Financial Data
Updated 29 Sep 2020

Is your business a black flag or a red flag?

Expanding your operation to new locations can be exciting, but what’s really driving the decision? Make sure it’s not ego.

Allon Raiz, Entrepreneur, 06 August 2016  Share  0 comments  Print

All the answers to your unique business lifestage questions

As a business owner, there’s nothing more exciting than the prospect of opening an additional office for your business. It’s the kind of news that you want to showcase on a billboard next to a major highway for everyone to see — especially your competitors.

Flags on maps

I met my mentor at a new Italian restaurant for dinner, and as soon as we’d ordered our mains, I excitedly elucidated my plans to open another new branch for my business, in the Northern Cape.

“We’ll now be opening two more locations in one year alone,” I exclaimed triumphantly. This was a tremendous accomplishment for me, and one I wanted to boast about.

My mentor didn’t smile or react to my feedback in the manner I had hoped for. Instead, he sipped his wine and exhibited zero emotion.

Related: How to grow your business when it’s already going good

I didn’t understand his lack of enthusiasm, because our nearest and biggest competitor had recently shrunk by one location, while my business was in the process of expanding again.

I reached for my iPad to show my mentor a map of South Africa that my designer had created for me, which clearly marked all of our branches across the country with flags.

Are they red or black?

Red -flag -debt -business

After studying the map on my iPad closely, my mentor asked, “How many of those flags are red, and how many of them are black?”

I looked at him quizzically and then stared down at my iPad. “They’re all red flags. What do you mean which are black?” I asked.

“The black flags would indicate the branches that are making a profit and the red flags would indicate the branches that are making a loss,” he explained. “So which of your flags are black, and which are red?

“I get nervous with entrepreneurs who interpret their business’ success by the number of flags that they have on maps,” he said.

“It’s my experience that in many instances red is the accurate colour to have on a map because those branches are not making a profit. Counting the number of flags on a map is an ego statement, and not necessarily a success statement, because business owners start to focus too much energy on adding more flags to their map, instead of critically assessing whether all of those flags are making a profit, and not bleeding money.

“I applaud your competitor for having the courage to close down one of their branches. This shows me that he is able to make a tough business decision — a very strategic one — that is good for his business as a whole. When a business has too many unprofitable fronts, they defocus the organisation and cause panic, and can ultimately destroy the business as a whole,” he explained.

I contemplated his feedback because I had never considered this when I was planning on opening more branches, and asked him when he thought the right time would be to open more branches.

He said I must ensure that I have the following in place before making a decision to open an additional branch:

  • The correct person in charge to run the branch.
  • The right opportunities within the particular geography.
  • The internal competency to support the branch, and the structures in place to support it fully.

Related: Want to build your business? Sweat the details

I left the dinner feeling deflated and less enthusiastic than I had all week. I spent the rest of the evening assessing the branches I had planned on opening and realised that I didn’t have all of the key points above in place. I didn’t open the branch in the Northern Cape, and instead decided to rather focus on the existing branches that were doing very well.

Entrepreneur Mag Logo

Copyright is owned by Entrepreneur Media SA and/or Entrepreneur Media Inc.
All rights reserved. Click here to read our editorial disclaimer.

Rate It12345rating

About the author

Allon Raiz, Entrepreneur

Allon Raiz is the CEO of Raizcorp, the only privately-owned small business ‘prosperator’ in Allon Raiz is the CEO of Raizcorp. In 2008, Raiz was selected as a Young Global Leader by the World Economic Forum, and in 2011 he was appointed for the first time as a member of the Global Agenda Council on Fostering Entrepreneurship. Following a series of entrepreneurship master classes delivered at Oxford University in April 2014, Raiz has been recognised as the Entrepreneur-in-Residence at the University of Oxford’s Saïd Business School. Follow Allon on Twitter.

Introducing the cash solutions for a growing business

Are your cash solutions supporting your growing business? Leigh Livanos, Head of Payments, Collections & Cash for Business & Commercial Banking explains how your cash solutions needs will evolve as your business expands.

Login to comment