Expansion and Exit
Even before you’ve started out on your new enterprise, it is important to take some time and define your end goal. While it almost goes without saying that this goal will be subject to change, it is only by recognizing and clearly articulating your long-term ambitions that you can provide yourself with a compass to guide your business decisions.
Do you want to create the next great retail dynasty? Do you want to be Abe Froman, the Sausage King of Chicago? Or are you just looking for a simple local lifestyle business? Are you hoping to create a franchise model? Or do you see your local business as a testing ground for an e-commerce business? Your end goal will clearly inform your decisions, so it’s worth considering what it is early on.
When you’re first starting out, it can be hard to imagine that there are entrepreneurs out there complaining of having “grown too fast” – but it does happen. For every Ben and Jerry’s, (Ben Cohen and Jerry Greenfield turned a rundown Burlington, VT gas station into an ice cream empire), there’s a Zynga or a Living Social that has enjoyed incredibly fast-paced growth, let their operating costs get out of hand, and then had to engage in mass layoffs when reality hit. If you’re enjoying fast-paced growth, make sure that this is reflected in your operating margins, not just the “glamour metric” of revenue. You don’t want to be the butt of the old retail joke, “We’re losing a buck on every sale, but we sure are making it up on volume!”
Excessive growth is of course, a good problem to have. However, after stabilizing from the startup process, small businesses much more commonly grow steadily before approaching a plateau. This is completely normal and it is often at this point that you’ll need to go back to your business plan and carry out what is known as a SWOT analysis. This includes an analysis of a company’s current finances, the competition, and SWOT: Strengths, Weaknesses, Opportunities, and Threats. Renovation of your product line, rebranding, and seeking investment for expansion are all potential results of this SWOT analysis. Once again, the key here is being data-driven and always staying hungry. The successful small business owner is always looking for the incremental improvements in their business that when added up, make all the difference.
At a Glance:
- It’s important to have a clear idea of what you want to get out of your business. The decisions required to build a retail empire will be different to those needed to establish an efficient lifestyle business.
- Many businesses have suffered difficulties during growth, especially when it’s fast-paced. Many more, however, have struggled with the need to boost revenues. A thorough SWOT analysis is a great place to start when your growth plateaus.
- Trusted managers who are empowered to “own” your brand and make tough decisions are a prerequisite for a successful expansion.
- If you do seek to sell, you’ll want to seek out a specialist lawyer and make sure your books are prepared for the examination they’ll be subjected to.
At a certain point, the success and growth of your business might leave you considering the option of second location. This is not a decision to take lightly, as there is absolutely no guarantee that what worked in one location will work in another.
It’s important that you have a fundamental understanding of what is making your business successful before you decide to expand. Who are your customers and why do they enjoy what you offer? Who are your suppliers and will they be able to deliver to your new location? What are your operating costs and will they be the same in a new location? A lot of small businesses start off in the suburbs of a town before making the move to the “big-leagues” of the city-center – only to find that unexpected additional costs are swallowing their profits.
Additionally, many small business owners get used to the level of control afforded by being in the store or restaurant every single day. Operating multiple locations necessitates a willingness to empower managers and delegate responsibility in a way not every entrepreneur understands at first.
The key to success here is having clear processes written down, promoting from within wherever possible, and remaining open to change. You’ll want to balance your desire to educate your manager on how to manage your business with an openness to feedback and new ways of doing things. You’ll also want to take advantage of the technology available to keep you abreast of things like real-time sales data for all your locations, no matter where you are.
When all is said and done, successful expansion relies on your ability to clearly articulate your vision and then inspire people to carry it out everyday. The extended business has to embody the core spirit of your original mission.
At a certain point, you may decide that it is time to move on from your business. Whether you’re winding down a business that just didn’t work out, retiring (and maybe opening that beach bar in Belize), or cashing in on the effort you’ve put into creating a lucrative enterprise, you will hopefully have established your end-goal well in advance, so the time to sell will be clear.
If you are looking to sell your business, it is important to engage a lawyer who is a business specialist to ensure you gain the best possible valuation. A small business is valued by assessing the potential ongoing income from the business over the coming few years. Normally this means that a business will be valued at three to five times net revenues, which can present a potential issue for particularly tax-savvy small business owners. Remember that every time you write off an expense against your business, you are lowering the net margin of the business. So, that dollar you saved by writing off the expense could cost you three-to-five dollars on the valuation of your business.
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