customer service standards, product or service quality, or response times could fall. When dealing with expanded markets, or a larger number of products or customers, it becomes more difficult to offer a personal service.
This is an important point to consider, as once you allow service standards to be sacrificed for growth, it can be difficult to overcome negative word of mouth.
4. Increased Costs
As you grow your business, increased revenues are almost always accompanied by increased expenses. Whether it’s time or money, growing a business will cost you. Financial planning is crucial.
You have to invest money up front during the growth phase and return on your investment can take time to be realised. Investments range from renting or building a new location, enhancing your current premises, investing in new or enhanced products and services, or taking on new staff.
If you experience rapid growth, you will likely experience payment gaps. You need to make sure you can cope with major new customer orders. Overstretching your finances or resources can result in fulfillment failure and reputational damage.
Loans or finance may be necessary to fund these costs. This is where flexible finance facilities such as Pay4’s unsecured rolling credit facility can help bridge the cash flow gaps that strong growth creates.
5. Loss of direct control
Taking on more staff, growing your customer base and extending your network of suppliers, all tend to increase pressure on your systems and processes. This can make it more and more difficult to keep control of everything yourself.
External investment to fund your next phase of growth can also come with a relinquishing of control over the direction of the business. Franchising and licensing your products also brings the risk of lack of control over how your brand or product is represented on a day to day basis.
If you like to retain control over every aspect of the business, have trouble delegating responsibility or do not regularly document consistent procedures, the growth route may not be right for you.
To grow or not to grow?
What are you looking for when you grow your business? Essentially it’s all about seizing opportunity for revenue while increasing stability and reducing risk. If you understand your business, market, threats and opportunities well enough, then you should know which decision will be best for your company.
As long as you can cover the costs, handle the impact on your lifestyle, maintain service and product quality, and plan effectively for contingency, then you may find you achieve successful and sustainable growth.
Just don’t talk yourself into a launching a growth strategy simply because you think it’s something you should be doing.