6 Signs That You Should Stop a Business Expansion in Its Tracks
Entrepreneur's New Year’s Guide
For entrepreneurs, embarking on a business expansion is often a point of pride -- a clear sign that their vision is coming to life and customers are finally recognizing the value of their company. Yet, expansion remains risky, even for those who have done their due diligence. Despite good intentions, plans go awry -- often due to factors beyond the entrepreneur's control.
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Of course, growing pains are a part of the process, and a few bumps along the road don’t necessarily mean you should scrap your plans. Expansions, especially those involving multinational components, will likely generate new issues related to employee liability, tax and regulation responsibilities and contracts with new and original equipment-manufacturer partners.
Here are just some of the natural hurdles you may have to surmount to see an expansion come to fruition.
1. Your expansion lacks a clear, specific purpose.
While an expansion may be lucrative, money alone shouldn't drive your plans. If you can’t immediately answer why your expansion plan makes sense for your particular product or service or, more importantly, how it will benefit customers, you likely don’t possess a clear sense of purpose.
Additional revenue from expansion should always be in the service of a greater goal. For example, increased economies of scale might enable you to produce more in-demand products.
2. The finances are unsustainable.
While it’s true that you must spend money to make money, it’s also important to understand where the money will come from and how it will impact your overall finances.
Have you secured venture capital funding? If so, will that stake in future profits justify the potential for revenue growth? Taking on additional debt may or may not be an option for you in the current lending market. If it is possible, carefully analyze your debt-to-equity ratio to avoid an untenable situation.
3. Your customer experience is deteriorating.
Don’t jeopardize any long-term customer relationships by stretching yourself too thin through an expansion. Remember: Gaining a new customer is five times more expensive than maintaining a current one. Even if you don’t thrive on repeat business, you may still fall into the trap of putting robust sales growth goals ahead of your customers' needs.
4. You can’t find the talent to execute your vision.
“Hire the right people” is a mantra that successful businesses share, and it’s also something many struggle with. One study by Robert Half International revealed that 36 percent of 1,400 executives surveyed said the top factor for an unsuccessful hire was a “poor skills match,” while 30 percent cited vague performance objectives. Other experts accredit unsuccessful hires to misleading job descriptions.
Whatever the reason, you cannot afford a hiring faux pas when you’re entering a growth phase. Put in the time and effort yourself to ensure you’re finding internal "brand ambassadors" who can usher your organization into a new era. To avoid miscommunication, ask those actually performing the job to craft the job description.
5. Market forces are working against you.
Unfortunately, the market tides won’t always turn in your favor, and it’s important to know when forces beyond your control will likely make the venture too risky. Recently, my company had to abandon a plan for a 50,000-square-foot expansion in Saskatchewan, Canada, largely due to market saturation and the area’s worsening economic environment. This was an important lesson in expansion for me, and it’s not one I’ll forget any time soon.
6. You haven’t prepared.
Any business owner should begin with a few key steps before executing an expansion plan. First, develop a sustainable and actionable growth strategy that makes sense for you, and do your homework to get the details right. You should always take care of your customers throughout the process, and that requires getting the right people on board. Finally, don’t be afraid to pull the plug for the greater good of the organization.
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No simple formula exists for successful business expansion; the outcome depends on the unique attributes and challenges that individual companies will face. But keeping these six situations in mind as you expand your venture will help you mitigate risk and maintain a structured plan of attack.