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STRATEGY

Rhonda's Rules for Growth

Small-business columnist Rhonda Abrams offers these rules for planning a company's expansion.
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In a few days, I have an all-day planning meeting scheduled for my company. I'm a bit nervous and a bit excited.

At our meeting, we're going to lay out a growth strategy for the next few years. I've hired a management consultant to coordinate the meeting even though I'm a management consultant myself. No one can be objective about their own company.

Why am I nervous? Because we're going to be making decisions affecting the future of my company -- my future. Why am I excited? Because having a definite plan will give me a framework for making choices in the future, making those choices easier.

To mentally prepare for the meeting, I've been thinking about the experience of other companies I've worked with -- and my own former companies -- in steering their growth. I've come up with (or borrowed) a few rules to keep in mind when planning a company's expansion:

  • Know what business you're in. This is harder than it sounds. In fact, most planning sessions are primarily a matter of trying to figure this out. Are we a book publishing company? A content provider? What do our customers look to us for? What are our core competencies?
  • Take care of your bread-and-butter business FIRST. What business activities actually bring in the money to pay the bills? These activities must not be jeopardized, even if they're not exciting or "sexy." After all, my employees need a paycheck, and my dog has to eat. We've put together financial information to see where our sales come from and who our biggest customers are. We don't want to lose them.
  • Don? t bet all your money on one horse. Many businesses -- including my own -- have one or two customers or distribution channels that bring in the bulk of revenue. Be careful! Being dependent on one or two revenue streams is perilous. It"s certainly making me nervous, so I know that adding new revenue streams is a top priority for me.
  • Be clear about your target market. We've already started to analyze the characteristics of our customer base and realize we're trying to serve too broad a market. That makes us less effective in our marketing and messaging efforts. And too scattered in the products we choose to develop.
  • Identify exit scenarios and what's necessary to make those possible. Some day, you're going to want to leave your business -- sell it, close it, pass it to your family members. Outline a few realistic exit possibilities and the steps necessary to make those happen. For instance, if you'd like to sell your business so you can retire some day, what would make your company attractive to a buyer?
  • Build one business at a time. Most entrepreneurs see opportunities to grow in many different directions. A key rule is to concentrate on only one new direction -- product line, target market, distribution channel -- at a time. Otherwise, you'll spread yourself too thin and not succeed at anything.
  • Only choose a strategy you can afford. Growing a business takes money -- for marketing activities, new staff, inventory, etc. How will you fund that growth? Through your own revenues? That means growth will be slower. By taking out loans? That means you'll have more debt and obligations. By finding an investor? That takes time and you have to give up part of your company's ownership. Figure out what kind of financing you can afford to live with, and choose your growth strategy accordingly.
  • "Make sure the dog will eat the dog food." That's a quote from my friend, Eugene Kleiner, the pioneering venture capitalist. What Eugene meant was that no matter how good your ideas are, in the end, you have to make certain you've got a product (or service) that customers want. Before sinking a fortune in a new endeavor, do some test marketing to make certain customers will respond.

It's always scary -- and exciting -- to start something new. It means you have to change, but it also opens up possibilities. That's what I'm hoping we'll get out of our growth planning sessions -- a clear choice of possibilities and an outline of how to make them real. Wish me luck!

Copyright Rhonda Abrams, 2002

Rhonda Abrams writes the nation's most widely-read small business column and is the author of The Successful Business Organizer; Wear Clean Underwear; and The Successful Business Plan: Secrets & Strategies. To receive Rhonda's free business tips newsletter, register at www.RhondaOnline.com.

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Last updated: Aug 29, 2002




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