Growing is part of the success of any business. But money, your staff and customers play a vital role in the success of your expansion.
Your business is doing well and an expansion is on the horizon – but wait. Are you ready to scale, and if so, how far can you go? Doing financial forecasting and the necessary human capital calculations could save from using more resources than you have to. If you didn’t think making more money is a bad thing, consider the loss of all the money you have put into growing your business.
Related: Why good strategy beats bad growth
“There are nine stages in a business’ growth. Funding is different for each phase,” says Aurik Business Accelerator’s Pavlo Phitidis. “If the idea is a good one; you can negotiate equity based on delivery.”
Growth isn’t a bad thing, but here’s how it can be – and how to avoid the pitfalls of getting too big, too soon:
Money doesn’t come cheap
Whether you borrow money or give away equity share of your business in exchange for capital, the financial aspect of scaling is great. The more funds you require, the deeper you will be in debt or the more of your company you’ll be willing to part with.
According to fundingoptions.com, outside investment can be a great way to facilitate growth. But it also means you’re selling part of your company, and a share of future profits. Many business owners understand that they may not be able to make repayments on any debt finance issued, so offering an equity share provides funding but allows them to maintain enough control.
Solution: You can acquire funds for growth either by offering a reward or equity in your business to the general public through crowdfunding. Sites like Credibles.com a niche sites where, for example, a retailer can receive prepaid funds from its customers.
Growth could affect employee engagement
The real cost of growth doesn’t always have to do with money. Take Starbucks for example. By deciding to open multiple store locations between 2005 and 2007, it weakened a crucial element that contributed to its success. By 2009, Starbucks closed down 300 stores and opened up fewer new ones. Its high employee-engagement culture was one of the costs Starbucks paid.
Baristas complained about being “deskilled” when, in an effort to produce more product quicker, Starbucks replaced manual expresso machines with automatic versions. Their job went from grinding the beans themselves to simply pushing a button – a skill that required none of the skill the baristas possessed.
Solution: Howard Schultz, CEO of Starbucks realised the problems he was facing when his staff morale affected consumers. He began by purchasing new coffee machines, costing him tens of millions. This new version requires more beans and is more labour intensive, so the baristas have to not just push a button, but scoop, weigh, grind and brew, right before the customers’ eyes.
Related: 3 Situations where scaling your business isn’t an option
Not all businesses are built to scale
Depending on your product or service, you may need to change a few aspects of it in order to grow your company and make more money. “If your business model isn’t scalable beyond a certain point, growing your business often means compromising or changing your product,” says Ivan Lavelle, senior business rescue consultant. “This can, in turn, reduce your product’s value and negatively affect demand and customer satisfaction.”
He gives the example of exclusive Swiss watch brand Rolex increasing its production by up to four times. Its sales would increase; however, the value of its product would decrease – bad news for a brand that’s built its name on exclusivity and quality.
Solution: If your business model doesn’t allow for rapid growth, don’t compromise it in order to increase your sales, says Lavelle. In the long run, the impact of more sales would be short-lived.
Before embarking on the journey to growth and expansion, think about how you plan on financing the process, how it will affect your systems and staff, and more importantly the people who buy your product. Once a proper analysis has been carried out, the feasibility of the growth plan can then be established.
Some implications of growth are more impactful than others, but financing your business’ expansion, getting your employees on board, and taking your client base into consideration are a few key places to begin a successful growth process for your business.