Beruflich Dokumente
Kultur Dokumente
EXCELLENT IDEAS, SMART SOLUTIONS GROWTH AND EXPANSION DYNAMICS AND CHALLENGES OF BUSINESS GROWTH AND EXPANSION: Growth or expansion has traditionally been regarded by academics as the stage of the business lifecycle that follows market entry. Many small companies that were founded during the recent "age of the entrepreneur" have never made it to this next stage, usually due to stagnation or failure. To advance to the growth stage and stay there all the challenges and changes caused by sustained growth must be well managed, which is no easy task. Business growth or expansion is truly a two-edged sword. When it's controlled and well managed it has the potential of providing tremendous rewards to the managers and shareholders of your company. But when growth or expansion is poorly planned and uncontrolled, it often leads to financial distress and failure. Rapid growth for many companies is the only way to survive in highly competitive industries, such as technology, telecommunications and E-commerce. These companies are faced with a choice of either acting quickly to capture additional market share and build brand recognition or sitting on the sidelines and watching others play the game. But do these competitive conditions justify unplanned and unbridled growth or expansion, where sound management, legal and accounting principles are disregarded? Certainly not! Your business's need to grow or expand must be tempered by the need to understand that meaningful, long-term, profitable growth or expansion is the by-product of effective management and planning. A strategy that focuses on sensible and logical growth or expansion dictates that a balance be created. You must achieve the organizational flexibility to quickly seize on market opportunities, adapt to changes in the marketplace and develop creative solutions for problems that arise within the context of a controlled and well-managed expansion plan. Failure to create this balance will result in a vulnerability to attack by competitors, creditors, hostile employees and creative takeover specialists. It is also important to distinguish between growth and expansion and why expansion provides greater risk of business failure. Every business specializes in certain services or products. This area of specialization is known as the core business. This core business is what generates cash flow to pay expenses and reflect profits. When a business is proficient at its core business, the growth is internal, adding customers, improving customer satisfaction and insuring a better product or service than competitors can offer. Some businesses believe their core business is no different from their competitors. If they think that way than so do their customers. But if management is committed than it will strive through marketing, public relations and employee training to insure its core business is seen as unique and 1|Page
The market segments and industry sectors in which your business operates The exact stage of your company's development, Your business's the current and projected capital needs; and The types of barriers that your company must overcome to achieve its objectives.
2|Page
1. WHY DO YOU WANT TO GROW? A key question to ask is "What is motivating my desire to grow?" For most entrepreneurs, it comes down to fear, greed or ego, as set forth below. Fear: This may be fear of the competition, technological innovation, becoming obsolete, becoming (or staying) unprofitable, losing key employees, rapidly changing marketing conditions, or just be a general fear of being left out or left behind as a company. These fears become the motivator to grow and remain competitive and viable. These fears may also manifest themselves into specific growth strategies or influence what paths or new markets the company chooses to penetrate. Greed: The desire to be the biggest, the best, the market leader, the most profitable, the fastest growing, or the highest in profile within the industry can be a strong motivator. The focus is on increasing revenues and profits, maximizing shareholder value and maintaining very aggressive rates of growth. Companies in this mindset are more likely to choose the capital markets or acquisitions as their preferred method of growth. Ego: This is a more dangerous strategy than being motivated by fear or greed. This type of company has a strong need and desire to be loved by its customers and its employees, even at potential cost to its shareholders. It is very focused on building brand loyalty, long-term customer relationships, and strong vendor and distribution channels. It may have a larger marketing and public relations budget than its competitors and is more likely to be a media favorite and household name, even if it is not the darling of Wall Street. These companies typically enjoy entering into strategic relationships with others and helping to build wealth and are more likely to grow through franchising, licensing, joint ventures or even multi-level marketing. 2. THE CHALLENGES OF GROWING OR EXPANDING TOO QUICKLY: It's natural for a successful business to grow, but some small companies, flushed with early successes, try to grow too quickly. They launch new lines of business, expand into unfamiliar regions, hire layers of employees and sign expensive leases. When growth is not based on careful planning and efficient use of resources, expansion can rapidly spin out of control. These signs of impending trouble can show up early or late in the process:
3|Page
The decision to expand is based more on instinct than on sound financial analysis, market studies or economic conditions. Servicing the debt you assume to expand begins to consume the added cash flow. You find yourself becoming a stranger to key employees, who have been hired by someone else in the firm. Mounting overhead is squeezing other vital expenditures. The expansion is generating more media attention or vanity satisfaction for the owner than net profit. Bureaucracy mushrooms: more memos, meetings, manuals and buck-passing. Less business, service and decision-making. 3. HOW TO EVALUATE YOUR EXPANSION PLANS: To protect your company from the dangers of unwise or poorly planned growth, run your plans through these checks. Consider the possibility that your company is expanding in too many directions at once, seeking too large a geographical market, too much market share and too many groups or types of customers with too many different products. Sticking to what you do best is often the surest route to growth. Federal Express doesn't make hamburgers and McDonald's doesn't deliver packages. Carefully assess your motivations. Growth motivated by ego (you "must have" the target company), an excess of cash or an assumption that the company can carry a lot of debt rarely succeeds. Be sure your financial systems can handle the demands of the expansion That means cash flow, receivables and payables, inventory management, benefits and pension plans, compensation and shareholders' plans. Be sure your current management structure is capable of handling the expansion. For instance, a hierarchical company in which managers have limited autonomy or decisionmaking responsibility may not be flexible enough.
