When making the decision about whether to scale your business or not, assessing your current performance will help you to identify areas with highest growth potential. Once you have identified where your business can grow, you can decide how.
Is your business ready to scale-up?
Deciding whether to continue to run your business 'as is' or to expand it will partly depend on what your future intentions are and what your exit strategy is.
Most businesses that grow successfully do so by working out what they do well and then doing more of it, so it is a good starting point to solidify what your strengths are.
If you do decide to grow the business, you will want to find the right time. It is also important to choose the right sort of growth. For example, you could chose to grow organically - by selling your existing products to new markets or by selling new products to your existing customers - or you could chose to grow rapidly by buying another business.
How a SWOT analysis can help?
To find out if it's the right sort of growth, at the right time you might chose to perform a SWOT analysis.
A SWOT analysis will help you identify what your strengths are and what opportunities are available. Once you have identified these you can decide what sort of growth to go for. Identifying weaknesses or threats will give you insight on he market you operate in and your competitors at present.
Is growing your business a good idea?
There are advantages and disadvantages to growing your business. Some businesses go for years without needing to grow, while others are constantly looking for ways to expand.
Advantages of growing a business
Being a larger business means you can take advantage of economies of scale. Larger businesses can often get discounts by buying in bulk and get better credit terms from suppliers.
Another benefit of growing your business is that some people believe that larger businesses are more secure than smaller businesses, thus more likely to be around throughout the lives of their products to supply spare parts and honour guarantees, for example. If you grow your business you are likely to sell more products and services to this market segment; a larger turnover can also mean a greater potential for profit.
Disadvantages of growing a business
Larger businesses tend, inevitably, to be more complex than smaller businesses. This can make the management of the business more time-consuming and expensive. So you may need to delegate some, or even all, of the management. As a result you could lose some direct control of your business when it starts to grow.
It can be more difficult to give a personal service as your business grows. Small businesses often provide a one-to-one service to their customers, but might not be able to deal with every customer personally once they have grown. Growth could mean having to make alternative arrangements such as recruiting extra customer services staff, or providing extra training for your existing staff.
Choosing how to grow your business
A business can choose to grow slowly but steadily, or it can try to grow quickly. Rapid growth may be more profitable, but is often achieved through moving into new, untried areas - so it is rarely as safe as slow but steady growth.
One way to achieve rapid growth is by Buying a Business – A Guide to; this could mean the whole business, or buying just part of it. The business could be one of your competitors, or it could be a business that would complement the range of goods and services that you supply.
Find guidance on mergers and acquisitions.
Organic growth typically takes longer than growing by buying another business, but can be safer. Organic growth can include selling:
- your existing product range to new customers
- your products in new geographical areas
- via additional distribution channels - e.g. the internet or a wholesaler
In order to sell your existing product range to new customers or extend it to new geographical areas, you may simply need to launch an advertising campaign or expand your sales force.
If you decide to grow organically by using additional distribution channels, be sure that this generates new sales rather than simply taking sales from your existing distribution channels.
Another way to grow organically is to sell new products to your existing customer base.
The practicalities of business growth
If you have decided to grow, there are a number of things you might want to consider.
You may need larger premises to:
- store extra raw materials and finished stock
- accommodate new staff
- house any extra machinery that you will need
- accommodate extra visitors that may come to your business premises
You may also need to hire additional staff. If you are growing organically consider allocating resources to:
- advertise for staff/recruitment
- conduct interviews
- train your new recruits
If you are growing by buying a business, The TUPE (Transfer of Undertakings (Protection of Employment)) Regulations 2006 hold businesses responsible for the staff from the business they are buying.
What about your IT systems? Maybe you should consider whether you need to:
- upgrade your accounts, stock control and customer relationship management systems
- buy additional licences for your existing software
- expand your IT network
All of this will need an investment of both time and money to ensure that your business has the cashflow it needs to grow strongly.
Avoiding problems during business growth
There are a number of reasons why a growth strategy can cause problems for a business. Here are some key areas of consideration.
Plan your growth
Poor planning is one of the main causes of difficulties for a growing business. Thorough research into new markets can help with good planning.
Financial planning is also vital - because you have to invest money up front during the growth phase and the return on that investment can take a while to be realised.
You could read our guide on finance options for growth.
Existing customers, suppliers or your staff don't want to be neglected:
Continuous care of your existing customers could stop your competitors from taking them away from you. Maintain your customer service levels and communicate with your customers regularly if it's appropriate to do so.
Effective control is another vital element of successful growth. The relationship with your customers and suppliers will be put under some strain. You may also have increased stock, raw materials and other assets. Having systems in place to manage all of these is essential.
During the growth phase you could be hiring additional staff and it is vital to get the right people. Spending enough time interviewing and training your new recruits once they have been appointed will pay dividends.
Careful staff management will contribute to higher morale. It's important to communicate with them regularly to make sure they understand what you are trying to achieve and what you expect from them
Manage your own workload
When a small business grows, the founder's workload increases. This is because the increased complexity of the business means that managing it takes more time. You should consider which of your tasks can be delegated in order to free up your time to concentrate on the most important issues.
You may be able to extend your existing premises to give you this extra space. Alternatively, you might need to consider moving to larger premises.
This diagnostic tool is for founders, CEOs and MDs of SME businesses that are in a period of rapid growth and expansion (known as scale-up) and will help you identify strategic strengths and weaknesses in your business that may need addressing in order to scale up successfully.
Techniques that help you understand your competitive environment; identify the options open to you; set strategic priorities; deliver your strategy; and work intelligently in areas like purchasing, marketing, operations, and manufacturing.