The old adage in business is that if you’re not growing, you’re dying. While that may be true in many circumstances, the important keys to business growth is expanding at the right time.
Expanding too late can lead to missed opportunities, but expanding too early can lead to accelerated debt loads, high employee turnover, and supply chain bottlenecks that can lead to a rapid contraction or other disastrous consequences. Knowing when to expand your business and how to do so in an effective manner can be the difference between constant growth and a rapid downfall.
Know your market (customer needs and demands, is growth possible?)
Before you can even consider any efforts to expand operations, the most critical factor that will determine your ability to expand is what potential growth opportunities your prospective market contain.
Simply, what do consumers want, how much do they want and can you meet their needs? Factors such as market size, demographics, speed of product delivery relative to market demand, and the cost to acquire and maintain customers will all factor into the merits of expanding operations.
Failure to effectively evaluate market demand can lead to overproduction or potential oversaturation that can wreak long-term havoc on your expansion efforts.
In order to determine market demands and consumer preferences, you can try the following methods. Once you have defined the market you are trying to expand in, whether it’s food, electronics, or cosmetics, and the various individual components that contribute to the demand within a specific sector, such as residential, restaurant, and institutional demand for coffee, you can begin forecasting potential growth possibilities.
Understanding usage patterns within specific components (such as average coffee consumption per restaurant patron), regional demands (for specific brands), seasonal influences (holiday spending on luxury coffee), or demographic changes (children transitioning to coffee-drinking adults) will all influence what your target market will be within the next 3-10 years relative to investment and growth interests.
Further, conducting consumer satisfaction surveys of your already existing product lines, what consumer demands are currently, and even potential interests in emerging products can provide valuable information to gauge further product development and where investment would be best placed (development, supply chain efficiency, increasing personnel) to maximize growth potential.
8 important keys
Know your competition
A secondary component, though in many ways a differentiating factor, in evaluating market potential is considering what competitive parties are pursuing.
Beyond surveying the immediate competition with your production and distribution sphere, considering the saturation of the market relative to the volume and type of products and services similar to yours and their pricing will play a critical role in determining whether expansion is worthwhile.
Performing a market analysis can provide critical information to determine the feasibility of expanding. Evaluating your current and prospective market share, the quantity and importance of competing firms within that market, and their projected growth and differentiation (as some firms may deliberately contract from one market
if merging with competing or outside firms) and determining your competitive advantage within that market will indicate whether expanding is a worthwhile investment.
If you can offer a product that arrives faster, offers better quality, better value, or a better consumer experience than your competition, then expanding may be worthwhile relative to costs and other considerations to be noted.
8 important keys
Refining and diversifying your product portfolio
In order to penetrate a new market or expand with your current market, improving consumer retention is critical. Doing so generally requires improving upon already existing product lines or expanding into new production possibilities.
When considering product refinement, product feedback platforms such as customer support inquiries, surveys, and quality assurance polls can guide areas of refinement, particularly with regard to evaluating how consumers use the product and how it fares during its life cycle.
Quite often, this is an inherent process to pre-existing businesses, but deciding to invest in refining a product or investing in alternative or complementary product lines can influence expansion efforts.
For many operations aspiring to expand, considerable investment is required with regard to product diversification. Businesses should consider whether they wish to invest in concentric (similar product), horizontal (complementary industry), or conglomerate (differing industry) diversification.
Diversification can attract new customers, create stability amid economic volatility, or outpace competing producers. However, diversification does come with some risks, including the attractiveness of products offered (relative to brand, usage, and costs),
the cost to enter this area of production, and whether the production is sufficiently complementary to pre-existing product lines. Effectively considering the impacts of product refinement and diversification are critical to any considerations for expansion.
8 important keys
Streamline your logistics network
Even for brick-and-mortar operations, creating efficient supply chain networks can be critical in maintaining a competitive edge, particularly with regard to expansion; supply chain competency becomes even more critical for online retailers.
Supply chain effectiveness pertains to meeting the demands of customers, while efficiency relates more to cost and speed. Both concepts play a crucial role in operations considering expansion.
