Ask Andi: It’s time to grow the business. I have two businesses up and running. It looks like one of the companies is stalling. Let’s answer this question in three ways: good management team, adequate capital, and competitive advantage.
To grow the business, build a management team and staff that can expand as growth demands. Get the best people you can afford. People with lots of experience and skills. As one of our clients recently remarked, after upgrading an administrative position, ‘I never realized how much our last admin didn’t know. It’s nice to have someone who can teach us how to do the things we have to do, in order to perform well.’ From a financial point of view, think about the contribution that each employee makes to the business. Are they contributing more than they cost’ How do you measure that’ These are critical questions to consider, as the company expands and you are less directly involved with each employee?
Time to grow the business
Think about your company at twice the size. Who will do the work in every area of the business: finance, sales, operations, marketing, technology, and human resources. Make a list. Who among your employees is up to the challenge of learning new skills. And who is likely to get left behind? Who is capable of playing a leadership role. Or who tends to sit back and wait for you to take the lead? As the business grows, get more people who are able to own their areas of the business. informing you, but not depending upon you, as owner, to help them get their job done.
Recognize that the learning never stops. Your job is to expand the performance capacity of the company. Sometimes this means more education for existing staff. Or upgrading personnel or support services. Spend time and money keeping staff and vendors trained. Current technical trends, administrative advancements, and customer service enhancements. Financial developments, and the potential to upgrade sales and marketing, to name a few. Remember that you can influence your team to stretch. Acknowledge your staff and vendors will enhance their desire to do a better job for you. Holding people accountable for results is crucial.
Prioritize to grow the business
As your management team develops more independence, it must also know how to prioritize, and you must keep those priorities in line with yours. Develop processes that can carry out and sustain the plans you have developed. Keep it lean, straightforward, and focused. Require regular reporting from every department. ‘Respect what you inspect’ is a term you want to keep in mind. You, as owner, set the tone.
One of the things many owners struggle with, especially in growth phases, is balance. Balancing home life is important for everyone in the company. Time away from the business adds to your perspective. You need to be healthy, rested, and well-exercised physically and mentally. Do the best job you can to grow the business. The same is true for your employees. Encourage everyone to take time off. Have a home life, and balance work hours with personal interests. This demonstrates that you, have control over the business rather than the business having control over you.
Now let’s talk about capital. Look at your financial resources. Bigger dollars coming in means more to spend on staff, technical upgrades, and marketing. It also means more opportunities to make bigger mistakes. As well as enjoy bigger wins. Financial controls and depth of resources are crucial. Can you control the business financially? Are you good are your financial reporting tools? Do they give you an accurate picture of what’s going on in the business? How many months of reserves do you have on hand? Who is in charge of finance? Can that person teach you how to run the business in a fiscally sound manner?
Accelerate business growth
Balancing growth, and the capacity to finance it is a challenge. One of the biggest mistakes I see most owners make is that they underestimate the money they will need to fund their company’s growth. They write a plan of best-case scenarios or overlook downside risk. How much money your company will need to grow? Until it is established and profitable at the next growth platform. How much money do you think you will need? Double it! Preferably in the form of reserves. If you do need the funds, you won’t have to put plans on hold while you go looking for funding. If it turns out that you don’t need the funds, you’re ahead of the game.
Typically, the need for more money is less about working capital, than it is about supporting the desire to grow. Lenders want to see a clear link between borrowing and increased revenue and profit. They also want to see owners with personal equity invested in the business. To make sure the owners have some ‘skin in the game’. And they want to lend against hard assets, like equipment, or against assets like receivables. That makes it harder for service companies to get funding.
According to lending figures released by the SBA, loans to entrepreneurs are down in both volume and amount. SBA 7 (a) loan sizes have declined by 30%. From an average of $200,000 in 2001 to $160,000 at present. At the same time, lender fees in the last year increased by 110%. For a loan up to $2 million, small businesses now pay over $50,000, or 2.5%, at closing. The volume of 7(a) loans is also down by 13% in a year-over-year comparison. This is significant because the SBA’s 7(a) loan program is reported to provide around 30% of all long-term funding to small businesses. (Committee on Small Business).
Control cost and maximize profits
Of course, you can always self-fund your growth, if you have been able to set aside reserve funds. Self-funding is often the most profitable, as you avoid paying interest to the bank. If you do loan money to the company, be sure to record it as a loan, with regular payments back to you, of principal and interest.
Like it or not, as your company grows, your customers will begin to compare you to the ‘other guys’, your competitors. You can often compete with the big guys, on a smaller scale, by placing additional emphasis on customer service, or by providing an enhancement the big guys can’t or won’t provide. One of the strongest competitive advantages of any business is to provide customers with exactly what they want and to focus on customers who want what you have. Do your research, or get experts to do the research for you. You are about to spend years expanding the company; don’t launch a product or service on a whim. Be sure your offer has a good chance of achieving traction at a reasonable price point so that you make enough money to get paid for all of your hard work.
Business growth strategies
To establish a competitive edge, be creative. Look at an established product or service in a new light or from a different angle. Don’t reinvent the wheel to perk your customer’s interest. Focus on your current customers. Develop new product markets, without having to deal with taking sales away from competitors.
You may find a small niche that no one else is capitalizing on. Take your product right to the heart of your customers and prospects with testimonials and endorsements. Give incentives for referrals that turn into new customers. Be active in your community to show your customers that you care about what concerns and affects them. After all, it affects you too.
Once you succeed in launching a new or enhanced product or service with existing customers, you’re often in a stronger position to expand by taking customers away from your competitors. As you expand, be careful about waking sleeping giants. You want to stay under the radar of the big guys as long as you can. Remember, competitors may have deeper pockets and may be able to slash prices or provide incentives to lure their customers back. You don’t want to see all your profits go down the drain in a price war. When you go into a competitor’s marketplace, be prepared to deal with competitive threats, by knowing how your company is different, from a customer value point of view. Invest enough in marketing to differentiate your offer, so that customers clearly understand why they buy from your company.
