How do you know when your business is ready for expansion?
Since our company is in the construction business, I will address this question regarding business growth from the standpoint of the construction industry in general and our company specifically. Being ready for expansion is different than expanding. Market conditions provide the fuel for a business to grow. There can be no significant increase in market share, number of active construction projects, number of project managers/ superintendents or the size of construction projects unless the demand is there. A company’s experience in specific sectors of construction and a company’s performance on past projects will dictate whether or not they can take advantage of positive market conditions. If we sense strong demand, we gauge our readiness to expand on the number of skilled project managers on staff, our experience in the types of projects that are available, and our company’s financial ability to take on more work and complete larger projects. The construction industry is capital intensive. Second only to market demand, adequate operating capital is the most important factor in determining if a construction company is ready for expansion.
What are the most effective growth strategies?
Building contractors face options when they consider growth. Do you grow your business footprint in your current market area (market penetration)? Do you grow your business footprint into other markets (market expansion)? Do you grow your company’s ability to provide construction services in additional sectors (diversification)? In 1975, we elected to first grow our footprint in Rocky Mount. Operating in one market gave us a chance to gain valuable experience and create a track record and reputation in terms of performance. Our next step was market expansion. We made strategic decisions to open offices in Wilmington (2004) and Raleigh (2012). In the Wilmington and Raleigh markets, we embraced the opportunity to expand into sectors such as hospitality, food service, retail, and churches. We set out to market our experience and reputation in dental construction. That sector (dental construction) grew over the years and now provides a solid foundation for our continued viability.
Is it possible for a business to grow too fast?
bsolutely. When market demand is good, it is human nature to want to seize the opportunity to grow your brand. With different requirements for growth comes different levels of risk. It is difficult to gauge the correct speed and size to grow your business when market demand seems to justify aggressive growth. You don’t want to look back and say that you grew your business too fast or did not grow fast enough. Growing too fast could lead to a catastrophic outcome. Not growing fast enough, while disappointing, does not typically lead to a company’s demise. The common dominator in the failure of a business while trying to grow is the lack of capital. A business must responsibly weigh the risks versus rewards and evaluate its financial ability to remain strong and viable if the growth plan falls short of expectations. Avoid a growth plan that, if unsuccessful, would threaten the ability of the business to survive.
How do you involve your team with your business growth plans?
Your team is your growth plan. Your team plays a vital role in your company’s ability to complete a plan to grow market penetration, expand market footprint and diversify types of services. In the construction business, the team is made up of ownership, project managers, project superintendents and support staff. When planning growth, you need a buy-in from your team members. Will the team take on more responsibilities and manage larger projects? Growth in a construction company involves hiring additional staff. Encourage your team to be involved. Contractors learn early on that when the team is involved in the recruitment of new personnel, the chance that the new employee will be successful is greatly increased.
What are some of the challenges that can occur when starting to grow and how can these be avoided?
Challenges during growth are the same as the challenges that businesses always face. A business can mitigate challenges by being aware of potential challenges and having a plan in place deal with them. Hold planning sessions that deal with “what will we do in the event that this happens”. Managing capital and key personnel wisely while growing is critical to the outcome. Some business sectors require larger capital risk than others. In the food service industry, growth is typically accomplished by opening more facilities. In the retail sector, growing inventory and expanding the number of locations is a typical pattern of growth. This plan often includes acquiring a site, constructing a building, and investing capital in inventory, fixtures, furniture, and equipment. The more demand that is placed on a company’s financial and human resources, the more the growth plan must be analyzed and evaluated. It takes discipline to “stay in your lane” when undergoing a period of growth. A huge challenge is to know when a growth plan is not working and quickly apply the brakes.