Most startup founders and small business owners have a single objective in mind. They want to grow as much as they can. And, as you can imagine, they also want to do it quickly as possible.
On the surface, this goal sounds great. And it is. However, it can also be dangerous and lead to failure.
From this article you will learn:
- How to determine if your company is ready to grow
- Common challenges of growth
- Four ways to grow your business
I have been through the growth process a couple of times. During our first growth spurt, we grew the company from a single-product company into a company with many products. Other growth spurts focused on new industries. Eventually, we started growing internationally.
Growing the business has been a great ride. Albeit, a very bumpy one. This article discusses some of the things I have learned.
First, do you have a plan?
Before you do anything, start planning for growth. This advice should go without saying. Many owners – eager to get going – skip this step. That is a sure way to fail quickly.
We planned for our growth by exploring three areas:
- Generating growth ideas (here is one process I like)
- Determining which ideas are viable
- Determining a course of action
Once we had an idea we liked, we did a lot of due diligence. Only after I was satisfied with that diligence, did we chart a course of action.
Honestly, few things went according to plan. They never do. It’s what happens when you venture into uncharted territory. However, this process helped me understand potential challenges. To me, this process was invaluable.
Second, do you have the resources?
Before you consider expansion, you must be prepared to support it. Small business owners mistakenly assume that once you start growing, things “will take care of themselves.”
Growth problems won’t take care of themselves. Instead, they will take a life of their own.
The type and amount of resources you need depend on the type of business that you own. Every business is different, so we can’t give you a full list of resources.
However, here are some key items to consider:
Growing a company usually requires adding employees. But, as you know, staffers can be expensive to get and keep.
You have to manage your human resources carefully. Having too few employees leads to quality and morale issues. Having too many employees is just expensive. Both of these issues can kill growth.
Estimating staffing requirements isn’t easy. Build a cushion into your estimates so that you have room to adapt. Equipment, inventory, and supplier capacity
Companies that sell cool products have added challenges. You must also make sure that you can service the increased demand. But most small businesses don’t manufacture directly. Instead, they outsource to third-party suppliers.
This approach introduces “supplier/manufacturing” risk into the process. However, you can evaluate suppliers indirectly by reviewing their commercial credit reports. This step can give you an idea of how much business they do with other clients. In turn, this effort gives you an idea of the size of their clients and their capacity.
Make sure you are never a supplier’s largest client. This status can be dangerous. Here is how to check their credit.
Do you have the financing in place to cover all expected increases in expenses? Growing a company can be very expensive. It’s best to establish your financial strategy before launching your expansion plans. Otherwise, you will encounter trouble. Running out of money is a sure way to fail quickly.
The type of funding you need depends on the type of business that you have. It also depends on the challenges that you face.
Most marketing and technology companies have heavy staffing costs. Those companies could benefit from using payroll financing alternatives such as factoring (learn more). Companies that manufacture directly or keep inventory can consider lines of credit, PO financing, or asset-based lending.
Miscellaneous, legal, etc.
Lastly, you need to make sure you have the resources to cover “everything else.” This includes everything I did not mention in the previous three items. The list of required resources is never the same for every company. But it can include items such as leasing new space, creating new legal documents, managing different legal and tax rules (if you go overseas), establishing new partnerships, and so on.
Third, can you handle the inevitable growth problems?
Growing a business brings on problems. If you are growing fast, your problems will also arrive quickly. And the consequences of mistakes are worse. This point is important to remember:
Your ability to handle growth problems will determine if your small business succeeds – or fails.
The best way to handle problems is to have the right resources on hand. Hire seasoned employees who know how to solve problems. Get a good adviser (or two) who knows about growing pains. And, lastly, have sufficient cash reserves to help you weather issues.
Here are some common problems associated with fast growth:
- Operations/client fulfillment problems
- Customer service disasters
- Inventory mismanagement
- Running out of cash
- Hiring employees (too many, too few, not the right type)
- Leadership problems
Lastly, four ways to expand
There are a number of ways you can expand your growing startup. Here are the most common ones:
1. Take a bigger share of your current market
If you haven’t maximized your ability to grow your current market, consider doing this first. By far, this strategy is the safest one for growth. It’s a matter of tweaking – or completely altering – your strategy until you find additional growth.
In some cases, you may find that your existing market is too crowded. I have faced this issue myself as I worked to grow my company. In that case, you have to focus on other opportunities.
2. New markets and industries
First off, if you are looking for new markets, consider selling to the government. Some startups shy away from becoming government vendors because the government has many rules. Remember this: government agencies buy almost every product or service that exists. More importantly, they usually place large orders.
The government marketplace can be great if you know how to work it. If you want to learn more, here is a tutorial on how to find government contracts.
If government sales are not for you, then look for new industries that can use your existing products. A few jobs ago, I worked at a startup that had developed a high-tech relational database system. Initially, they sold the system in a couple of industries (e.g., chip manufacturing). However, they soon discovered that the same product could be used by numerous other industries – such as aerospace, defense, and so on. The owners grew the business quickly. They kept the same product and changed only the marketing materials and sales pitch.
3. New products
Every so often, you find that your current product portfolio is performing at full capacity. Another option for growth is to design new products. Ideally, these products should be related to your existing offerings. This alternative does have expense and risk associated with it.
Let me tell you another story about the database company I mentioned in the previous point. One of its salespeople discovered that the database solution could solve a big problem for wireless telecom companies. It required a simple new interface, but the complicated back end stayed the same.
They built that “new” product into a massive success that actually overshadowed the initial product. It provided the owners with a lucrative exit when the business was sold to a public company.
4. Go international
If you have exhausted all options at home, perhaps it is time to go international? I have been down this road myself. It’s not for the faint of heart.
We grew the business by expanding our service offerings to other countries – first to Canada, and then to Australia. The move has been rewarding but has also been very challenging.
For example, in Australia, we had to handle a different tax system and set of business laws. Additionally, the time zone difference from the home office makes communications challenging. If you choose this route, the only advice I can give is “get expert advice.”
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