The Cons of Expanding a Business
by Robert McNicholas on June, 15 2018
Wait a second, you’re probably thinking. Shouldn’t that headline read “The Pros and Cons of Expanding a Business”?
Nope, it’s not a typo. In this post, we are going to talk about the potential downsides of expanding a business.Why this depressing spin on a good idea?
Because the upside of expanding a business is obvious: the booming sales, increased bottom line, the glossy new website, the prestigious new building. Success. Prestige. Money.
Mention expanding a business and the benefits are automatically where our imaginations tend to leap. Not that we want to be downers or anything, but today we’ll talk about a few of the reasons to be cautious if you’re thinking of growing your business.
The fact is that it’s very much a caveat negotium situation. (That’s kinda-sorta Latin for “let the business owner beware.”)
Two Ways Businesses Can Expand
Basically, if you want to grow your business, you have two options. You can expand the geographical reach of your business, or you can increase the number of products or services you offer. If you’re feeling extra ambitious, you could attempt both—although hopefully not at the same time. Why not? Because any kind of business growth demands time, money, dedication, and a certain amount of risk.
Before You Expand, Plan
If you want to expand your product line or the number of services you offer, this can be good way to increase your potential customer base. It can also reduce the load of risk that your existing products carry (in case of declining demand, etc.).
Many businesses opt to incorporate different items within the same product family; take, for example, Starbucks’ recent inclusion of Teavana teas in their coffee stores. Although Starbucks has owned Teavana since 2012, the teas just started making an appearance in stores. Yet this makes sense. Teas and coffees are both categories of drinkables. Customers get more choices; Starbucks gets more money; everybody’s happy.
So what’s the problem with having a new line of products?
They can potentially take away from sales of existing products. If new items don’t pull their own weight, financially speaking, you could find yourself in a hole.
Even if sales of your original product don’t suffer, it’s still a notable expense to roll out a new product line. Is your business up to this? For an excellent consideration of this topic, check out this post from Entrepreneur.com.
What about expanding your geographical reach? This, too, comes with some logistical problems. Can you financially manage the purchase of additional equipment, facilities, and/or office space? Will it create an undue strain on your existing employees? If it does, how badly will this strain disturb their job performances? Would you be able to maintain the quality of service that has gotten you this far?
And finally, as Techsperts Services does handle IT, we have to ask—is your computer information system up to the challenge?
Clearly, expanding a business is something that requires much thought. Before you even begin to plan your expansion, check out this article from NevadaSmallBusiness.com, as well as this from Queensland (Australia) Business and Industrial Portal. Yes, we know they are slightly outside of our market, but the information is still good.
Managed properly, business growth can help you conquer one of the important challenges of running small businesses: increasing revenue. Mismanaged, an attempt to grow either your service or product offerings or the territory you cover can spell very hard times for your company.
If you have any more questions or need expert advise, don't hesitate to call Techsperts for a free consultation!