When to grow your business with help of investors or stay the course
One of the most critical decisions you will make in your business is when and how to expand it and take it to the next level. Today, it is easier than ever to find the capital for expansion. You don’t have to go to a bank and beg for a traditional loan. Financial technology (FinTech solutions) abound.
If your business involves a physical retail space, the expense involved with expansion is obvious. You have to purchase or lease additional space. You have to hire more people. And you may have to get additional licenses for regulatory compliance.
You will also require additional inventory, staff, and support infrastructure. You don’t want to go it alone with a decision like this. The input of your investors and consultants is critical. They will likely be aware of funding solutions of which you may not be aware. There is another reason why investors are beneficial at this stage.
One of the biggest motivators for growth is also one of the biggest mistakes if you fall for it. The problem is cash flow. There are any number of reasons good businesses fall behind in cash flow. On paper, your business might be doing perfectly well. But in reality, you are always waiting for the next receivables to come in.
The thing you should know is that cash flow problems are not settled by expanding. They are exacerbated by expanding. Like credit problems, you don’t solve them by going even deeper into debt. Be sure to solve the cash flow problems before moving on to the next phase of growth.
Solidify Your Base
Like a politician, before going for a promotion, you have to solidify your base. First, a strong base acts as a reliable safety net. If you have a solid business with a strong cash flow and a reliable income, you have a solid platform from which to ascend.
Expansion introduces instability just by the nature of change. All change is unpredictable. We can try to steer and manage it. But we cannot entirely control it. If your base is not secure at the time of your expansion, your entire operation is at risk.
A stable base affords you the luxury of trying new things without risking too much in the process. You always want to avoid moves that bet your entire business on one thing. Making certain your business is firmly established first means you never reach that moment of crisis where everything is at risk due to a single failure.
Too Much Growth
There really can be too much of a good thing. Growth can be a good thing when it is the right amount and pace. But grow too much before you are ready, and blessing quickly transforms into curse.
If you can handle 10% growth, don’t buy into a marketing campaign designed to give you 30% growth. You will not be able to serve the additional 20%. Either your additional customers will quickly leave you and give you a poor rating which would stifle your growth in the future, or you will try to serve everyone and decrease your overall quality of service. Either outcome is the kiss of death.
It is very possible to outgrow your own capabilities. You might be a very capable manager of a small, neighborhood business. But you might simply be the wrong person to take on s statewide, or even citywide affair.
It also may be the case that some businesses simply don’t scale. If only you and a handful of partners have a particular skill, there are only so many widgets you can hand make, or services you can personally do. In such cases, growth is not the answer. You might want to look into serving more of a premium market. So before expanding, you have to be sure you are not growing beyond your ability to serve your market.
When the Market Is Ready
Even if all other factors show green, you will still need to wait until the market is ready. You may be ready. Your finances may be ready. But if the market isn’t ready for more of what you are producing, you have to put resources into a market education campaign and be patient.
Sure, your neighborhood can’t get enough of your hot cross buns. But your neighborhood may also be filled with people from the old country where your special recipe stirs memories of a care-free childhood. There simply may not be any other place in the city that is as enamored by your recipe. That does not mean you can’t expand. It just means the groundwork has to be properly laid.
Expansion can be a tricky affair regardless of whether your business is in the retail space or cyberspace. The same concerns apply to a services business that is entirely online. You still need the advice and capitalization of investors, stable cash flow, a solid base, just the right amount of growth, and all when the market is ready.