Expansion and Your Small Business: When Is It Time?

Entrepreneurs have many natural instincts- we can sense when a deal is bad by a gut feeling, we immediately spring into attack mode when our business is threatened and we also have a natural inclination to grow each year we are in business.

… but that inclination can be a destructive one if not measured and executed properly.

I was a very excited, ambitious, young, and aggressive entrepreneur when I opened my first business - a bakery. I intended for the shop to become a major specialty treat distributor, like Sweets from the Earth in Toronto. At first, my steps were small and measured.  I incubated as a distributor for a few years at a Centertown bakery. Producing overnight, delivering in the morning, attending business school and working at a specialty food shop in the evenings. When a small, affordable, fully loaded spot with all the necessary equipment came up, I pounced knowing I’d never have this shot again. Coming from a string of minimum wage jobs, financing was certainly an issue for me.  I retained $15 000 from the CYBF (now Futurpreneur), borrowed first and last rent from my Gran, and I was off.

Within 3 years I’d become a household name in Ottawa and similar businesses were coming out of the woodwork.  By this point I had learned a lot, established great clientele, was the first business of my kind in eastern Ontario and was being approached by larger grocery store chains for distribution deals.  I was so dazzled by these offers I let my ego take over and stopped looking at the detailed logistics that are a must in this decision making process. My baby step phase was over, and “shoot first ask questions later” took center stage…  And it was the beginning of the end for my bakery. 

If you are thinking of an expansion, it is integral that you assess and think over the reasons why you wish to grow, then plan and execute each step carefully.  This may sound obvious, but for some small business owners the daily exhaustion of putting out fires and jumping through hoops can exhaust one's judgement. 

Here are some processing strategies I wish I’d completed and known before I made my expansion decision:

Lifestyle: I always tell my clients to make their businesses work for them, not vice versa.  If you’re not living the kind of life you want, then adjust your business for what matters most to you.  Little things like being home to get your kids off the bus, hitting that spin class, taking 2 weeks off each year, etc. can make all the difference. If your current working situation has you feeling drained, wiped out, and resentful at the end of the day, then take it slow on executing an expansion.  If you’re not clear headed and rested, you can’t lead your team and your business into this next vital chapter. Get your lifestyle to where you would like it before making changes.

Crunch the Numbers: Sure, that big grocery store chain just approached you with an offer, and/or your dream location just came up for rent, but just how realistically profitable is all of that?  Run the numbers- how much are things like delivery or courier service, labour, packaging and materials and is there any profit left over. Go visit your cash flow chart in your business plan and run the expansion costs on top of your monthly costs currently.  Try your best not to let your heart and ego take charge, let your bank account dictate if it’s worth your valuable time to pursue this expansion.

Get Real: Take a hard look at where your business is right now. Things like are you turning a profit, do you have an efficient and competent team, is your product consistent, and do you have a client base are all vital. You want to ensure that things are consistent and functioning before you take a big next step. Also, if you have a business with staff that is up and running, you will need a logistical plan to run your business on the daily and plan this expansion at the same time. 

Do It For the Right Reasons:  As mentioned earlier, as a younger person I was an ego driven entrepreneur.  As I’ve unpacked and learned lots about myself over the years I now know why I acted that way, and it wasn’t a good thing.  

Explore your reasons for expansion- good reasons are things like: you’ve outgrown your space, your client base is in a different neighbourhood, you can no longer meet the demand using your current model, or you’d like to add a new service to your business. Not so good reasons are things like: you want to beat a direct competitor to a big distributor, you just think it’s time, everyone in your life is telling you you should, or similar businesses to yours are expanding and you’re feeling the pressure to keep up. 

Artisan Reality:  If you are producing a small batch product, expanding and distributing on a mass scale could compromise your brand integrity and your product consistency, both keystones of your profitability and what helps maintain loyal clientele. In some cases, small and simple is the way to go.  I can think of a few local small businesses that are one or two person shows who do splendidly just the way they are. If it’s not broken, why fix it?

It’s like Kenny Rogers said- you gotta know when to hold ‘em and when to fold ‘em.  Ensure that an expansion decision is a measured one that is yours alone. Sometimes waiting a little longer isn’t a bad thing- and neither is staying exactly where you are.

Join me next week for: Coliseum Mentality and the Small Business: Coping With and Diffusing Negative Client Behavior on Social Media.  It will be posted at 4pm, and then at 7pm I’ll be going live from this Facebook Event link for us to discuss in real time.  You may also ask me any questions you have re: small food based businesses. Respond to the event link asap so you don’t miss a minute.