4|Page
4. BUILDING A FOUNDATION FOR BUSINESS GROWTH: To grow your business successfully, your company should have a strong foundation from which the growth strategy to be selected will be built, launched and monitored. As you build a platform for growth, make sure that the relevant components listed below are in place: A clearly defined mission statement: vision and core values that have been adopted by management and embraced by your employees. Your employees must be committed to sharing and living by these core values to achieve corporate goals. If your mission statement sits on a plaque behind your desk, it's not embedded in the corporate culture, and that means your company's not yet in a position to grow effectively or efficiently. A proven prototype location (or chain of stores): that will serve as a basis or model for the growth strategy selected. The business model must have been tested, refined and operated successfully and should be consistently profitable. The success of the business model should not be too dependent on the physical presence or specific expertise of the founders of the system. A strong and leadership-oriented management team made up of internal officers and directors (as well as outside advisers) who are committed to growth understand both your industry and the legal and business aspects of the strategy selected as a method of expansion. The team must be committed to creating or fostering a corporate culture that encourages and rewards teamwork and innovation. Sufficient capitalization to implement and sustain the growth strategy selected. A distinctive and protected trade identity that includes federal and state registered trademarks as well as a uniform trade appearance, signage, slogans, trade dress, and overall image. Proven methods of operation and proprietary processes that can be reduced to writing in a comprehensive operations manual that cannot be easily duplicated by competitors. The processes must maintain their value to any market-channel partners over an extended period of time, and be enforced through clearly drafted and objective quality-control standards.
5|Page
Comprehensive training programs for employees and any market-channel partners. The programs should integrate the latest education and training technologies and take place both at your headquarters and on-site at the channel partner's proposed location at the outset of the relationship and on an ongoing basis. A commitment to and genuine understanding of your customers. A Company positioned for growth has taken the time to understand the short-term as well as long-term needs and wants of its customers and modified its organization and products to meet these needs and wants. A demonstrated market demand for the products and services developed by your company that will be distributed through the distribution channels created by the growth strategy selected. Your company's products and services should meet certain minimum quality standards, not be subject to rapid shifts in consumer preferences (e.g., fads), and be proprietary in nature. Market research and analysis should be sensitive to trends in the economy and your industry, the plans of direct and indirect competitors, and shifts in consumer preferences. A genuine understanding of the competition (both direct and indirect) that your company will face in the adoption and implementation of the given growth strategy. Your company should have a strategic and systematic way of gathering and analyzing this market intelligence and not be doing so on a random or ad hoc basis. Research and development capabilities for the introduction of new products and services on an ongoing basis to consumers through the distribution channels that have been built in connection with the growth strategy selected. A proven system for attracting, training, motivating and retaining key employees at all levels. A strong set of external advisers and outside members of your board of directors. A capital and ownership structure that makes sense given your growth objectives and is compatible with other similarly situated competitors in your industry. A passion and devotion to creating, protecting and leveraging your company's intellectual property and related intangible assets. 6|Page
A commitment to using all available technologies to enhance the adoption of the particular growth strategy, including the development of an E-commerce strategy. A little bit of luck.