When considering expansion, supply chains can potentially hinder or accelerate growth. One consideration is the visibility of the supply chain with regard to warehouse inventory, tracking, and dispatch coordination; greater visibility can lead to greater market penetration.
Supplier relationships and automation of supply chain and inventory monitoring are also integral in determining the rate and degree of expansion.
Ultimately, how efficient a company is, with regard to sustainability markers such as packaging, energy management, and material costs, can determine how feasible expansion may be. If a supply chain can’t support expansion, then no degree of planning, research, or hiring will compensate.
8 important keys
Have the right people in place
Hiring the right personnel is inherent to an expanding operation, as with growth comes great (and more) responsibilities. Knowing how to hire and who to hire is as important to the expansion process, particularly since personnel management incorporates other operations necessary for expansion.
When considering hiring decisions, company directors should take into account a variety of factors. If production or supply components are in-house, are there enough personnel to meet potential demand?
How efficient are the personnel that currently exist and is it worth investing in further training (particularly if new equipment or procedures are necessary) or hiring new or additional personnel?
Are competent managers already in place to manage future projects? Should company leadership create a more nuanced, compartmentalized specialization platform or engage in more interdisciplinary management and navigation, particularly with regard to product diversification decisions?
Such considerations are valuable determinations with regard to investing in the right personnel to facilitate and expedite business expansion.
Ensure sufficient funding
Even with proper market valuation and personnel, a company that doesn’t have more money coming in than what is invested or spent is not going to last long. Proper financial evaluation of expansion considerations should take into consideration the variety of components that can affect profitability.
As previously noted, pricing can be a principal determinant of whether expansion is sensible. Pricing should take into consideration pre-existing products, competitor prices, and potential supply chain fluctuations.
Production and management costs present another critical hurdle, particularly if production is not within the same organization and particularly if more personnel are being brought on board to handle hiring.
Ultimately, the effectiveness of raising and managing capital, through development, product launch, and quality assurance stages, becomes even more critical. Balancing the benefits of equity management, credit/loans, private investment, and cash reserves can either serve as the foundation or a roadblock to expansion.
8 important keys
Having a quality product doesn’t do much good if people don’t know about it. That’s why investing insufficient marketing can make the difference between effectively expanding to meet production demand or contracting accordingly.
With marketing investment recommended to be 7-8% of gross revenue for firms yielding less than 5 million, marketing plays a crucial role in ensuring long-term growth strategies.
Marketing in the modern world of commerce is principally based on virtual engagement. Social media plays a critical role given the diversity of platforms (Instagram, Twitter, and Tiktok, to name a few) and the volume of interaction.
Email marketing plays another crucial role, particularly given what information can be relayed and that specific demographics can be targeted more easily.
Ultimately, Pay per click advertising, Search engine optimization, and having a quality website provide reliable platforms for ensuring that potential customers driving growth have access to your inventory and associated information to continue driving return on interaction.
Have a long-term vision
Finally, the long-term vision for every company is what defines its growth possibilities. For some businesses, expansion can be a matter of improving the economy of scale and overall efficiency.
For other operations, expansion can be a way to target new demographics, either for pre-existing or novel product lines. Expansion can also serve as a transitional model from an unsuccessful market to one with greater possibilities or fewer competitors.
Ultimately, however, having a clear vision of what the ultimate outcome of the expansion will be and what the markers of success are will drive variations in the approach to expansion given the inevitable detours encountered along the way.
While business expansion can come with many risks, it also offers considerable rewards for those properly invested in the path to expansion. Considering the above factors before expansion can smooth and speed the path to prolonged business success.
In conclusion, expanding a business can be a daunting task that requires careful consideration and planning. By keeping in mind the eight important keys mentioned above – assessing financial readiness, identifying target markets, building a strong team, establishing efficient processes, leveraging technology, developing a marketing plan, maintaining quality control, and staying flexible – business owners can increase their chances of success and achieve sustainable growth. It’s crucial to take the time to evaluate all aspects of the business before taking the next step, as thoughtful preparation can ultimately lead to long-term success.