6 Signs That You Should Stop A Business Expansion In Its Tracks

6 Signs That You Should Stop A Business Expansion In Its Tracks

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For entrepreneurs, embarking on a business expansion is often a point of pride – a clear sign that their vision is coming to life and customers are finally recognising the value of their company. Yet, expansion remains risky, even for those who have done their due diligence. Despite good intentions, plans go awry – often due to factors beyond the entrepreneur’s control.

Of course, growing pains are a part of the process, and a few bumps along the road don’t necessarily mean you should scrap your plans. Expansions, especially those involving multinational components, will likely generate new issues related to employee liability, tax and regulation responsibilities and contracts with new and original equipment-manufacturer partners.

Related: The Most Common Mistake with Global Business Expansion

Here are just some of the natural hurdles you may have to surmount to see an expansion come to fruition.

1. Your expansion lacks a clear, specific purpose

While an expansion may be lucrative, money alone shouldn’t drive your plans. If you can’t immediately answer why your expansion plan makes sense for your particular product or service or, more importantly, how it will benefit customers, you likely don’t possess a clear sense of purpose.

Additional revenue from expansion should always be in the service of a greater goal. For example, increased economies of scale might enable you to produce more in-demand products.

 

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2. The finances are unsustainable

While it’s true that you must spend money to make money, it’s also important to understand where the money will come from and how it will impact your overall finances.

Have you secured venture capital funding? If so, will that stake in future profits justify the potential for revenue growth? Taking on additional debt may or may not be an option for you in the current lending market. If it is possible, carefully analyse your debt-to-equity ratio to avoid an untenable situation.

3. Your customer experience is deteriorating

Don’t jeopardise any long-term customer relationships by stretching yourself too thin through an expansion.

Remember: Gaining a new customer is five times more expensive than maintaining a current one.

Even if you don’t thrive on repeat business, you may still fall into the trap of putting robust sales growth goals ahead of your customers’ needs.

Related: Expansion Insights From One Of SA’s Power Partnerships

4. You can’t find the talent to execute your vision

“Hire the right people” is a mantra that successful businesses share, and it’s also something many struggle with. One study by Robert Half International revealed that 36 percent of 1,400 executives surveyed said the top factor for an unsuccessful hire was a “poor skills match,” while 30 percent cited vague performance objectives. Other experts accredit unsuccessful hires to misleading job descriptions.

Whatever the reason, you cannot afford a hiring faux pas when you’re entering a growth phase. Put in the time and effort yourself to ensure you’re finding internal “brand ambassadors” who can usher your organisation into a new era. To avoid miscommunication, ask those actually performing the job to craft the job description.

5. Market forces are working against you

Business-woman-in-car

Unfortunately, the market tides won’t always turn in your favour, and it’s important to know when forces beyond your control will likely make the venture too risky.

Recently, my company had to abandon a plan for a 50,000-square-foot expansion in Saskatchewan, Canada, largely due to market saturation and the area’s worsening economic environment. This was an important lesson in expansion for me, and it’s not one I’ll forget any time soon.

Related: How to Predict Your Business Performance

6. You haven’t prepared

Any business owner should begin with a few key steps before executing an expansion plan. First, develop a sustainable and actionable growth strategy that makes sense for you, and do your homework to get the details right.

You should always take care of your customers throughout the process, and that requires getting the right people on board.

Finally, don’t be afraid to pull the plug for the greater good of the organisation. No simple formula exists for successful business expansion; the outcome depends on the unique attributes and challenges that individual companies will face. But keeping these six situations in mind as you expand your venture will help you mitigate risk and maintain a structured plan of attack.

This article was originally posted here on Entrepreneur.com.

Cris Burnam
Cris Burnam has been working in the self-storage industry since 1987. He has served as president of StorageMart since founding the company with his brother, Mike Burnam, in 1999. Burnam grew StorageMart from a single self-storage facility into the world’s largest privately owned self-storage company with 149 locations across the U.S. and Canada. Burnam was named a 2014 EY Entrepreneur of the Year in the Services and Real Estate category (Central Midwest region) -- one of the highest honors an American entrepreneur can receive.