|Business Expansion - Risks of Expansion
The risks of business are real, otherwise everyone would grow their business. Risks fall into many categories including: personal, business, and competitive.
By acknowledging the risks, you can seek out solutions, learn from others who have faced the same challenges, and gain confidence in forging on with your business expansion strategies.
Seek help from your employees, suppliers, partners, and customers. You may be surprised to find out how much support they can provide!
The Case Against Growth: Managing Risk
1. Personal risks: stress, no family time, loss of control.
If you think that business expansion is not going to affect your loved ones, and your own health and personal finances, and that they can be separated from the ongoing pressures of growing your business — you are misinformed. Safeguard against poor health by getting regular exercise, eating well, and spending quality time (vs. quantity time) with your family members.
Choose your business partners as carefully as you choose your friends. Bringing on business partners and signing covenants can feel like losing control and independence. Would you like to own 50% of a multi-million dollar business, or 100% of a $100,000 business? If you cannot grow without taking on a new partner, then the three questions to ask yourself when evaluating a potential partnership's worth are:
- Is it a good fit strategically?
- Is it a good fit operationally?
- Is it a good fit personally?
2. Business risks: instability, ineffective management, financial loss.
Business growth brings pressures to a system that may not have had the time / experience to get geared up for increased production or services. New timing of payables / receivables may create financial strain. Customers may feel underserved. Employees may be uneasy about all of the changes. The owner(s) and management may not have the most appropriate skills or ability to cope with change. This is a good time for a soul-searching examination of strengths and weaknesses. Do you have enough of the right stuff?
3. Competitive risks: unknown markets, aggressive competitors, unfamiliar terrain.
Growing is the next big challenge for a business owner — it's exciting and new. That part is familiar. Pushing your existing product into new markets, or new products into existing markets will be unfamiliar and may have unanticipated results. As you push up against bigger competitors, don't be surprised if they fight back! Think about outsourcing, bringing in temporary executive savvy in expansion, training your staff in new technology / methodology, or starting a new company with new equity, rather than existing cash flow.
This is not an exhaustive list — your analysis will uncover many other risks particular to your business. The next section will discuss the various expansion strategies, addressing how to mitigate some of the risks while accentuating the rewards.