In small businesses, it can be hard to assess when and how to expand. Basically, it boils down to measuring the opportunity versus the risk. Often what happens is that the business grows, and you arrive at juncture where you have to decide, “Do I employ another staff member? Do I expand my locations? How do I diversify my product range?”.
We’ve put together some helpful tips below to help you assess the opportunity vs the risk and how to avoid overexpansion.
Stare RISK in the face. First of all, we’ve never come across a great business opportunity that doesn’t carry risk. Your job as an entrepreneur isn’t to be the world’s best risk taker. Your job is to be the world’s best risk manager. Great entrepreneurs know how to manage their risk. They see both sides of the coin and can realistically assess the potential risk vs the potential upside.
Assess the upside. Ask yourself, “What am I gaining from this opportunity?” and, “Can we make this business growth profitable over x period?”. Simply put, having more locations, more products or employing more staff doesn’t fundamentally mean a successful business. Are you simply going to work harder, with a limited opportunity for potentially less upside? Or is it a true strategic business opportunity that will add growth and value overtime? As entrepreneurs, we’re carefully avoiding the former, all the while seeking the latter.
SCALE and FAIL. If you grow too fast without appropriate structure to enable your business to flex, you’re risking failure. While organic growth can stretch out capital requirements, it might come at the sacrifice of speed and potential competitive pressure. However, growing too fast and not meeting customer demand can be detrimental for your product and reputation. Understand the impacts associated with your choice and make your decision with eyes wide open.
In our first business, Au Pair Link, we grew to 50 staff and 1000 Au Pairs over the course of 7 years, making us one of the largest Au Pair companies in the world. While this type of growth (when managed well) inevitably comes with some additional profit; in our case, we simply kept investing in growth. In hindsight, we were probably never fully capitalising off making a truly profitable business.
The second time around, with My Food Bag, we experienced exponential growth which enabled us to scale the business as we went, often launching products that were 98% complete with a “fail fast, learn fast, fix fast” approach. And while scaling a business from $0 – $100M in <3 years might sound close to impossible, we did this while remaining profitable and leveraging smart initiatives to enable us to grow sustainabily.