Small businesses that have survived the early start-up stages and have established themselves in the marketplace must devote some time to mapping out possible growth trajectories for the short, medium and long term. Business expansion can take the form of offering the same products and services on a bigger scale (either through owned branches or franchises); diversifying into complementary or unrelated product and service offerings; or adopting a new business model (e.g. outsourcing certain functions in order to focus on core services, entering into partnerships with other businesses to reach a bigger combined client base).
What are the critical factors for small business owners to take into account when making the decision of if, when and how to expand their business?
The first of these is the small business owner’s vision for the business. Some small business owners’ are content merely to establish a profitable, sustainable business and have no intention to scale up regardless of how successful they become. This may be due to: the small business owner’s desire to achieve and maintain certain standards relating to the quality and innovativeness of the product, service and customer care; the business owner’s wish to observe a certain work-life balance which would not be possible with a business expansion; and the business owner’s intention to create a working environment characterised by features such as informality and a flat organisational structure.
For those small business owners who want to expand their business, timing is crucial. Timing is important from the perspective of the maturity of the business (e.g. experience in delivering the product or service, having effective internal systems in place to manage operations) as well as the rate at which the growth takes place (e.g. quickly or slowly). Growing too quickly can result in taking on upfront costs (e.g. financing, equipment, staff, inventory, buying or leasing property, renovations) that the business cannot support. Growing too slowly can result in the business missing out on opportunities in the marketplace.
In addition to thinking about timing, specific questions small business owners can ask themselves to gauge their readiness for expansion and plan for it include:
• Is there sufficient demand for the product or service?
• Is the product or service suitable for mass roll out, or is it better delivered in the current small business setting?
• Will the additional revenue justify the increased costs?
• What can be done to minimise disruptions and ensure that existing customers continue to receive the same quality of service?
• Does my existing network of suppliers have the capacity to cope with an expansion? What can be done to address this?
• How will I exert control over an expanded business and ensure adherence to the original vision and mission statements?
• How will the expansion be financed?
Written by: Fadzai Munyaradzi for Simply Biz SA