want to grow, but the question is how?
Now that your
business is booming, what's the best way to expand?
Magazine (reprinted with permission)
By Lynn Beresford
entrepreneur who's been in business a few years knows the feeling.
You've reached a certain plateau-you've expanded the business as
much as you can without adding on to your building or opening another
location. Sales are up, profits are tidy and customers are hinting
they might like to see you do more. You are decidedly antsy; you
may even be downright bored. You want to grow, but the question
are many options. You could franchise, get into licensing, acquire
another company, form a limited partnership, spin off your original
business, start a different company or, if you own a retail store,
open a second location. If your company is really ready to take
the next step, one of these options is probably ideal.
however you decide to do it, growing your business for the right
reasons is key. Ego shouldn't be a major factor in your decision;
neither should boredom. According to Donald Reimer, president
of The Small Business Strategy Group in Southfield, Michigan,
growing for the sake of growth is perhaps the worst mistake an entrepreneur
the [true] entrepreneur feels he or she should take advantage of
every opportunity that presents itself, but that could be devastating
to a company," says Reimer. Some other misguided reasons to expand:
Your main competitor is growing, your friends urge you to, or you
want to make more money-fast.
are some of the right reasons to grow your business? "The decision
to grow should be based on whether the market is there to support
the growth," says Charlotte Taylor, president of Venture Concepts,
a Washington, DC, company that specializes in growth issues of small
and midsized businesses. Are you going after a flourishing market
or tapping into a new, promising niche? Then chances are growth
is a good idea.
experts recommend hiring an unbiased third party to help you assess
the business before deciding to grow. Awareness of your company's
strengths and weaknesses is essential to planning healthy growth,
but as much as you'd like to think you can be objective about your
company's growth, you can't possibly be. "Smaller companies often
don't have a board of directors or advisors to bounce things off,"
says Reimer. In these cases, Reimer strongly recommends hiring an
outside consultant to guide you through the process. You need someone
with a fresh perspective to critique your strategy.
Like A Plan
the decision to expand doesn't come about spontaneously; it's been
part of a company's business plan from the outset. "A good growth
strategy is in focus with what the business owner has in mind for
the company," says Taylor. In other words, the best growth strategy
is a well-planned one.
growth without planning can be devastating," Reimer agrees. In his
line of work, Reimer sees a lot of small-business owners who don't
plan for expansion. The pressures of daily operational concerns
often leave little, if any, time for the entrepreneur to address
the big picture. That's why experts recommend planning for growth
before you even open your doors. Make it part of your business plan,
but don't be too rigid. "The plans you have must be flexible enough
to respond to opportunities that present themselves," says Reimer.
Carolyn and Randy Gibbs chose to open their second Pet Food Savemart
superstore, it was not a spur-of-the-moment decision. Their original
business plan called for as many as five stores. Two years after
the first location opened in Shawnee, Kansas, the Gibbses had outgrown
the facility and were more than ready to expand. For them, there
was no question the time was right to open a second location.
Store Number Two
growth without planning can be devastating," says Reimer.
retailers with one location, opening a second store is usually the
most logical path to growth. Although they had always planned to
open multiple locations, the Gibbses investigated other growth options,
too. They decided against franchising because they felt the costs
would be too high for potential franchisees. They also ruled out
distributing other lines of pet products because they feared they'd
have trouble selling to their competition. After weighing all their
options, they decided opening another store was the way to go.
you take this route, you need to open your second location far enough
away from the original site so that new customers will shop there.
After all, you don't want your second location to cannibalize your
first. For the Gibbses, that meant opening their North Kansas City,
Missouri, superstore 20 miles away-and across the state line-from
the original store. Their third location, in Eastern Kansas City,
is also about 20 miles away from its nearest sister store.
locations that are in the right areas has been a [concern] for us,"
says Carolyn Gibbs. At approximately 30,000 square feet apiece,
sufficient distance between locations is a prominent issue.
concern is hiring a good manager for your second location. As an
entrepreneur, it will probably be hard to relinquish even a little
control over your business, but you can't be two-or more-places
at once. The experts say it's important to find a team player who
shares your vision and enthusiasm for the business. Look for someone
with creativity, innovation and problem-solving abilities.
you decide to open a second store, sometimes it makes sense to change
the focus of the products you carry. For example, if you own a dress
shop, you might consider having your second store specialize in
related accessories. This will expose your first store's product
lines to your new shop's customers-ideally without negatively impacting
the first store's sales.
even the most promising entrepreneurial company involves making
some jarring psychological adjustments. Most important-and ironic-you'll
have to suppress some of the entrepreneurial instincts that got
you this far, namely, your need for complete control. To expand
your company successfully, you need to be comfortable delegating
and managing instead of doing everything yourself. And the bigger
your company gets, the more you'll have to let go.
solid hiring decisions will help you feel good about delegating
major responsibilities to others. You also need to recognize that
your current staff may be apprehensive about your expansion plans.
