Expanding Business: Are You Trying to Grow Just for the Sake of It?

Sometimes, owners are too eager to become an expanding business. Check out these nine tips to help you avoid mistakes when pursuing growth strategies.
March 09, 2018

The following is an example that may happen more often than we think when it comes to expanding business:

Imagine a successful small neighborhood restaurant. The restaurant specializes in authentic Mexican cuisine. It's always busy and people line up on weekends to get a table.

One of their prized offerings is the special homemade sauces they serve with their dishes. The owners are happy and the customers are happy.

One day, someone approaches the owners and convinces them that expanding their business by bottling and selling their sauces online is a golden opportunity. The owners are reluctant. They're happy with the level of business they have. But they're eventually convinced that this is a great opportunity for expanding their business.

So the owners embark on an adjacent business selling bottled sauces. But they soon find they've entered an overcrowded market. They go into debt to finance the new undertaking, spend a lot of time learning a new business and are distracted from their main successful business.

The core business suffers: Customers are no longer lining up, debts are mounting on both sides of the business and, eventually, the company closes its doors.

If you're a business owner considering expanding your business, here are a few tips to help you avoid costly mistakes.

1. Look for any potential flaws in your idea.

When we get caught up in the passion for an idea, we tend to create an idealized image in our minds. We can fall in love with the idea and become blinded to the cold hard facts.

Before rushing to implement an idea, make sure that your vision is not built on rocky ground by examining the potential flaws in your plan. Some questions to start:

  • What will happen if the plan for expanding business doesn't work? How will you recover?
  • Are you stretching yourself too thin? What effect will expanding business have on cash flow at least in the short term?
  • What happens if you run out of cash? What are your plans for refinancing?
  • Are you downplaying the competition?
  • Are you overestimating the revenues from expanding your business?

2. Do your homework.

The excitement of embarking in a growth initiative may prevent you from doing your due diligence. Contracts may be signed on the fly, third parties may add some important liability clauses at the last minute and details can be missed altogether. After all, everyone is thinking only of success.

Is quality an important aspect of your customer service? Consider what impact expanding business will have on your ability to continue to provide the same level of service.

Expanding business is a complex process. Haste may not be your ally. Do the homework.

3. Stick to what you know.

If you're considering expanding your business by introducing a new line or adding a new component, stop for a moment to consider these questions:

  • Do you have the expertise to undertake this new side of the business?
  • What will it take for you to be up to speed or as good in this new area as you are in your core business?
  • What can you do better than the competition?

In some cases, focusing on your core competencies may be more fruitful than chasing adjacencies to the business.

4. Mind the emotions that come with expanding business.

Consider the emotional impact that an expanding business might have on you and all those concerned. Growth can be an emotional roller coaster.

Who else will be with you on the ride? Not everyone may be comfortable with rapid growth. What types of new customers will you deal with? For example, you may have been happy dealing with a community of friendly neighborhood customers. Now, you might have to deal with impersonal interactions online.

As the company grows, so does the staff. You might now have to hire and train managers whereas before you did it all yourself with a close, small team of trusted team members. Are you temperamentally equipped to delegate authority? Do you have the emotional make up to confront the growing pains or uncertainties of dealing with new markets?

5. Plan for the long term.

When everyone is excited about the short-term growth, it's easy to take your eye off the long-term ramifications of an expanding business. Questions worth asking yourself include:

  • What kind of financial risk are you exposing yourself to in the long term?
  • What effect might inflation and other economic factors have on your business?
  • What happens if anticipated demand falls short of projections?
  • Are your forecasts based on real demand over the long haul or just over the foreseeable future?

6. Be mindful of branding issues that may come from being an expanding business.

Your brand is how customers view your business. It may be part of what makes them loyal customers. How does expanding business into other areas affect the brand? Will it weaken what you have worked so hard at establishing?

Take our earlier example. If your distinguishing mark is being a friendly, attentive family restaurant specializing in home cooking, how does being a manufacturer of sauces fit in?

7. Make quality non-negotiable.

Is quality an important aspect of your customer service? Consider what impact expanding your business will have on your ability to continue to provide the same level of service. Will there be time to give clients the same level of attention? Will you have to cut corners?

Think about making quality an important consideration when you examine how you will keep pace with your expanding business.

8. Consider getting expert advice when expanding your business involves a merger or acquisition.

If you're thinking about expanding through a merger and acquisition, you may want to speak to an expert in the area. They can help you determine if the basis for the acquisition is sound.

As an example, a small-business owner may seek to acquire another small business because of the promise of having qualified staff, solid technology and sales in the pipeline. But once the deal is sealed, you may discover that there are only a handful of employees that you want to keep, that the technology may not be as sound as it seemed at first blush and the sales in the pipeline are nonexistent.

9. Be clear about your definition of success.

Ultimately, if you're considering growth for growth's sake, you might want to think about the ramifications of the growth on your personal life. What are your life goals? Does expanding business help or hinder these goals? Will you be able to maintain the lifestyle you value? What impact will it have on your family? It all comes down to your personal definition of success.

Expanding your business is a choice. Choose wisely. If you decide you're not quite ready to expand your business after considering the points in this article, you may want to let some time pass and revisit the issue at a more favorable time. Expanding business when you're ready and more certain can bring on opportunities for greater success.

Read more articles on business expansion.

Photo: Getty Images