You have probably figure out the reasons that I am all for solopreneurship. I have seen how entrepreneurs and startup owners work themselves crazy, not due to passion, but because of greed and fear. Ask most entrepreneurs and they will most likely express one thing in common. They all want to grow their business.
In 2015, I was looking into the possibility of procuring a new bread production line in Germany. We were with our group’s CEO, who happens to be one of the major shareholders. These directors, they are wealthy multi-millionaires. Due to their stature, one might think that money is the last thing that crosses their mind. Honestly, what do they lack? They have Porsches and a few Mercedes lining up at their garage. But to my horror, wealthy people could be the most greedy and yes, fearful even compared to normal folks like me. I recall my big boss sitting down with an equipment vendor when the latter asked what was he looking for. My boss quipped, “Tell me how the machine can grow my business. That’s all I’m interested in.”
Anyway, let’s forget about keeping your business small and that easygoing lifestyle. We look at the other end of the spectrum. So, how do you expand your business?
1. ACQUIRE ANOTHER COMPANY
This is the favorite among professional managers. Whenever a new CEO takes over the leadership helm of a company, this is usually what they do. Look for takeover targets. The risks that come with acquiring another business are tremendous, in spite of the possible returns that roll out from the action.
GE was on a roll when Jack Welsh took over the reign as a CEO. The company that stood at a market value of $12 Billion in 1981 snowballed to a behemoth with a market valuation of $410 Billion. During Welsch’s tenure at the leadership helm, GE had made a series of 600 acquisitions, with a gradual shift into emerging markets. Needless to say, Jack’s acquisition had won a lot of cult following who believed that acquiring another business was the best way to expand a business.
When Jeff Immelt succeeded Welsch as the next CEO, the former too performed a series of acquisition. Unfortunately for Immelt, instead of growing GE further, his acquisition has notoriously brought GE down to its knees. From a peak of $400 Billion, the company is only worth $ 80 Billion currently. Again, the same company has demonstrated to us that in every strategy, there is always two sides of a coin.
You need to perform thorough due diligence when you are entrusted to buy over another business. I think finding a suitable business as a takeover target is nothing unlike looking for another planet that is able to support lives. The new Earth must have the right amount of oxygen, sunlight, warmth, electromagnetic protection, etc. Your target business must have the right culture, revenue, profit, growth level, human capital, your own synergy and, what have you.
2. INCREASE THE PRODUCT MIX
This is a no-brainer and even kids know this. If your current products’ sales have reached a plateau, ask your R&D Department to come out with more products. In fact, put the number of new products as a KPI for your research and production department.
Not all new products will strike gold. Many will die off, due to bad response and reception by customers. Before launching a new product, or a variety of new product mix, always check with your customers. Give out samples. If you are a software company, go ahead and offer free Beta testing. Gauge your customers’ responses before you go all out into full-scale production.
While you are all obsessed with the new revenue channels from the new products, remember to stick to your brand identity. Your new products offering should enhance your existing brand image instead of diluting its identity.
3. INCREASING PRICE
Do you know that you could grow your business just by implementing price increase alone? Let’s use an example of a piece of roll that costs $0.60 to produce, and you are selling it for $1.00. A $0.10 increment to your selling price would equate to a 17% increase on your profit. Now, imagine you are producing 10,000 pieces of this product daily. Do this exercise often enough, and you will understand my illustration.
However, a price increase strategy to grow your business is a double-edged sword. If you are able to execute this with proper timing, the new price could be a game changer for your business. Customers could opt for other alternatives if they think your new price is unreasonable though. Therefore, there are products that you can increase price more easily than others. Consumers will most likely accept the price increment in a cancer-fighting drug as compared to a normal Paracetamol.
Always remember this. Every time you increase the price of your products, there will be customers leaving your business. The trick is for your quantum of increase to exceed the percentage loss from customers that walked away.
4. EXPAND GEOGRAPHIC REACH
Setting up another operation branch unit at another geographical area makes a lot of sense in business expansion. The pressure to build the next location unit happens to a lot of industries that rely on walk-in customers like restaurants. If you are a manufacturer, you could engage a trading company or having your own team to sell your products at the new geo-location.
