Growing Up Now that your business is booming, what's the best way to expand?

Any entrepreneur who's been in business a few years knowsthe feeling. You've reached a certain plateau-you'veexpanded the business as much as you can without adding on to yourbuilding or opening another location. Sales are up, profits aretidy and customers are hinting they might like to see you do more.You are decidedly antsy; you may even be downright bored. You wantto grow, but the question is how?

There are many options. You could franchise, get into licensing,acquire another company, form a limited partnership, spin off youroriginal business, start a different company or, if you own aretail store, open a second location. If your company is reallyready to take the next step, one of these options is probablyideal.

But however you decide to do it, growing your business for theright reasons is key. Ego shouldn't be a major factor in yourdecision; neither should boredom. According to Donald Reimer,president of The Small Business Strategy Group in Southfield,Michigan, growing for the sake of growth is perhaps the worstmistake an entrepreneur can make.

"Sometimes the [true] entrepreneur feels he or she shouldtake advantage of every opportunity that presents itself, but thatcould be devastating to a company," says Reimer. Some othermisguided reasons to expand: Your main competitor is growing, yourfriends urge you to, or you want to make more money-fast.

What are some of the right reasons to grow your business?"The decision to grow should be based on whether the market isthere to support the growth," says Charlotte Taylor, presidentof Venture Concepts, a Washington, DC, company that specializes ingrowth issues of small and midsized businesses. Are you going aftera flourishing market or tapping into a new, promising niche? Thenchances are growth is a good idea.

Many experts recommend hiring an unbiased third party to helpyou assess the business before deciding to grow. Awareness of yourcompany's strengths and weaknesses is essential to planninghealthy growth, but as much as you'd like to think you can beobjective about your company's growth, you can't possiblybe. "Smaller companies often don't have a board ofdirectors or advisors to bounce things off," says Reimer. Inthese cases, Reimer strongly recommends hiring an outsideconsultant to guide you through the process. You need someone witha fresh perspective to critique your strategy.

Sound Like a Plan

Ideally, the decision to expand doesn't come aboutspontaneously; it's been part of a company's business planfrom the outset. "A good growth strategy is in focus with whatthe business owner has in mind for the company," says Taylor.In other words, the best growth strategy is a well-planned one.

"Rapid growth without planning can be devastating,"Reimer agrees. In his line of work, Reimer sees a lot ofsmall-business owners who don't plan for expansion. Thepressures of daily operational concerns often leave little, if any,time for the entrepreneur to address the big picture. That'swhy experts recommend planning for growth before you even open yourdoors. Make it part of your business plan, but don't be toorigid. "The plans you have must be flexible enough to respondto opportunities that present themselves," says Reimer.

When Carolyn and Randy Gibbs chose to open their second Pet FoodSavemart superstore, it was not a spur-of-the-moment decision.Their original business plan called for as many as five stores. Twoyears after the first location opened in Shawnee, Kansas, theGibbses had outgrown the facility and were more than ready toexpand. For them, there was no question the time was right to opena second location.

Behind Store Number Two

For retailers with one location, opening a second store isusually the most logical path to growth. Although they had alwaysplanned to open multiple locations, the Gibbses investigated othergrowth options, too. They decided against franchising because theyfelt the costs would be too high for potential franchisees. Theyalso ruled out distributing other lines of pet products becausethey feared they'd have trouble selling to their competition.After weighing all their options, they decided opening anotherstore was the way to go.

If you take this route, you need to open your second locationfar enough away from the original site so that new customers willshop there. After all, you don't want your second location tocannibalize your first. For the Gibbses, that meant opening theirNorth Kansas City, Missouri, superstore 20 miles away-andacross the state line-from the original store. Their thirdlocation, in Eastern Kansas City, is also about 20 miles away fromits nearest sister store.

"Finding locations that are in the right areas has been a[concern] for us," says Carolyn Gibbs. At approximately 30,000square feet apiece, sufficient distance between locations is aprominent issue.

Another concern is hiring a good manager for your secondlocation. As an entrepreneur, it will probably be hard torelinquish even a little control over your business, but youcan't be two-or more-places at once. The expertssay it's important to find a team player who shares your visionand enthusiasm for the business. Look for someone with creativity,innovation and problem-solving abilities.

When you decide to open a second store, sometimes it makes senseto change the focus of the products you carry. For example, if youown a dress shop, you might consider having your second storespecialize in related accessories. This will expose your firststore's product lines to your new shop'scustomers-ideally without negatively impacting the firststore's sales.

