Expansion vs. Organic Growth
One critical decision most entrepreneurs need to make during the life cycle of their business is a strategy for growing their business. The way I see it, you have 2 choices. Either duplicate your business model organically, by expanding your breadth of business offerings, or look for a target acquisition. Either way can be beneficial and prosperous. But you need to be aware that both models has its pros and cons. Let’s first talk about organic growth.
One way to grow your business is to do it organically. This means bringing in additional goods or services that complement your current business offerings. Ultimately, you want to be able to offer your customers as much value as possible in order to keep them as a loyal customer. If you can become “the one-stop shop” to your customers, and they rely on you for more than one service or product that helps their business, then you are cultivating a meaningful relationship with your customer, which in turn will make it very hard for them to walk away from your business.
When growing your business organically, you need to keep in mind that although there is an upfront investment (cost) it’s not close to what you would be spending if you were to do an acquisition. Your risk is minimal, but there is much work to do on the front end.
First off, you need to determine if there is a market for additional products or services that you want to add to your current portfolio of business offerings. If so, you will need to develop a pro forma (business plan) to determine if it makes sense to move forward. This will be your “playbook” to follow to reach your goals. Make sure that you are as realistic as possible in the goals that you are looking to achieve.
Next, you are going to need to “earmark” some funds for marketing. You need to get your name out there and start marketing your new product/service. Be strategic, have a clear picture of who your target audience is and be very tactical on how to approach the market you are serving. At the same time, create “a buzz” from within your own company by getting your employees excited about a new business revenue stream. It’s very important to get “buy in” from your internal employees because that is who you are relying on to make this campaign successful. Offer some incentive program to your employees to get the product/service off the ground. Finally, take advantage of social media. Utilize as many resources as possible to get your name out there.
Once you completed your marketing plan, it’s now time to move on to the sales process. Start selling your product or service. Try selling to your existing customers first. It’s much more cost effective to have existing customers buy your product or service opposed to reaching out to new customers. You can also receive great feedback from existing customers because of the relationships you have created. Offer some introductory promotion to accelerate sales during the launch of your new product or service.
Be relentless. Try and touch your customer periodically in order to keep your new product/service fresh in their minds. However, be aware that contacting your customer too often can backfire. Remember, there is a fine line between being aggressive and being overwhelmingly aggressive. Be aware on how you are coming across.
Finally, continue monitoring the success of your new product or service. Is it meeting or exceeding your expectations? This is a critical part of the juncture because you should know within the first year or so weather or not it is on its way to profitability? If so, continue to ride the wave and keep marketing, selling, and delivering your product or service. If, after a year or so you realize that it has not met your expectations, and you are losing money you might want to discontinue your new product or service. It is vital as an entrepreneur as to “know when to hold them and know when to fold them.”
Another way to grow your business is via acquisition. Acquiring companies that complement your business model can be very rewarding. It gives an entrepreneur an instant revenue stream as well as an additional customer base that you can use to sell your other products or services to. However, there is a large upfront investment in order to do so.
First, do your homework trying to find the right company to buy. Once you identify the company, make an initial offer that you think the company would agree to. Once your initial offer is accepted, you now enter the “due diligence” phase of the sales cycle. You will now have the ability to really dissect the company you are buying. This is your one shot to really look “under the hood” of a company and really get a good feel to how that company performs financially, operationally, and culturally. I can’t stress enough on how important it is to really understand the company you are about to buy.
Most buyers concentrate on the financials of the selling company. What they tend to overlook are the intangibles. Will this company fit into your current company culture? What is the morale like? Is their leadership team equipped for growth? Do they share the same vision as the parent company? Do they have any customers that makes up a high concentration of the overall business? This is just a small example of the things to look for when acquiring a company. This also gives you a chance to renegotiate your initial offer based on what you learned about the company.
Once this phase has been completed and you are moving forward with the acquisition, you need to be personally involved in transition. Employees are nervous when they hear that their company is being bought. It is up to you to be as transparent as possible for your new employees. It will pay dividends if they believe in your vision moving forward. By the same token, if you are not disciplined in the due diligence cycle of the sale, you are taking a huge financial risk by buying a company that did not live up to your expectations. Furthermore, if the acquisition turns out to be a dud, you are out a great deal of money that will have a direct impact on your bottom line and debt ratio to your business.
Whichever route you decide to explore, do it with caution. When I make a decision on business growth, I look at things 3 ways. Best case scenario, worst case scenario, and most likely scenario. If I am at peace with any of the above outcomes, I usually walk away making the decision to proceed. But always with caution.