(By Julie Bawden Davis)
“Expanding offers a way for you to capitalize on economies of scale in terms of overhead and operating costs. As you expand, your per-unit manufacturing cost decreases, and you often qualify for bulk discounts. And as a growing business, lenders and financial institutions look at you more favorably.“
Strong sales? Check. Loyal customers wanting more? Check. Positive cash flow? Check. If this sounds like your business, it could be time to take the next step.
When Sue Marshall decided to significantly expand her fitness and casual wear business by launching a line of workout wear and adding a wholesale arm two years later, business jumped by 1,000 percent. Fortunately, Marshall and her sister and business partner, Simone Adler, were ready.
“We had essentially been test-marketing our products on the retail end of things since 1994 when we opened our fitness wear boutique,” Marshall says, “so we knew it was time to grow our business.” Marshall and Adler are the co-owners of Wear Me Out, a family-owned and operated business that designs and sells “throw and go” workout wear that easily transitions from the gym to the street.
Benefits Of Expanding
When the timing is right, expanding is the key to fruitful growth, says Sarah Shaw, CEO of Entreprenette Consulting. Shaw has owned several businesses and now teaches small-business owners how to launch tangible products, most particularly in the clothing, accessories, baby and lifestyle industries.
“Expanding is the only way to grow your business exponentially,” Shaw says. “When you’re running a successful company, clients continually want something new from you. Expanding allows you to give them what they want. It also helps you avoid the ‘one hit wonder’ syndrome, which can mean the end to your business.”
Expanding also offers a way for you to capitalize on economies of scale in terms of overhead and operating costs. As you expand, your per-unit manufacturing cost decreases, and you often qualify for bulk discounts. And as a growing business, lenders and financial institutions look at you more favorably.
The Time Is Right
But how do you know if it’s time to expand? Three indicators that your business is ready for growth include strong sales and a loyal customer base that’s asking for more. You might also want to think about expanding if your sales are languishing but you recognize untapped markets.
1. Strong sales. For Wear Me Out, large reorders of their product line after they launched it in 2008 gave Marshall and Adler a clear indication that expansion into wholesale would be a good idea.
“When demand starts to outpace supply, expanding is a natural progression,” says Michelle Marshall, Sue’s daughter and the company’s director of sales and merchandising. “At that point, it’s important to bring in more products or find more places to put your products in order to serve more people.”
2. Little to no growth. On the other end of the spectrum, it may be time to expand if your business is stagnating, says Shaw. “If you’re not growing from year to year, it’s time to expand,” she advises. “Sometimes small-business owners get stuck in a rut selling the same thing because it sold well before, but it’s necessary to always be thinking of the future and introducing something new.”
3. Customer requests. Another indication that expansion would be a good idea is if your customers tell you so. “I routinely survey my clients to find out what else they want to learn,” Shaw says. “If you start hearing the same comments and requests, it’s time to listen and expand your offerings.”
In order to effectively grow your business, you must have a firm grasp of your market, says Sue Marshall. “An effective growth campaign requires that you find your niche and don’t deviate,” she says.
Her daughter agrees. “It’s really important to find what makes your company different,” Michelle Marshall says. “What is it that stands out about your company? Why should people buy from you and not the competition? Once you know these answers, you can launch a successful expansion campaign that speaks directly to your market.”
Thoroughly researching your new products or services before expanding is also critical, says Jill Turnbull, CEO of No Worries Cosmetics. Turnbull ran a successful salon with the same name for many years before deciding to expand and launch her own makeup and hair care line.
“I started working on the product in 2000 and spent 11 years ensuring it met all of my requirements, such as containing the purest ingredients and featuring packaging that guarantees no product waste,” Turnbull says. Taking it slow paid off for her. Since launching her makeup line in 2011 and her hair care line in January 2013, Turnbull’s expansion has been quite a success.
Positive cash flow is also a key element for a successful expansion. As Shaw notes, “Adequate cash flow is essential to growth. If at all possible, you want to avoid having to struggle to finance the growth by having a firm plan of how you’ll access the capital.”
Beware Of Runaway Growth
Although a booming business may sound ideal, there are hazards in growing your company too quickly. For example, in just one year, Shaw’s handbag and accessory’s company went from generating $120,000 to $500,000 in sales.
“Cash flow became a problem and hindered my ability to finance the growth,” Shaw says, noting that it’s also important to be careful of excess growth in service industries. “If your services are in demand, you can become stretched too thin. Understand and respect your own bandwidth.”
The Marshalls agree, and for that reason, they’re moving slowly when it comes to growing their business. “Avoid taking leaps before you can walk,” Sue Marshall advises. “If a product is selling well, try adding it in another color, and see how well it’s received before you launch an entire new line. For small-business owners, a slow and steady approach is most likely to result in successful expansion.”
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