People Power

Growing even the most promising entrepreneurial company involvesmaking some jarring psychological adjustments. Most important-andironic-you'll have to suppress some of the entrepreneurialinstincts that got you this far, namely, your need for completecontrol. To expand your company successfully, you need to becomfortable delegating and managing instead of doing everythingyourself. And the bigger your company gets, the more you'llhave to let go.

Making solid hiring decisions will help you feel good aboutdelegating major responsibilities to others. You also need torecognize that your current staff may be apprehensive about yourexpansion plans. They may feel uncertain about job security; theymay feel left out. Communicate your growth strategy to employees,keep them informed throughout the process and encourage your staffto give you feedback along the way. If you involve them in theexpansion, it should foster a strong sense of commitment to thecompany.

One of the toughest questions a small-business owner may face ingrowing a business is whether to reorganize staff. Butre-engineering is often a fact of life. "Sometimes you outgrowyour staff," says Reimer.

Taylor agrees: "I've never done a strategic plan where[a company has] gone to the next level and not neededreorganization. That usually means people changes, too." Thisisn't to say a complete personnel purge is necessary. Justassess your team and work on strengthening any weak links.

At Pet Food Savemart, Carolyn Gibbs says a good management teamhelped facilitate a smooth transition when the second and thirdlocations opened. Adding staff during the growth phase wasn'teasy, but through trial and error, the Gibbses learned to make goodhiring decisions. "Now we go beyond our gut feelings,"says Gibbs. Opening multiple locations has also helped the Gibbsesmake plenty of contacts in the pet food industry, and thoseconnections have helped them find skilled management staff.

Spin Doctor

The decision to open multiple locations isn't necessarilyright for every retailer. For Mike Johnson, owner ofRe·finery, a 1,200-square-foot home furnishings store inLaguna Beach, California, opening a second store may be an optiondown the road. For now, however, growth comes from a differentsource: a spinoff.

When Johnson opened Re·finery in 1994 out of a passion forfurniture, he was certain he'd want to grow the business oneday-he just wasn't sure exactly how. "I knew onelocation or one business wasn't going to be the end ofit," says the former engineer. "The logical progressionwould have been a second store, but I decided that wasn't thebest use of my resources."

With its eclectic array of merchandise-furniture andknickknacks that are mostly either refurbished or made from oldwooden items like windows and doors-Re·finery requires avery specific type of location to be successful, according toJohnson. So instead of going the traditional route, he decided tolaunch a wholesale line of accessories, which he designs and sellsin his own store and others like it in Arizona, California, andNevada.

Overall sales have increased so much since Johnson debuted thewholesale line that he believes it may one day eclipse the retailstore in terms of revenue. "Right now, I'm looking for allmy growth to come from the wholesale line," says Johnson."By next year, I expect wholesaling to be the bigger part ofmy business."

Before going the spinoff route, Johnson considered opening asecond store similar to Re·finery or opening atourist-oriented store in Laguna Beach to appeal to visitors to theseaside community. He even thought about launching a completelydifferent business-a rubber stamp store. But he decided itwasn't in the best interests of the company. "Openingsomething completely different didn't make sense," hesays, "especially when I started running through thenumbers."

Johnson may one day open as many as three additional stores, butfor now growth is occurring naturally through wholesaling. In themeantime, he's realistic about growth-and how long it will taketo do it right.

"I want to focus on the wholesale line, and I expectit's going to take a few years of energy to make it panout," he says. Above all, Johnson is determined to grow hisbusiness slowly and carefully. "I eventually want to expand[the wholesaling business] nationwide," says Johnson,"but not until we're ready."

Now or Later?

Many entrepreneurs either expand their businesses beforethey're ready or grow too quickly. Donald Reimer, president ofThe Small Business Strategy Group in Southfield, Michigan,recommends asking yourself the following questions beforeproceeding with expansion plans:

1. Have you built a strong management team?

2. Have you developed a strategic plan, and does the proposedexpansion mesh with your overall goals?

3. Have you or a consultant conducted a strategic audit orassessment to evaluate your company's strengths andweaknesses?

4. Have you discussed the expansion with your board of directorsand/or an outside consultant, and do they support it?

5. Do you have the necessary financial and human resources tohandle an expansion?

6. Have you examined the external factors affecting yourbusiness (industry trends, the economy and the like)?

7. Have you compared your company's performance with othercompanies of similar size, and is your company performing well bycomparison?