IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Kelly Deis of Soundpoint Consulting (www.soundpointconsulting.com).
To Grow or Not to Grow?
Should you grow your business? It is a simple question with an assumed answer. The answer of course, is YES! But I am not sure it is quite so simple.
Before you invest your hard-earned money and time, think about what you want to accomplish and why. Then, carefully consider your options.
Decide to Grow
We have all heard horror stories of businesses that over-extended, only to lose it all. If your expansion strategy is not well conceived or executed, it could be a costly misadventure, both in terms of money and focus on the existing business.
If your business is well-established, has a loyal customer base, is reasonably protected from the competition, profitable and affords you the lifestyle you have sought (both in terms of discretionary income and time) then think hard before you take on an expansion strategy. Understand your goals – both financial and personal, before moving forward.
Reasons to Grow
That said, there are good reasons to grow a business.
You might need additional revenue to offset fixed costs, such as a computer system and rent. All businesses need to cover their costs.
Or, you might need to establish critical mass in your marketplace either to defend against potential competition or to entrench yourself. Having a significant market presence and a great reputation has a lot of value!
You might have investors that demand ever-increasing top- and bottom-line growth. Or, perhaps you want to sell the business in the future. Larger and/or growing companies generally command a larger multiple than their smaller and stable peers.
Lastly, it is simple human nature to want to be bigger. We all take pride in what we do – and for some that means employing a certain number of people, making a certain amount of money or having an undeniable market presence.
So, take a step back and decide if you want to grow your business. And, if you do, know your motivations, strategically, financially and emotionally – before embarking on an expansion plan.
How to Grow
The first step in growing your business is to identify where the most likely opportunity for additional revenue might be. There are several possibilities to consider, all with varying levels of risk, effort, cost and potential rewards. They include:
Sell More to Your Current Customers
The easiest and least risky strategy is simply to sell more of the current product to existing customers. If you are a winery, perhaps you can sell a blend with a customized label. Or, maybe you can identify new ways for your products to be used – like turning sleeping bags into dog beds.
Expand your Market
The next strategy is to sell more of your current product in an adjacent geographic market. That might mean opening sister store(s) in a nearby town and/or expanding your advertising and marketing efforts.
This strategy is a bit riskier than the first in that there are additional costs and management oversight required. Be sure you can provide the same high quality product or service to all customers – wherever they reside.
Offer New Products or Services
This strategy entails offering new products to new and existing customers. For instance, if you are a distributor of sports equipment, you could extend your offerings to include sportswear. It is far less risky to sell new products to existing customers rather than developing new products and selling to a new market.
Develop Additional Sales Channels
This strategy involves accessing customers in new ways. For example, if you manufacture office furniture, you might access additional distributors or buying groups. This strategy is risky in that it requires accessing new channels or markets that you may not have any prior knowledge or experience.
Choosing to grow your business is not only a strategic and financial decision – it is also a personal one.
Whatever you decide – be thoughtful. If you decide to grow, determine the best strategy for you and your business. Consider starting with the least risky option and expanding from there.
If you would like assistance in considering your growth strategy, please give me a call. I would be happy to help.
If you have questions relating to the content of this article, Kelly Deis, CVA, CEPA and President of Soundpoint Consulting, a business valuation and consulting firm specializing in business valuations, exit planning, strategy and operations business consulting, and financial services for marital dissolutions, would welcome inquiries. Kelly Deis can be reached at (206) 842-4922, or kelly@soundpointbusinessconsulting.com
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.