How do I avoid over expanding and making a costly mistake?

QUESTION:

I own a four-year-old company in the web & internet solutions sector.  We were break even in six months, and for the last year, we were profitable. I am at the stage where I think I can grow rapidly from $10 million to $100 million in revenue.  But I am not sure how to go about this.  We are getting constant business, good referals, and more orders.  However, when I think of having more offices spread over more regions, both domestically and internationally, I am not very comfortable with the idea.  What if I take the wrong step and can’t go back to being a profitable business?  What should I do at this critical stage?   Please help — Robert

ANSWER:

Francine Miltenberger

Francine Miltenberger

by Francine Miltenberger, Managing Director and Partner in Onyx Asssociates

Congratulations on your success!  When you are rapidly growing a business, you need several critical elements: a solid strategic focus, a management team that is up to the task, and $$$.  From your question, it is hard to know why your instincts says go slow, but that gnawing feeling usually comes from a concern for cash. Before you do anything, you need to model the financial performance of the business under the several scenarios you are considering. This exercise will help you define your risks and will highlight how much investment you will need to pursue the growth.

Comments & Advice:
  1. RJ D Johnston says:

    Recruit a strong executive team, experienced in the areas your need assistance most.

  2. Raj Gavurla Raj Gavurla says:

    A business' goal should be to make a positive difference (top line) and be profitable (bottom line). I see many businesses make the mistake of expanding too fast because they see revenue. Grow organically and as your cash flow enables you to expand do so. Taking a loan to meet the demand is not recommended because of the unknown. By growing organically you can capatilize on the change that is sure to happen in any space.

    My interactive coaching process can help:
    1. What does your inner voice tell you about growing profitably?
    2. What does your self-defeating voice tell you.
    3. What are the obstacles and challenges?
    4. What does your inner voice tell you to overcome the obstables
    and challenges?
    5. What will you do to rededicate and commit yourself towards your
    goal?
    6. What is the first thing you will do to accomplish your goal
    after reading this?

  3. Robert,
    Congratulations on your success! When you are rapidly growing a business, you need several critical elements; a solid strategic focus, a management team that is up to the task and $$$. From your question it is hard to know why your instincts says go slow, but that knawing feeling usually comes from a concern for cash. Before you do anything, model the financial performance of the business under several scenarios you are considering. This exercise will help you define your risks and will highlight how much investment you will need to pursue the growth.

  4. W. Vito Montone says:

    Learn or acquire planning and budget skills…underestimate revenue, overestimate expenses, and then beat the budget!

  5. Naomi Kokubo says:

    You need to hire an experienced CFO, who can help you put together a financial and business plan. You need to clearly define your objectives and the capital require to achieve them, as well as accurately forecast your revenue growth over the next three years. This isn't easy for most entrepreneurs, and it pays to get someone on your management team who has done this before with other companies and can help you evaluate the risks involved.

  6. Jon Jon says:

    Congratulations! On a side note, I'd be interested in hearing how you grew into a $10 mil web & internet biz.

  7. Some good advice above. In addition to base planning and strategy, some soul searching may be in order. what our your personal goals and how does this translate to an exit strategy? Running a business for the long-term? Cashing out in 3-7 years?

    Generally speaking, there are good reasons to grow quickly. Improving or maintaining market share, taking advantage of momemtum, etc. Ask yourself what are the downsides to not expanding? Sometimes not moving quickly can lead to competitive disadvantage. Or your window of opportunity may be smaller than you realize. Try to determine the key variables that make up that ‘window’ and plan accordingly.

    While difficult to speak generally (without knowing your specific business model) it sounds as though this may be a service-based enterprise, or a product-based business with a local sales force. If so, there are definite downsides to being bigger. Some questions to ask:
    * will bigger mean better? Better service? market penetration? Better chance for long-term viability?
    * how best can you serve your customers? (does bigger help?)
    * consider franchising your business model, or creating spinoffs in different markets (where you maintain an ownership stake in separate entities).

    Good luck with your most excellent problem! Feel free to reach out to me if you have any specific questions or would like to discuss further.

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