In the early stages of your business, staying afloat requires so much effort that you may not give much thought to a growth strategy beyond trying to boost your profit. At some point, though, you’ll face the decision of whether to grow your business — and how.
The prospect of steering your small business out of your comfort zone and onto a course toward bigger possibilities — and risks — can be scary. The secret to overcoming that fear and reaping the rewards of taking your business to the next level is to have the right plan and resources in place.
Let’s look at what’s involved in planning how to expand your business.
Your Definition of Growth
To understand how to grow your small business successfully, you first need to consider the potential pathways to growth and which of them is most likely to work for you. When you think about how your business currently operates, what would expansion look like?
Maybe it would mean moving into a larger space or adding a second location. You might start selling a new category of products or services. You could broaden your clientele, beef up your staff or boost your brand awareness. Business growth could simply mean investing in a new piece of technology. Maybe you could acquire a competing or complementary business, though it’s understandable to steer clear of that route until your business has matured.
The way you define business growth for your company will guide your expansion plan. The growth model you choose not only needs to align with your vision for the company, but it also needs to be feasible in terms of its logistical and financial requirements.
How to Tell When the Time Is Right to Expand
How do you know when your small business is poised for growth? There are several important elements to have in place before you leap. This checklist can help get you started, but you may also want to consider other areas specific to your type of business.
A steady supply of customers. If you already have a loyal and healthy customer base for your business, their support can be a good foundation for a successful expansion. And if you want to cultivate opportunities to grow your business in the future, there’s no better place to start than keeping your current customers happy.
A growing industry. What are news reports and industry analysts saying about the future viability of businesses like yours? If the general outlook is promising and your own sales are booming, it might be a good time to expand.
To determine whether your industry is growing, look for indicators like rapidly rising sales figures, the presence of underserved markets and the continuing interest of investors. Be aware that changing consumer behavior and preferences might point to a pending decline in your industry, even if your own company is thriving at the moment. Another reason for caution is when you’re seeing new innovations push out old products and services in your industry.
You may still wish to move ahead with a growth plan if you have a strategy and the financial capability to adapt to those changes. Just be sure you are basing your decision on sound economic analysis.
A sustainable revenue model. Review your income figures to see how financially stable your business is now. Be sure you are meeting your current revenue goals and have a strategy for increasing those numbers as you branch out. If you’ve figured out how to make your business profitable now, you’ll have a better chance of succeeding when you move on to something bigger.
A strong IT infrastructure. Adding more inventory, services, space and staff will likely require expanding your data and communication systems. You’ll need an IT framework that’s capable of growing as you grow your business. After you’ve launched an exciting new phase of your business, you don’t want to discover that your IT system can’t handle the increased load.
Industry expertise. If you’ve become one of the go-to sources in your community for industry knowledge, it may be a good time to capitalize on your company’s increased brand awareness. Recognition can help your business take off. If you’re aiming to reach that level, becoming a media source, conference speaker or published writer can be good ways to do so. An effective marketing and public relations strategy makes all the difference when industry expertise is your springboard to business growth.
Access to financing. Your vision of how you’ll grow your business will be nothing more than an unfulfilled dream without resources to pay for the expansion. Can you afford to invest some of your company’s profit, or your personal savings, into new business development? Will you be looking for outside investors? Do you have a good relationship with a business lender that can help fund your expansion plan? Answering the financing question is essential in determining whether you’re ready to scale your business.
Supportive people. Along with adequate financing, skilled and reliable people are indispensable to the success of a business expansion plan. The supporting cast that enables you to grow your business can include core members of your company’s leadership and staff, business consultants and coaches, legal and accounting professionals and family members.
Once you’ve determined the ideal time and method to grow your business, you can start taking some practical steps to reach your goal. Here are some tips for implementing the expansion strategy you choose.
Adding New Products or Services
This approach can be a great way to create multiple income streams and offset any seasonal slow periods in your business. Expanding your products and services also provides an opportunity to reach more customers and strengthen your relationships with your existing clientele.
If you’re a product-oriented business, consider the possibility of introducing a premium version of one of your popular lines, or a set of items that pair well with something you’re already selling. Conduct market research on products similar to the one you’re thinking of adding. For example, look into whether there’s enough demand for this new product.
