Growth is often a difficult concept for start-ups. Many unjustly believe that their business will grow organically and that they will simply add additional resources as the business expands. But once you reach a certain size, upscaling needs to become a conscious choice rather than a reaction to growing market share. So, how do you control the expansion of your business and manage sustainable growth?
Assess your current situation
To determine if your business is ready for growth, you need to have a clear picture of where it is now. It's all very well making a steady income on a day-to-day basis, but that doesn't necessarily mean your business is ready to expand. You need to consider the effect expansion will have across the board. Do you have enough capital to invest in upscaling? Will the expansion divert too much of your time away from your core business?
Getting too big, too fast has been the downfall of many small businesses. To grow sustainably, you need to keep a tight rein on your operations and don't let booming sales lure you into making rash decisions such as taking on too much debt. For example, if you take out a loan to upscale operations to meet current demand, you need to work out how much return you need to get from that investment to keep the business running. Getting more customers is great, but if you need additional resources to serve those customers, you may end up increasing your debt rather than your profits.
To work out how fast your business can grow without losing money you need to work out your affordable growth rate (AGR), a term coined by Hewlett Packard in the 1950s. This is a simple calculation where you divide this year's net profits by last year's equity. You can then limit your growth to ensure that your business remains sustainable, without having to raise additional funds.
Don't forget your original vision
The key to successful expansion is to keep your original mission in mind. This defines what is important to your business and allows you to plan ahead accordingly. With a clear vision, external or internal changes won't be able to distract you from achieving your business goals.
When you're starting out as a small business, most entrepreneurs have a clear idea of what their product/service is and the market they want to target. This means they can focus all their energy in getting that particular product to their target customers.
However, once you become more established, it's very tempting to start pursuing related revenue streams that open up new opportunities. For example, if you started out successfully selling blinds to consumers, then you might think "hey, why don't I sell the same blinds to commercial customers?"
Many businesses have had great success branching out into unknown territory but it is a huge risk nevertheless. If you decide to pursue a new direction, you must bear in mind that a certain amount of time needs to be allocated into researching current market conditions, the customer base and competitors to build a plan for sustainable growth. On top of this you may have to invest in new machinery, additional staff and various other resources. Businesses often underestimate the amount of cash and time that will be needed to break into a related market, so plan carefully.
Copyright © 2015 Helen Naylor. Following a number of years writing for leading industry magazines, Helen has extensive experience with SMEs and now works with various organisations to provide commentaries and information covering a range of industry topics including business solutions, advice for SMEs, business development, manufacturing, technology, logistics and careers.