They may feel uncertain about job security; they may feel left out.
Communicate your growth strategy to employees, keep them informed
throughout the process and encourage your staff to give you feedback
along the way. If you involve them in the expansion, it should foster
a strong sense of commitment to the company.
of the toughest questions a small-business owner may face in growing
a business is whether to reorganize staff. But re-engineering is
often a fact of life. "Sometimes you outgrow your staff," says Reimer.
agrees: "I've never done a strategic plan where [a company has]
gone to the next level and not needed reorganization. That usually
means people changes, too." This isn't to say a complete personnel
purge is necessary. Just assess your team and work on strengthening
any weak links.
Pet Food Savemart, Carolyn Gibbs says a good management team helped
facilitate a smooth transition when the second and third locations
opened. Adding staff during the growth phase wasn't easy, but through
trial and error, the Gibbses learned to make good hiring decisions.
"Now we go beyond our gut feelings," says Gibbs. Opening multiple
locations has also helped the Gibbses make plenty of contacts in
the pet food industry, and those connections have helped them find
skilled management staff.
decision to open multiple locations isn't necessarily right for
every retailer. For Mike Johnson, owner of Reáfinery, a 1,200-square-foot
home furnishings store in Laguna Beach, California, opening a second
store may be an option down the road. For now, however, growth comes
from a different source: a spinoff.
Johnson opened Reáfinery in 1994 out of a passion for furniture,
he was certain he'd want to grow the business one day-he just wasn't
sure exactly how. "I knew one location or one business wasn't going
to be the end of it," says the former engineer. "The logical progression
would have been a second store, but I decided that wasn't the best
use of my resources."
its eclectic array of merchandise-furniture and knickknacks that
are mostly either refurbished or made from old wooden items like
windows and doors-Reáfinery requires a very specific type of location
to be successful, according to Johnson. So instead of going the
traditional route, he decided to launch a wholesale line of accessories,
which he designs and sells in his own store and others like it in
Arizona, California, and Nevada.
sales have increased so much since Johnson debuted the wholesale
line that he believes it may one day eclipse the retail store in
terms of revenue. "Right now, I'm looking for all my growth to come
from the wholesale line," says Johnson. "By next year, I expect
wholesaling to be the bigger part of my business."
going the spinoff route, Johnson considered opening a second store
similar to Reáfinery or opening a tourist-oriented store in Laguna
Beach to appeal to visitors to the seaside community. He even thought
about launching a completely different business-a rubber stamp store.
But he decided it wasn't in the best interests of the company. "Opening
something completely different didn't make sense," he says, "especially
when I started running through the numbers."
may one day open as many as three additional stores, but for now
growth is occurring naturally through wholesaling. In the meantime,
he's realistic about growth-and how long it will take to do it right.
want to focus on the wholesale line, and I expect it's going to
take a few years of energy to make it pan out," he says. Above all,
Johnson is determined to grow his business slowly and carefully.
"I eventually want to expand [the wholesaling business] nationwide,"
says Johnson, "but not until we're ready."
Now Or Later?
entrepreneurs either expand their businesses before they're ready
or grow too quickly. Donald Reimer, president of The Small Business
Strategy Group in Southfield, Michigan, recommends asking yourself
the following questions before proceeding with expansion plans:
Have you built a strong management team?
Have you developed a strategic plan, and does the proposed expansion
mesh with your overall goals?
Have you or a consultant conducted a strategic audit or assessment
to evaluate your company's strengths and weaknesses?
Have you discussed the expansion with your board of directors and/or
an outside consultant, and do they support it?
Do you have the necessary financial and human resources to handle
Have you examined the external factors affecting your business (industry
trends, the economy and the like)?
Have you compared your company's performance with other companies
of similar size, and is your company performing well by comparison?