Managing through the business lifecycle: Expansion
Grow as a mature business.
Published: June 02, 2009
Updated: January 14, 2014
As a seasoned business owner, you have a deep knowledge of your customers and industry, and your company has an established customer base and vendor relationships. This may be a good time to consider a strategy for large-scale growth: expansion.
"Expanding your business is a lot like starting it in the first place, and the biggest concern is the same: funding."
Unlike an extension strategy, an expansion will launch your company into entirely new areas of business. You might take advantage of the relationships you’ve built to help you drive forward with new product lines and break into new markets. You could pursue new licensing or distribution agreements. Or you could expand your scale and reach by acquiring other companies. It’s a major commitment of both effort and money. So before you begin, ask yourself, “Am I ready to do it all over again?”3 tips to create new revenue streams
- Analyze your customer base. Identify new product and service opportunities based on your customers’ needs.
- Do the math. Figure out what kind of an investment you’re going to make over a two- or three-year period, and what kind of revenue you’re going to get from it.
- Gain buy-in. Get your management team involved and committed before you go in a new direction, including your spouse or any other people who are key to the company. Next, call a meeting with all of your employees, so everybody knows what will happen and feels that they’ve heard it from you. Then, have your managers communicate with individual employees to get feedback and spread the word.
An eye for expansion
Taking your business to the next level requires a good measure of due diligence. Consider the following questions to make sure you can expand without overreaching:- Does your business currently have enough staff to support your growth aspirations?
- Do your current employees have the skills required for your growth strategy?
- Can your business operations support a substantial increase in demand?
- Have you conducted enough customer research and competitive analysis to have a statistical basis for your need to expand? (Pay attention to your gut feeling, too.)
- If your growth plans don’t work out, do you have a backup plan?
Financing growth: Just like starting over
Expanding your business is a lot like starting it in the first place, and the biggest concern is the same: funding. You’ll need to answer two key questions before you begin: how will you secure the funds, and how, exactly, will you spend the money? The second depends on your business and your plan, but the funding might come from three possible sources:- Tap cash flow. This may be the easiest path if you have the resources; however, few businesses can spare that much cash.
- Borrow from a lender. You’ll need to show a detailed plan, strong financials, and the capacity to pay it back.
- Take on investors. Outside investors can provide a major infusion of cash at the risk of giving up some control.
Expansion FAQs
Q: What are some ways I can reduce operating costs for my business?A: Real estate can be a key tool for controlling your costs. If you rent, you may be able to reduce your expenses by renegotiating your lease and exploring virtual office space. If you are an owner, consider renting out more of your property to generate additional revenue.
Q: What is the most important financial indicator I should be monitoring?
A: Net operating margin, also known as net profit margin, is the best barometer of a company’s performance. This is net profit (earnings before interest, taxes, depreciation, and amortization) divided by sales. The ratio tells how well a company converts revenue from core operations into actual profit—how many cents you get from every dollar of sales.
Action steps
- Capitalize on new marketing opportunities.
- Develop high-profit strategies in industries with high market shares.
- Move away from low-margin products/services.
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