There comes a time in a successful business owner’s journey from start-up to established company when the question of expansion arises. If you’re a committed entrepreneur, then expansion is almost certainly going to be part of your long-term strategy; but if you’re a small business that’s doing well, even if you didn’t start out with a vision of expansion down the line, it’s worth considering whether it would be a good move.
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The main problem with expansion is that even when large, well-known businesses do it, it can go horribly wrong. Of course, the news tends to focus on failure rather than success, so for every example of expansion being a business’s undoing, you’ll probably find many more businesses are thriving following expansion, so it’s important to take a balanced view.
Why do Businesses Expand… and Fail?
It’s worth looking at why some businesses expand and fail, and compare their strategy and subsequent experience with your business. For example, are you considering an expansion into a new product line, or adding to the services you offer? If so, are you considering the idea because it seems logical and would complement your existing business, or because you’ve carefully researched the market and established a gap that you can profitably fill?
If you look at why some businesses fail with their expansion plans, you’ll see that they didn’t have a sound basis for the way they expanded. For example, if you sell beds, it might seem logical to add more furniture to your range and start selling couches and chairs as well. If people are coming to you for their beds, doesn’t it follow that they’ll want to buy their couches from you as well? Possibly, if there’s nowhere else in the area that supplies couches, and you can source quality items at sensible prices; but if there’s a store a couple of miles down the road that’s already selling couches, you need to have more than logic on your side to attract people to your store instead of theirs.
The other approach businesses sometimes take is to add something to their portfolio that isn’t closely related to their core business because it seems to be potentially lucrative. This is a kind of bandwagon mentality, as in jumping on the bandwagon without necessarily having the skills, knowledge, or resources to succeed. There might be a booming demand for pizza ovens, but if your expertise is in beds, are you going to know enough about pizza ovens and how to sell them to take advantage of the demand?
How to Approach Expansion Wisely
What you have to do is follow the exact same plan that got your business going in the first place, which in essence was establish a market, then calculate costs and potential profits. Once you’ve established there’s a demand, and that it’s one you have the skills and knowledge to supply, it’s time to look at the sometimes complex issue of capacity. Capacity is the ability your business has to cope with expansion. For example, do you have the shop floor space and warehousing you need if you’re adding product lines, or would you need to consider new premises?
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Trying to squeeze new lines into a finite space can result in losing the aesthetic appeal of your offer, but if expansion requires larger premises, you’ll have the increased rent and other overheads to factor in, plus the costs of moving and the extra marketing you’ll need to make sure your customers can still find you. You also need to add in the impact to your backroom operations, for example, you might need more office space, extra IT equipment, software, licenses and so on. One of the most significant expenses is likely to be staff. If you’re hoping you’ll be able to absorb the extra work into the existing staffing structure, think again. If you have the capacity, then you’re probably overstaffed already, which isn’t an efficient way to operate a business. If you have the right number of staff hours for your existing business, then you won’t have the capacity for expansion without other aspects of the business suffering.
The staffing issue is often at the heart of expansion in business as staff are so integral to success, but also require considerable investment. Your expansion plans are far more likely to succeed if you have the best people for the job and finding the best people can be a costly, time-consuming challenge. It’s worth looking at the advantages of deciding to outsource HR with TriNet because professional HR services can save you a great deal of time and effort which you’d be better off investing in your expansion plans.
Expansion isn’t right for every business, but if you’re considering going down that road, make sure you optimize your chances of success by being fully prepared.