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Start-Ups

How Do You Know When to Expand Your Business?

By Townes Haas   |    March 18, 2015   |    10:41 AM

Running a small business is hard, stressful work. The U.S. Census Bureau says that while about 400,000 new businesses are being created annually, some 470,000 are closing. So you've made it—congratulations!

Now what? You are running a successful business with a viable business model. This may be the time that you are starting to ponder additional locations, new products, more staff and the potential for more business. Everyone's heard of the tipping point, but how do you know when you reach it? And what do you do one you get there? At the same time, you've heard horror stories about companies much bigger than yours that expanded too fast and imploded. So how do you go about expanding your small business safely and efficiently? Here are a few ideas.

Do your homework.

You and your team know your business best, but without doing your research you may not have the big picture as to where your company fits in the marketplace and its best chances for a successful expansion. Let's face it, there's a reason that guy at your favorite hot dog joint has one location and Ray Kroc built McDonald's. He was after all the man who said, “The two most important requirements for major success are: first, being in the right place at the right time, and second, doing something about it." It's worth understanding both sides of that quote. Being in the right place at the right time is about having a unique offering for the marketplace, so you need to know if that's true of your business and if not, how robust your competition is. The fun part is doing something about it. The tricky part is deciding when to act.

Be on the lookout for expansion “triggers."

There is no magic eight ball to tell you when to take your business to the next level, but experts say that there are certain signs that could indicate an expansion is warranted. Here are a few clues:

  • You can no longer fill customer needs quickly because your infrastructure can't keep up. If you're too busy to sell your product to customers or they are going elsewhere for your wares, it's time to invest in your company.
  • Things are falling through the cracks. If your team is making mistakes that are being caught by clients or production can't keep up, it may be time to bring on more resources.
  • Keeping up with the competition. If you do find yourself with a direct competitor, or in the case of complex niche industries, many competitors, you may find yourself being pushed aside by the market if you don't invest in more resources.
  • Changes in the industry. This is the “chimney sweep" problem. In 1995, a software package called Netscape Navigator was the most widely used web browser in the world. One “browser war" later, and Netscape lost more than 90 percent of its users in less than a decade. The speed of technology can also bowl under an entire business model, as we have seen with print media and are starting to see with translation and other services that can be radically augmented using innovative technologies. The lesson here? Keep up.

There's more than one way to expand.

Even a decade ago when we talked about expansion, we were really saying one thing: more locations. Today, that's not always the answer. If you want a really abject lesson in how not to expand a business, read Anthony Bourdain's stories of flailing restauranteurs in Kitchen Confidential who went down in flames when they bit off more than they could chew. The point is that there are lots of ways these days to grow a business without adding a storefront. You can add new products or services into the mix. You can refocus your sales and marketing strategy to gain deeper penetration into your existing market. Expanding into new territories or markets could help you gain traction without major investment in new infrastructure. Any company that isn't using their online presence, social media and online advertising is just throwing money away. Finally, it may become clear that there is an authentic synergy between your company and another firm that could catalyze a merger or an acquisition, doubling the size and capabilities of your company overnight.