Risk is relative. In the dot com bust (2001-2005), my software engineer husband kept bugging me to shut down my business and get a job. I looked him squarely in eye and said, “You’ve been laid off four times in the past two years. How is getting a job a ticket to financial security?” Granted, he was never without income. He found new jobs or consulting gigs in between jobs quickly. He only received one unemployment check. I found the on-again-off-again health care benefits aggravating, though, so I took a part time teaching position at a local university. Then the State of California cut back funding to its universities even further in the 2008 recession, my lecturer position was cut, and I lost my health insurance. So much for reducing financial risk by taking a job.
I’ve decided that investing time and money to grow a business is one of the best ways to reduce financial risk. Growing a business to the next level is not risk free, but waiting around for other people to grow businesses and add employees is risky. Apparently corporations think so, too: They are sitting on a record $1.74 trillion in cash rather than hiring, expanding or investing in new markets.
We can expand our businesses with a minimum of risk by planning well. We should ask ourselves (and answer) five key questions to help make business growth as seamless as possible:
1) Does the new product or service fit with our company’s mission and current customer base?
Spotting a new market or product opportunity is good, but developing, marketing, selling and delivering the product requires that we invest in new facilities or move to a new location. Moving to a different location, or engaging in construction at our current location, might be inconvenient for our current customers. Our capacity might be strained during the expansion. For example, a small office networking and computer repair company could reach more business owners by offering “do it yourself” small office computing classes. The company would need to build a training facility with computers and networks, and staff the classes. The service might be well received but conflict with the company’s mission to provide “fast and reliable service” to its current customers. Will customers appreciate the change? Or will they be negatively affected if the company moves to a new location, or if consultants are tied up with training schedules and not available for repairs?
If we take care not to alienate current customers as we grow, our businesses can gain new customers and grow profitably. And as we successfully add to our product and services offerings, our current customers will tend to buy more from us.
2) Do we have the productive capacity to produce and deliver the new product or service?
Before adding products and services, we need to consider our current productive capacity. Will we need additional personnel, contract consultants, machinery and facilities? The computer consulting company that wants to expand into training will need to reconfigure their current office space or expand into a new training facility. A home based consultant may need to rent facilities for the first time or sign a lease for a “brick and mortar” office. New marketing and training materials will need to be developed. Copy and technical writers may need to be hired.
When expanding our businesses, we need to develop a human resources plan, even if we don’t have employees. We could choose to do most of the activities ourselves, but we’ll have to turn away business while we work on introducing the new products and services. Most entrepreneurs prefer not to turn away business, and so business expansion plans take longer than expected, or are even abandoned. Expanding our businesses requires us to invest both our time and money as we expand our facilities, hire consultants or add employees.
3) How much will we need to invest in our new product or service development?
Launching new products and services requires new business systems, equipment, facilities, and marketing materials, including an updated web site. The financial investment may not be large, but we do need to create a budget for the funds (including lost revenue) and time required for new products and service design. We must also safeguard against falling levels of customer service as we devote more of our time and energy to business development. We may have to work longer hours and hire professionals to whom we can delegate some of the business and marketing development activities to maintain our sales and customer service levels.
Creating a business expansion budget and timeline is essential. In my work as a Small Business Development Center business advisor, I see business expansion plans abandoned because the entrepreneur can’t find the time or doesn’t have the funds to invest in developing the new product or service. Great business ideas don’t have to be sidelined, but they do need to be adequately funded to be brought from planning to launch.
We can be creative to find the business investment funds we need. As of this writing, many credit card companies are offering zero or low interest checks, with low fees, usually for a period of six months to one year. Paying a 2% to 3% check fee to access $5,000 ($100 to $150) or more at a 0% interest rate is reasonable if you expect future profits to grow. Business owners without access to the low promotional credit card rates may want to take out a microloan via a peer-to-peer lending web site like Prosper Marketplace and Lending Club. Or, if we have some excess capacity, we can barter with other business owners for their services. For writers and musicians with a loyal following, taking “pre-orders” can provide production funds needed for publishing new books and albums.
Crowdfunding is now a funding option for entrepreneurs. Some sites, such as Kickstarter, Indigogo and peerbackers, allow you to accept funding in exchange for gifts or perks. Other sites, such as Profounder, match investors with your business in exchange for equity or a percent of revenue. Crowdfunding campaigns do take time to set up. We must set aside a large block of time to create a venture profile, a promotional video selling the project idea, and then we must take time to promote our fundraising campaign.
4) Will we have new competitors, and can we compete?
New products come with new competitors. Before we invest in business expansion, we have to examine the existing competition. How do our proposed prices compare? Will our new products or services be as well received as those of our competitors? After examining the competition, we may realize that we have to alter the design, distribution method or price to compete in the marketplace effectively. And we also have to be sure we are satisfying a need or solving a problem for customers in the marketplace.
5) What is the value to our customers?
Our customers buy from us based solely on their needs and desires, not the features of our products. We also have to consider our customers’ budgets (everyone has a budget). What problems do our products or services solve, or how do they enhance the lives and well being of our customers? We’ll grow our sales more easily if our new products and services help our customers:
• Save time
• Reduce stress
• Increase well-being
• Increase safety or security
• Increase business sales
• Increase productivity
• Cut costs
• Improve communications
• Meet these needs within their budgets
Launching new products and services to grow our business requires an investment of our time and money, and new capacity. Asking and answering the five questions above, and doing some market research (examining customers needs and the competition) greatly increases our chances for achieving long-term financial security by growing our business.
Anne Ramstetter Wenzel is a Menlo Park, California, based economist and author of The Entrepreneur’s Guide to Market Research.