Even better, use your research to figure out what’s missing from the market and how you might fill the gap. Do a small-scale test run with a special promotion before you go all in on a new product.
If you’re a service business, you might think about adding features to address some of the demands and pain points your customers are expressing. You might even consider adding a consulting service to a business that’s focused on product sales. Like product expansion, adding a service that complements those you already provide is usually more cost-effective than pivoting to something brand new.
You’ll need to determine whether your employees have the necessary skill sets to provide the new service. Doing something too far out of their wheelhouse may require significant expenditures for new hires and training.
It’s certainly possible to completely diversify, branching out into products and services that are unrelated to your core business. But if this is your first major growth spurt, it’s probably best to stick to familiar territory. Sharper diversification is usually a move best left to mature companies with strong positions in their core markets and the capacity to take on a big risk.
Adding New Locations
If you’ve outgrown your space, or the local market for the goods or services you offer is saturated, you may be looking to grow your business through geographic expansion. Before you decide where to go next, do some homework. Go on a scouting mission and talk to small business owners in those areas to get a feel for the business climate. For instance, are their businesses doing well, or do they face challenges in this location? What kind of people (i.e. potential customers) live in or frequent the area?
Size up the competition in a few locations of interest. Will your business stand out and fulfill a need in these locations, or will it be difficult to compete with existing companies?
Consider how operating your business in a new location might affect your marketing and sales costs. Use the information to create a cost and revenue forecast for each prospective new home for your business.
You may be able to start broadening your geographic reach now by partnering with distributors who are already in the markets where you’d like to do business.
Tweaking Your Marketing and Branding Strategy
Another tactic that can help you grow your business is to focus on improving your marketing and brand awareness. Look for ways to stand out from your competitors by highlighting your company’s unique value, cost leadership or exclusive service to a distinct market segment.
Don’t overlook the power of social media to strengthen and expand brand awareness. Consider posting videos of company projects or customer endorsements on YouTube. You might also run special promotions on Facebook and share customer comments and company responses on Twitter.
Business Networking and Partnerships
Getting advice from other small business owners and networking with them at conferences and other industry events can be useful tactics when preparing your company to expand. Participating in these events can also bring a chance to meet new customers.
Another way to build relationships with your business peers is by taking on leadership roles in trade and professional organizations. You might also consider joining other business owners on community volunteer projects and fundraising events for charity.
Some of those business networking connections could develop into formal alliances or joint ventures, either on a project-by-project or ongoing basis. These partnerships can provide your business access to additional resources, markets and ideas to boost its growth.
The Budget Impact
Of course, any discussion of how to grow a small business has to include how to cover the costs. You’ll need to adapt your business budget to anticipate the impact of potential costs such as:
Hiring. You may need to bring on additional workers to accommodate your business growth. Be sure to account for their recruitment, onboarding, training, salaries and benefits in your budget.
Inventory. The allocation for this expense line will have to increase if you’re adding new products to your offerings.
Technology. You may need to purchase new equipment or upgrade your information system or customer database to make an expansion feasible.
Real estate purchase or lease. Adding a new location or moving to a larger facility means the amount for this budget item will have to grow.
Travel. Factor in the cost of travel for you and others in your team to scout new markets and set up new locations, whether domestic or abroad.
Moving. If you’re relocating your business, you’ll need to consider the costs of moving, like moving services or truck rentals.
Insurance. If you add a new location, you’ll need a new set of business insurance policies to cover it.
Don’t forget to take into account your cash flow and the tax deductibility of your expansion costs.
While you’re estimating the budget impact of your decision to grow your business, you can explore your financing options, including small business loans and working capital loans. Remember, as you weigh the cost of investing in expansion, there is also a potential cost to remaining stagnant. You may be missing out on an opportunity to increase your sales and profit, for instance, or losing customers because of inadequate service or physical accommodations. If you’re hesitant to borrow money to expand, compare the cost of taking out a loan versus the cost of missed opportunities.
You don’t have to limit your vision of business success to simply staying afloat. Dare to think bigger!
Become knowledgeable about how to grow a small business, choose the growth model that’s right for you and create a customized strategy for reaching that next stage. Draw upon your resources of support, from your business team, staff and loyal customers to your lending professionals.
Follow some practical tips to enhance your chances of success, then get ready to grow your business and watch it thrive. You’ve got this!