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Five key steps to ensure you’re growing, not gone

Thursday, 7 April 2011 | By Marc Peskett
It’s the natural state of business to want to grow. As the old saying goes, if the business isn’t “growing” it’s “going”.


But it’s also possible to both “grow” and “go” in quick succession. The collapse of ABC Learning Centres is one very public example of this.


To avoid the same fate as ABC, you need to prepare your new business so it’s primed to expand, before embarking on any period of substantial growth. Growing pains can cripple even the most innovative companies, so it’s vital that you brace yourself for growth from the outset.


With this in mind, here are the five key stages to prepare for growth:


1. Be clear about why you want to grow


Businesses shouldn’t just grow for growth’s sake. Growth should be the outcome of a specific objective you are trying to achieve, such as gaining economies of scale; increasing your share of market; expanding to other markets; overtaking a competitor; leveraging current activities; exercising a development or innovation you’ve uncovered; or protecting your current customers by meeting their additional requirements.


All of these objectives are designed to increase profits, build the brand or establish your presence, and growth is the by-product of that.


Having this clarity will help to build the case for growth and keeps you focused on achieving why you pursued growth in the first place.


2. Work out how you will grow the business


When you have the answer to why, there are four ways to grow:

  • Increase your prices.
  • Sell more of your current products or services to your existing customers.
  • Sell new products or services to your existing customers.
  • Sell to new customers.

Each of these options has different strategic, financial and tactical implications associated with them, which we’ll explore further in a separate article.


3. Test the market and your assumptions about growth


When you know which strategy, or mix of them, you’re going to pursue, you need to put a plan in place.


Just like starting a new business, your plan for growth often starts with a set of assumptions. Before investing time and money on a growth strategy, you need to test those assumptions.


Testing will provide the feedback you can use to refine your approach before embarking on a full scale launch.


4. Review your current resources and capacity to grow


You need to know whether your existing resources are capable of handling growth or if you need to invest in acquiring new resources.


If intending to use existing resources, be careful of trading beyond their capacity and ability to cope.


On a systems front you need to assess the capacity and capability of your current systems and processes to handle the additional sales.


How robustly do your systems deal with peaks in demand? Will new systems be required to conduct sales or handle delivery?


You also need to assess the ability of your team to handle growth. Communication is key. Inform them of your plans early and seek their input and opinions.


This will also gain their buy-in, which they may be willing to back up with action that supports the business through the growth period.


If you are introducing new products and services or dealing with a new market or type of customer, you will also need to address any additional learning or training required.


5. Have a clear funding plan


Become crystal clear about whether the growth plan is profitable, ie. if there will be cash in the bank after costs are deducted from income.


If you’re certain it is profitable, understand how much cash is needed and when.


Do you need to invest in additional working capital for inventory, fixed capital for plant and equipment or to hire new staff?


These costs arise long before the return comes back to you in the form of paid sales and they require an injection of capital up front. Does your business have that cash available in savings or do you need external funds from banks, business grants or investors?


There will also be ongoing costs to produce and deliver additional products or services and service the customers.


Without adequate cash to fund these ongoing costs, you can become over extended by increased expenses. Your growth strategy could end up being the demise of the business.


Treating growth with the same level of care and consideration as your start-up venture will give you the best outcomes for the new and existing areas of your business.


Marc Peskett is a partner of MPR Group a Melbourne based firm that provides business planning and advisory services as well as tax, outsourced accounting, grants support and financial services to fast growing small to medium enterprises. You can follow Marc on Twitter @mpeskett