When and how to =
expand
You've
seen it a hundred times. A local store begins to catch fire. For years, it =
had
one location and was high on word-of-mouth buzz for its quality goods. The
proprietors were making profits hand over fist. Loyal customers considered =
the
store their valuable little secret. Suddenly the owners open two new outlet=
s.
Their advertising is everywhere. Six months later you see another two locat=
ions
pop up and even more advertising. Six months after that all stores are clos=
ed
down. Even the original store posts the sad sign on its familiar door:
“For Lease”.
Success and expansion can kill a business faster than the long, slow drag of
lackluster sales. Business success rarely occurs in a steady, predictable m=
arch
towards higher revenue and improved profit margins. Companies tend to grow =
in
unexpected fits, starts, jerks and snap-backs. Fast growth can destabilize a
business, giving its owners a false sense of well being while the additional
revenues eat up more operating dollars than expected.
For the home business, expansion can be particularly troublesome, especiall=
y if
your growth forces you out of your den and into rented outside quarters. For
many home businesses, the low overhead provides a high profit margin that c=
an
collapse quickly when you have to pay rent.
Here are some ar=
eas to
watch as you consider expanding your business:
Avoid 'grow or die' business models. Try to avoid the trap of runnin=
g a
business that must continually grow to avoid demise. I've seen business pla=
ns
that project 10 to 15 percent growth per year in hopes of hitting a breakev=
en
moment in the third or fourth year. Start-up funds, of course, are always
projected to last just until that moment. But what happens if you're gettin=
g 8
percent annual growth? You quite possibly end up with a perfectly good busi=
ness
that's walking a death curve because it's not growing fast enough.
Keep your overhead low. The biggest danger in expansion is the erosi=
on
of a low overhead structure. I've seen business owners<=
/span>
work for years to keep their overhead low, but when they expand, all of a
sudden they buy new furniture instead of the flea-market variety that served
during the start-up years. Long-delayed gratification often explodes into
extravagant spending at the moment of expansion.
Watch your margins. Just because you have doubled your sales doesn't
mean your additional revenue is as profitable as your original sales. In mo=
st
businesses, each additional sale comes with a slightly improved profit marg=
in,
since overhead is spread across a greater number of sales dollars and becau=
se
your cost of goods goes down as you buy in greater quantities. But this is =
not
automatically the case. Additional sales often come with unanticipated costs
that can actually decrease your margins.
Watch the sharks. There are hungry vendors out on the street that can
smell business expansion. They come in nice suits and expressive smiles. Th=
ey
also come with pricy spending proposals that are cloaked as no-risk
opportunities to gain even greater levels of revenue. They will try to conv=
ince
you they are here to help. What they really want is their own private piece=
of
your success in the form of an advertising retainer or a long-term copier
lease. You succeeded perfectly well without this crowd. Don't take their
appointments.
Keep your focus on your success. The need to expand comes from your
success. In the urge to expand, don't lose the focus that brought you succe=
ss
in the first place. If you're good with customers, don't delegate that acti=
vity
in the interest of expansion. If you're good at closing the sale, don't hire
sales people to take over your most valuable asset. Instead, fortify it with
support. Hire marketing staff that can do the prospecting so you can put mo=
re
effort into closing.
The most frequent
mistake during expansion is that the owner usually spends less tim=
e in
the very activity that brought success in the first place.