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Turning Point Financial Newsletter                              February, 2013, Vol 2
Greetings!

Welcome to the Turning Point Financial Newsletter.  We provide a fresh perspective on the state of your finances, strategy, and operations so you can point your business where it needs to go.

Sincerely,

Kelly Deis
Principal, Turning Point Financial, LLC

 

Growing Your Business
3 Essential Steps for a Successful Expansion Strategy

 

1.  Decide to Grow 

Should you grow your business?  It is a simple question with an assumed answer.  The answer, of course, is that you should want (some will say need) to grow.  I am not sure the answer is quite so simple.  Growth takes time, energy and money.  And, there are inherent risks - if you are not successful, some costs may not be retrieved.  And, if the plan is not well executed, it can take focus away from your 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.  Make sure you understand what you want to achieve by growing.   

 

There are good reasons to grow a business.  You might need

the additional revenue to offset established (fixed) costs required to run the existing business, such as IT, accounting, rent and the like.  If the incremental sales don't come with additional costs, then most of the revenue will fall to the bottom line.  An example of this would be increasing retail sales without adding staff. 

 

You might believe that you need to establish critical mass in your particular marketplace to defend against potential competition or to entrench yourself in the market.  If you have significant market presence and are perceived to deliver high value - customers will start to find you.  There is a lot of value to being ubiquitous!   

 

You might have investors or a board that demand ever-increasing top-line and bottom-line growth.  Or, perhaps you want to sell the business in the future.  Investors and potential buyers place a lot of value on a business that is growing.  

 

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.   It is always best to plan with the end in sight. 

 

2. Identify the Opportunity

The first step in growing your business is to identify where the most likely opportunity for additional revenue might be.  There are several possibilities you can consider, all with varying levels of risk, effort, cost and potential rewards.  Starting with the strategies with the least amount of risk (and growth potential), they are:

 

a) Sell More to Your Current Customers

The strategy with the least risk, cost and level of effort is simply to sell more of the current product to existing customers.  If you own a café, it means selling a muffin to the customer that generally only purchases a latte.  If you are a winery, perhaps there is a market for your wine with a specialty label.  Or, perhaps you can identify new ways for your customers to use your product - like turning baking soda into a deodorizer for their refrigerator.  If you own a car wash, it's selling the wax job along with the standard wash. 

 

b) Expand your Market

The next strategy is to sell more of your current product in an adjacent market - such as another city or state.   If you have a physical presence, such as an ice cream parlor or hardware store, that might mean opening sister store(s) in nearby towns or malls.  If you offer a service, you could advertise and network in those same towns.  If you are a manufacturer, this means expanding your distributor base.  This strategy is a bit riskier than the first in that there are additional costs to enter the market and increased management required to oversee the new territories.  Additionally, you need to be sure that you can provide the same high quality product, service and/or experience to all customers - wherever they reside.

 

c) Offer New Products or Services

This strategy entails offering new products to new and existing customers.  If you are a wholesaler this might mean extending your line to include other related product groups.  For instance, if you are a distributor for sports equipment, perhaps you can extend your line to include some sportswear - like caps or gloves.  If you are a manufacturer of wood doors, perhaps you can extend your manufacturing capability to include garage doors or wood  countertops.  And, if you are a retailer, that might mean adding to your existing product lines - like housewares in a hardware store.  It is far less risky to sell new products to existing customers rather than developing new products and selling to a new market. 

 

d) Develop Additional Sales Channels

This strategy involves accessing customers in new ways.  For example, if you sell engraved trophies out of a local shop, you might expand your market through the internet.  If you offer a utilitarian product or service, perhaps you can work with corporations to access their employees in exchange for a discounted rate - similar to group health insurance.  If you manufacture office furniture, you might access additional distributors or buying groups.  Taking it one step further, perhaps you can re-package and sell your goods under a private label - thus expanding your market without having to develop new products.  This strategy is risky in that it requires accessing new channels or markets that you may not have any prior knowledge or experience. 

 

3. Make and Execute a Plan

Each of the growth strategies described above requires some amount of risk, uncertainty, cost and effort.  It is best to start with the least risky strategy and expand into other strategies.  If possible, test the market first before fully committing. 


Apply the same planning rigor to your expansion strategy that you would if were starting a new business - particulary if you are developing new products or markets.  It will require, after all, a certain amount of investment and on-going cost and management.  Once you have identified the opportunity and growth strategy, ask yourself the following questions:   

  • How are you going to implement the strategy?  Will you require additional staff?
  • What marketing or advertising will be required?
  • What can you do yourself, and where do you need outside help?  Do you need help finding a location and negotiating a lease, establishing an on-line store, or with product development? 
  • If expanding geographically, where is the best market potential for your product or service?
  • Do you need to build alliances or partnerships with suppliers or distributors? 
  • What is a reasonable time to "ramp-up"?
  • What additional costs are you going to incur?  Are they one-time or on-going?
  • How much additional revenue do you need  to breakeven?  What is the return on investment?  Are these reasonable expectations? 
  • How is this going to affect cash?  Do you need to borrow money or get additional capital?

 

Choosing to grow your business is not only a strategic and financial decision - it is also a personal one.   Sometimes the decision to grow is not an option - current revenues just simply don't support the existing cost structure.  Or, it is a defensive play - if you don't expand to fill a vacuum, then a competitor will, thus jeopardizing your current position.  Sometimes it is part of a larger strategy - maximizing value of the entity so you can sell the company and enjoy a comfortable retirement.  Or, perhaps you decide to grow just because you see the opportunity or you want to run a larger enterprise.  On the other hand, you may decide not to grow - the business is prospering, has a loyal customer base and you are content with your lifestyle. 


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.  Then, make and execute your plan.   

In This Issue
Growing Your Business:
3 Essential Steps for a Successful Expansion Strategy

Who We Are
Turning Point Financial, LLC
 provides financial, strategic, and operational consulting services to small to mid-sized companies in Seattle and Kitsap County.   Learn more abut Turning Point Financial's services. 

 

Kelly Deis, Turning Point Financial
Kelly Deis, Principal

Kelly Deis is a senior finance, strategy and operations professional with an MBA from The Wharton School, over 20 years of experience (including Deloitte Consulting), and a proven track record of driving business results. Kelly brings depth and breadth of experience in all facets of finance, operations and strategy - from hands on financial management to strategic direction setting and cost reduction.  Learn more about Kelly.
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Have you thought about where you would like your business to be in five years? 

 

Do you want to grow your business, but are unsure how?

 
If you need help thinking about these and other financial, strategic and operational questions, call Turning Point Financial to schedule a free initial consultation and complimentary benchmark of industry comparables.

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