5. GETTING YOUR FINANCIAL HOUSE IN ORDER: Financially troubled companies don't make good candidates to implement a growth strategy. To grow properly and from the strength of a firm foundation, you need to get your financial house in order. If your company is exhibiting any of the following signs of trouble, you will need to fix these problems before you can implement the chosen growth strategy: a shrinking cash flow; ballooning accounts receivable; growing inability to pay bills on time; curtailed credit from suppliers; shrinking profit margins; a need to give deep discounts to keep customers; overdue taxes; or Incomplete or chronically slow accounting and bookkeeping. Take a look at a few of these financial problems in more detail and consider some suggestions for solving them: Tighten your accounting controls. Informal accounting systems, common in many small businesses, can hide vital financial trends. Owners or untrained employees should not act as bookkeepers or accountants. Arrange for a professional bookkeeper to make regular postings and handle billing and for a certified accountant to help prepare financial statements and provide tax advice. Speed up receivables. If cash from customers and clients comes in slowly or in unpredictable spurts, you need to establish a formal billing and collection process with one person in charge. You may also need to provide incentives for reducing delinquent accounts or to bill slow payers more frequently, especially for work that stretches over months. Prepare monthly aging reports to flag problem accounts. Make sure your invoices are going to the right person in the right office. Some businesses have reduced float time in the mail by 7|Page
8|Page
6. WILL YOUR BUSINESS MAKE IT? Honest answers to the following questions will indicate whether you're using the kinds of management practices that will give your business the best chance of success. The more "yes" answers, the better. 1. Do you have a written plan that sets out the goals you want to achieve in the next five years? Has it been revised recently? 2. Can you prove that you've made progress toward the goals with hard numbers? 3. Can you generate a cash flow without having to suffer through too many dry spells? 4. Does your accountant prepare and thoroughly explain reports other than tax returns such as monthly profit-and-loss statements and balance sheets? 5. Have you consulted experts recently about financial or marketing strategy? 6. Have you talked about your business with your bank's loan officer even though a loan wasn't the object right then? 7. Do you know your break-even point and whether you are on target for reaching it? 8. Do you know how much it actually costs to make each sale? 9. Do you know exactly how much inventory you have on hand? 10. Do you belong to a trade association for your industry? 11. Do you read the same publications that your competitors and customers read? 12. Do you talk regularly about business-related topics with other small-business owners? 13. Do you get regular feedback from your customers and base changes on their suggestions? 14. Do you consistently study your competitors' ads and read their sales literature? 9|Page
15. Do you have training sessions for and regular motivational meetings with your employees? 7. DEVELOPING A BUSINESS-GROWTH PLAN: Effective business and strategic planning is critical to a company's long-term success and its ability to raise capital and grow successfully. As a result, bankers, accountants, consultants and academics have written volumes about business-growth plans. Yet, it seems that the more information there is, the more confused people get. There's no one right answer. A business-growth plan should tell a story, make an argument and conservatively predict the future. All companies have different stories to tell, different arguments to make and different futures to predict. Business planning is the process of setting goals, explaining the objectives and then mapping out a plan to achieve these goals and objectives. A well-written business-growth plan maps out the best growth path and strategy as well as the rationale for the selection of the strategy over other alternatives. In essence, a business-growth plan is the articulation and explanation of why your chosen strategy makes sense, what resources you will need to implement the growth strategy, who the team will be that will have the vision and leadership to execute the growth strategy, and what path you will follow to get there. It will also answer the following questions: Who are you? What do you do? What is your business model? (How do you make money? Who is your customer? What problem do you solve? How do you solve the problem better, faster or cheaper than other available solutions?) How do your customers pay you? How loyal are they? How should you grow? Why is this strategy better than others that may be available? What do you need to implement the growth strategy selected? How crowded is the market? What vehicles (and at what costs) will you use to sell the customer your product or service? Why is this the best vehicle? What market research have you done to be sure that anyone wants to buy this product or service at this price-or at all?
10 | P a g e
Nobody has a crystal ball to predict what will work and what won't-neither the savviest investor nor the most veteran entrepreneur. The better the analysis, the better the chances that most of the goals set forth in the business-growth plan will be achieved. A well-written business-growth plan doesn't oversell the good, undersell the bad or ignore the ugly! It is essentially a plan to manage the risks and challenges involved in implementing a new growth strategy. Business-growth plans should acknowledge that growth and success are moving targets by anticipating as many future events or circumstances that will affect the company's objectives. 8. PREPARING THE BUSINESS-GROWTH PLAN: Here's an outline of a sample business-growth plan. 1. Executive summary Brief history of your company Overview of your products and services Background of your management team (summary) Mission statement (Why are you in this business?) Summary of your company's financial performance to date (where applicable) Key features of your market 2. The company: an overview Organizational and management structure Operational and management policies Description of products and services (both current and anticipated) Overview of trends in the industry and marketplace in which you compete (or plan to compete) Key strengths and weaknesses of your company 3. Growth strategy analysis How and why did you adopt this growth strategy? What hurdles and risks might you encounter in the implementation of this strategy? What resources will you need to implement this strategy? 11 | P a g e
4. Market analysis Extended description of the markets in which you compete (size, trends, growth, etc.) Analysis of key competitors and likely future competitors (and how will your business model and growth strategy change or evolve to face the new competitors?) Description and analysis of key customers and clients (current and anticipated) Market research supporting current and anticipated product lines Analysis of barriers to entry and your sustainable competitive advantage 5. Marketing and advertising strategy Strategies for reaching current and anticipated customers /clients Pricing policies and strategies Advertising and public relations plans and strategies Discussion of potential market partners and strategic alliances 6. Financial plan and strategies Summary of financial performance for last three to five years Current financial condition (includes recent income statements, and balance sheets as attachments) Projected financial condition (forecasts for three to five years) Extended discussion of anticipated allocation of proceeds and parallel budgets 7. Suggested exhibits and attachments Resumes of key members of your management team Organizational chart Timetables for completion of goals and objectives Copies of key documents and contracts Copies of recent media coverage Pictures of key products or advertising materials for services offered List of customer and professional references This White Paper contains excerpts from Business Growth and Expansion
12 | P a g e