Planning for new customer needs
A solid business case for growth should be validated prior to adding staff and increasing costs. A detailed customer profile for the growth market should be developed, as well as a detailed marketing strategy to meet their needs.
The resources needed to serve the growth market should also be validated and, if possible, ramped up gradually as marketing targets are met to ensure that costs do not get out of line. Formal policies and procedures should be in place prior to hiring and expanding, as that will allow you to deal with issues as soon as they arise, rather than reacting to them in the future.
The goal of growth is to increase profitability by achieving economies of scale. Opportunities that demonstrate economies of scale are very attractive to investors. Some questions that need to be answered are:
1. Have you profiled the new growth market and developed a detailed marketing plan outlining how you will win it (e.g. promotion, branding, advertising, pricing, marketing performance measures)?
2. Do you know which distribution channels are needed to reach the growth market?
3. Do you know what new skills/staff you will need to meet the needs of the growth market (e.g. a detailed human resources manual; a system for managing and rewarding performance)?
4. Will you be able to produce sufficient product/ services and can you obtain economies of scale through improved production processes and/or improved deals with suppliers, distributors, retailers, etc.
Planning to meet production needs
True growth is defined by economies of scale and building competitive advantages over competitors. Strategies to obtain these attributes will vary by company, and careful analysis is required before entering a growth stage. Some questions that need to be answered are:
1. Do you believe that your costs of acquiring/producing your product/service will decrease with future sales expansion (e.g. negotiating better rates/discounts with suppliers; manufacturing internally; identifying production bottlenecks, inefficiencies and waste; outsourcing production)?
2. Do you believe that you able to keep production in line with demand without sacrificing quality and delivery times?
3. Are you aware of the changes in the competitive product environment and have you adjusted your product strategy accordingly (e.g. new patents; next generation products/services; reverse engineering by competitors)?
4. Have you created production barriers to maintain competitive position (e.g. patents; production facilities; strategic alliances/exclusivity/ supply agreements)?
Planning to meet the needs of a growing staff
Growth often calls for dramatic increases in staff. Formal human resource policies should be put into place to determine how to deal with issues before they arise. A needs analysis of new staff and management required and determination of how to find the right people in the right time frame is essential to see if the growth plan is feasible. New management structures will be needed and incentive programs will likely be needed for management. Losing key personnel (i.e. product development or sales person) can be catastrophic during the growth stage, so they should be prepared and on board with the growth strategy. Key questions to answer are:
1. Have you analyzed your human resource needs in preparation for the next stage of rapid growth in production and sales?
2. Have you developed a human resources manual for staff (e.g. vacation, work hours, behavioural policies)?
3. Have you developed an organizational chart?
4. Have you established measurables for key employees to monitor performance?
5. Have you considered incentive programs for key employees?
6. Do you have a positive organizational culture that can withstand the changes that growth will require?
7. Is key staff on board with the growth strategy?
Planning to meet operational needs
Increased complexity needs to be managed. Developing formal policies and procedures helps to ensure that all aspects of the business are aligned and that progress can be measured to make better decisions. Key questions to answer are:
1. Have you developed a full set of company operational policies and standards?
2. Have you considered an advisory board or board of directors?
3. Do you have formalized internal communication procedures and have responsibilities been delegated to appropriate staff?
4. Are you operating to the standards you had set?
5. Are you operating within your capacity or do you need to increase in any area?
6. Are there any constraints to your continued growth?
7. Do your equipment and processes meet your future needs?
Monitoring Cash Flow
During the Growth Stage, managing expenditures simply based on how much money is in the bank today is not sufficient. Detailed financial forecasts are required to determine how much investment capital is required before sufficient revenues are earned to sustain the growing company. Payables and receivables will grow and become more complex to manage over time and will cause great variations in cash flow over time, both positive and negative. Forecasts will help to keep you from over-extending current financial resources and/or to predict shortfalls far enough in advance so that investment capital can be raised.
Part 3: An introduction to financial literacy, preparing forecasts, and determining which forms of investment capital can help you grow your company.
Part 1: Barriers to Growth
Part 3: Financing Growth
This blog is extracted from materials co-developed by David Gauthier and the Manitoba Women's Enterprise Centre for their "My Gold Mine" project, and based on concepts originally developed by the Entrepreneurial Foundation of Saskatchewan.