Platt Perspective on Business and Technology

Expanding your business with a dual strategic focus – expanding your operations?

Posted in strategy and planning by Timothy Platt on April 23, 2010

Two days ago I posted on issues related to determining if and where to expand your business and this posting continues that with some thoughts as to how. Assume as a starting point that a careful analysis of your current business and of market trends and opportunities indicates there is positive opportunity for growth. The question then becomes one of how to address this new and emerging opportunity.

• If you develop towards this new opportunity and expand the scale or range of your business in existing and/or new products and services, can you do so by increased efficiency alone with your current assets?
• Can you do this without need to expand your operations or facility in scale but rather through a rebalancing of what assets you maintain in physical resources and personnel?
• If you have to expand your business size to meet new marketplace opportunity can you do so with what are essentially one-off investments or will this also involve ongoing increases in fixed operating expenses and in expenses like payroll?
• Here, even a stable employee headcount can mean an increase in payroll expenses where expanding into business opportunity can require bringing in more skilled employees who can command higher base pay and benefits.

The issue here is that it can be very good to expand your business, and both in scale and into to market opportunities. This, and particularly the later can even be essential for long term growth and even for just long term viability of your business, that you remain competitive and with competitive products, services and delivery systems for them. It is still important, however, that you run the right numbers to make sure your developing new business opportunities mesh with your expanding expenses, both one-off and ongoing and with your capacity to meet them. Here you have to allow for:

• Possible delays and ramping up times from when you start developing new business opportunities to when increased revenue comes in from that.
• Timing for when any new expenses will be incurred, and terms for payment.
• Keeping the numbers in synch so you can accommodate a measure of adverse extra expenses or delays in receipt of benefits and still reliably maintain sufficient liquidity. If you run out of cash and cannot make necessary expenses waiting for your new growth opportunity to come in, you will most certainly not benefit from it.

I am not an accountant or a financial officer, but am quite comfortable making one suggestion here relevant to these areas of expertise. Strategic planning for whether to expand your business, how much to do so and your timing for moving forward should be explicitly grounded in your current and immediately anticipated financials, and with an understanding of possible delays in any new return on investment so you are not simply starting out assuming a sudden windfall. Then you have to ask yourself what your comfort level is for risk and how you can best express this in terms of monetary outcomes.

Build three possible outcomes scenarios with:

1. A most likely schedule for development of business and for gaining returns from that.
2. A moderately more negative scenario where you seek to account for realistic delays and cost overruns with a bit of extra on the down side.
3. A moderately more positive scenario where you allow for smooth relatively delay-free and complication-free growth with somewhat more rapid development of new market opportunity from that – adding in a measure extra on the possible up side.

A more risk-aversive strategy would more likely focus on the scenario 2 above and a more risk-accepting one would more likely focus on scenario 3. In either of these cases scenario 1 would qualify as an at least relatively known baseline and a reality check for quantifying your actual level of risk-followed as you proceed with your business expansion.

Your selected strategy for business expansion would then include a follow-through in the form of ongoing due diligence review of your numbers as your plans unfold, so you could more realistically know if your should shift strategies. This might mean switching to a more to or a less risk-aversive stance depending on how your actual opportunities and your requirements for reaching them unfold.

The basic idea here is not to say your should accept and execute according to any particular level of risk acceptance/avoidance but rather that you know what levels of risk and possible benefit you are actually taking, and how they coordinate relative to your baseline and developing financials and other capabilities for absorbing change.

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  1. […] new marketplace opportunity. The second installment in this went on to look into some of the issues involved in expanding operations to meet new and emerging opportunity. This posting looks more specifically into issues of hiring, and with thoughts as to how and why […]

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