Andy was an R&D Manager working in a renowned bakery empire in Singapore. After a few years, he decided to start his own retail bakery in Penang with the help of a few shareholders. Andy was an aggressive businessman. He aspired to open as many retail branches as possible as the main strategy in expanding his business. I had the privilege of meeting this entrepreneur and listening to his grand expansion plan. I think his former employer has influenced him to follow their footsteps. Unfortunately, his grand plan did not pan out exactly the way he wanted because a few of his new locations had made some significant losses.
Apart from acquiring another business, opening in new locations is considerably the next most expensive business expansion strategy. You will not see an immediate return from the economy of scale in having another branch. Bear in mind, with every new location you opened, you will have to contend with the new rental, the new renovation expenses, new staff and the problems that come with their inexperience.
Without reasonable foot-traffic to your new location, the loss could easily derail your business cash flow. Andy’s aggression in building new branches has gravely affected his ability to pay his suppliers in time. In fact, I have to stop supplying him my bread improvers and yeast because of him stretching my payment to exceed 90 days. Even his hard-earned reputation is broken by his over-zealous business expansion. As a friend, I really don’t mind continue to supply to Andy, but he has to call me to assure me, and not the other way round.
5. ONLINE TO OFFLINE PLATFORM
Instead of risking your sanity in starting a new location, why not make use of popular O2O platforms like GrubHub, Eat24, and DoorDash. If you have an F&B outlet, register with these platforms and let them deliver your dishes right to your customers’ doorsteps.
At the moment, most of these platforms are focused on consumer products, especially on meals. As compared to other methods, your business could probably look into these service providers to expand your business. The disadvantage of using these companies is the loss of your customers’ database to them. You might not have access to the customers that placed orders for your killer Wagyu Beef Burgers.
Well, if you own a brick and mortar store that supplies non-edible merchandise, you might want to make use of an e-commerce platform. It’s your choice whether you want to build your own e-commerce site, or you prefer to leverage on popular third-party platforms like Amazon, eBay or Etsy.
Once you have decided to put your goods into e-commerce, you have exposed yourself to the global audience. Now, not all of these audiences will be your customers. A portion of them will be competitors. Even Amazon could compete with you and even derail your business after using them to do your legwork. You can read about how Amazon can turn against you here.
7. BRAND BUILDING
As long as you don’t have a brand for your products, you are in a commodity business. It doesn’t matter if you are selling diamonds, t-shirts or paper clips, you need a brand. I am not using Advertising and Promotion as a strategy to expand your business. No! It’s brand building!
A brand is not about putting a logo on the top of your website or giving a name to the automatic watch that you designed. Think of branding as raising a child. What are the values you want your child to be known for? Is it integrity, luxury, spoilt brat or what have you? Take my wife’s favorite luxury handbag brand, Louis Vuitton, as an example. Imagine the disaster if, a new brand manager of LV decides to display cotton bags on every shelf of their luxury outlets on the globe one day. Can you visualize the confusion to the brand’s image if the top management let this mishap slips through their oversight?
Let’s do a simple exercise. Take your own business for illustration. What do you want your business to be known for? Your Sales Manager might take the easy way out by asking you to give a bigger commission cut to Tesco to push sales in the outlets. But what gives after the price cut? Another price cut to appease Tesco or Walmart? Gradually, the discount you give today will eat into your sales profit. In order to prevent further losses, someone argues that you need to sell more of your products so that your production cost will come down due to the economy of scale. And a vicious cycle ensues.
Instead of undercutting price, think in the longer term. If you are prepared to forego immediate profits, just to sell more, why not use the budget to build your brand identity. Engage a brand specialist or build your own branding team to carry out the holy crusade of brand building. It doesn’t matter if you are using Facebook, Google Adsense or tv commercial for advertising, as long as your brand identity is intact, you will do OK.
Study your business and get your team together to decide on the strategies listed in this blog. It could be one, or a combination, depending on the budget you have.
Here is a post of my fellow blogger, Argel: 5 Ways to Better Manage Your Time at Home