Other Considerations
Self-funded expansion success stories like SenSource's are the exception rather than the rule. Most small businesses that reach the third stage of growth (success") and want to move to the next level require some financial help. Now is the time to meet with a representative at a Small Business Development Center (SBDC) and develop a plan to convince a lender that you are ready to take your business to the next level," says Thomas Mueller, Ohio district director for the SBA. There are dozens of SBDCs in Ohio; you can find the one closest to you at the Entrepreneur Ohio site.
Fortunately, access to additional funding becomes somewhat easier for businesses that have made it to this point. If you have a documented performance record, are turning a profit and have some collateral in the business, traditional lenders such as banks may be an option. Although small business lending by national and regional banks dried up during the recession, many community banks and, especially, credit unions have kept credit flowing to small business customers. Credit union portfolios of SBA 7(a) small business loans grew from $125 million in 2004 to almost $500 million in 2009.
Catching the eye of VCs
Small businesses also become more attractive to venture capital firms at this stage of their development, but they have to be able to make a strong case in their favor. They need to show that top-line revenue growth will accelerate and provide a strong rationale for why that will happen," says Lynn Gellerman, founding partner and president of Adena Ventures, which invests in early and growth-stage companies in Appalachia. Companies must demonstrate that they have control over operating expenses and a business model that works and will scale, adds Gellerman, who is also executive director of TechGROWTH Ohio, which connects early-stage, technologically innovative companies with valuable tools for growth and sources of capital.
Karl Elderkin, founder and managing partner of Athenian Venture Partners, based in Athens, Ohio, advises stressing to venture capitalists that your startup venture is now an established business. You want to leverage and emphasize the fact that you're now past the idea stage," he says. You already have a product or service and, presumably, some revenue. Those are your greatest strengths at this point and your biggest advantage over a startup business." In addition, he says, continue to look for community and government grants and funding from state and federal programs for disadvantage geographies and minorities, if you qualify. Those sources of funding are not necessarily restricted to startup companies and may be available to help fund your market expansion efforts.
People and processes are important
A mistake that too many small businesses make when the time comes to expand their market reach is failing to engage their workforces in the effort, says Rick Maurer, a consultant and author of Beyond the Wall of Resistance" and other books on leading change. You need these people to help lead the expansion. If they are not engaged or resist the change, you're in trouble," he says.
Maurer advises pulling managers and staff into the loop, letting them know what you're thinking of doing—and why it's important to expand. Forgetting to explain why it's important can be a costly mistake," he warns. Let them know how they fit in, and ask for their help in planning."
While most small businesses are driven in large part by the strength of the founder's entrepreneurial spirit in the early stages, a more defined management structure, formalized processes and procedures, a financial monitoring system and internal control systems will be required as the company moves into the fourth stage of growth, take-off." This may entail bringing in new management personnel, implementing organizational systems and structures and undergoing fundamental shifts within the organizational processes. As organizations make the transition from startup to growth, they become increasingly complex, formalized and decentralized. While those qualities might ring of anti-entrepreneurialism," they are needed for the business's progression to the next level.
