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You are on: Tabbed page 1 You are on: Why Expand tab Why Expand?Family relationships are intense and deeply felt. They can tear the company apart or create the glue that makes it a joy to go to work. Like any small business, a family business must plan, structure and develop strategies for its growth. But internal relationships complicate the dynamics. Here are 5 basic points to consider in building a family business that you can pass on to future generations:
You are on: Tabbed page 2 You are on: Risks and Rewards tab Things to ConsiderWill greater size give greater efficiency? Will economies of scale bring greater profitability, growth pays for itself. If size and economies can also limit the number of viable competitors, growth is even more attractive. Will customers and resources remain loyal? Make sure customers will stick with you through the transition period, either out of loyalty or inconvenience of switching. Will you have to finance growth yourself? If you can't borrow on reasonable terms or attract new investors, internal financing will determine the pace of growth. Can you take the heat? Your tolerance for stress and discomfort - financial, personal and physical - is a limit on growth You are on: Tabbed page 3 You are on: Getting Ready tab Get ReadyWith the decision to grow, your company enters a new phase that is no longer business-as-usual. Many changes will occur in all functional areas in order to keep pace with the sales growth that is coming. In order to prepare for these changes, you must remove the barriers to grow in these key areas. What can you do to help you "break through" the barrier more smoothly, in a more controlled fashion? It's all about preparation in the key areas of business that must keep up as you grow sales. Management: Conflicting VisionTo keep its eye on the target during these times of change, management must have only one target. Discuss the vision with key managers. State the vision - together. Only managers who believe in the vision should participate in the inner circle. A single vision is crucial - you cannot drive with double, triple or quadruple vision. Limit the key management group to those who buy into the vision. Key managers must be capable of contributing to the accomplishment of the vision. Work together on the vision statement (see: Planning for Growth) - agreement on the purpose of being in business is essential and revealing. Operations: No PlanStaff can work toward expectations only if there is a written plan that states what the operational goals are. Include equipment purchases and additional staffing in goals and plans. Make sure everyone knows the plan. Without a written plan, existing staff have no way of knowing what's expected and you cannot know whether your expectations are being met.
Finance: StrangulationCash is the air supply for growing companies. More production and sales means more cash is needed for inputs, inventory and equipment. Make sure financing is in place, watch cash flow like a hawk and hire or outsource the best financial help you can get. The most devastating barrier to growth is cash shortage. Cash is like air for the growing business.
You are on: Tabbed page 4 You are on: Plan for Growth tab To approach growth strategically, you must begin with a plan that contains three elements:
Mission StatementThis is where you put your vision on paper. It's the ultimate destination, the long-term goal, the imaginary place you are trying to make real. Usually, it lasts for the lifetime of the business. It addresses:
For example, a home decorating store's mission statement may be: "To enable first-time home buyers in this city to create functional, tasteful and inexpensive interiors using a combination of their existing furniture and fittings matched with new or used materials provided by our company." Goals and ObjectivesThis is the route you intend to take on your mission - the strategies. Usually, you will update them annually. The goals and objectives must:
A sample objective: "By the end of this fiscal year, we will increase sales to homeowners by 20%." Action PlanThis is the list of tasks that will take you to your goals and objectives. They simply describe the action to be taken, including a deadline, such as: "Complete sales staff hiring and training by end of October." Like a household list, they're checked off when they're achieved and new tasks are added. You are on: Tabbed page 5 You are on: Expansion Strategies tab Sales StrategiesThere are four ways to grow sales:
Market ConcentrationEvery business has viable customers it has not yet nailed down, customers that also buy from other businesses, and customers it has lost. So there's great potential in finding ways to increase sales in existing markets. Here are a few ways to get customers to buy more:
InnovationYou can find ideas for new products, features or related services from customers, employees and suppliers. The trick is to actively listen to what they say. Customer: "Can I put a down payment on this?" You: "Maybe I should offer a payment plan." Employee: "I'm so tired of people who call a lumber yard asking whether we build fences." You: "Maybe I should provide qualified tradesmen." Supplier: "We sure are selling a lot of Oriental sauces lately." You: "Maybe I should offer a Chinese fried rice dish on my menu." Tactics for introducing new products within existing markets: Replacement products
Additional features
Complementary itemsOffer accessories - stock add-on items of interest to customers who buy your product or service, such as designer fountain pens in bookstores. Completely new itemsExtend your brand - capitalize on goodwill by offering new items over your name Cross-sell - offer a wider menu of services either supplied by you under license from others or supplied by others who pay a commission to you. PenetrationIf you have saturated your local market, the most obvious answer is to reach out to new buyers. The risk is that you move before you're profitable in your first market and cannot financially withstand the learning curve you will experience with new customers, or weather the new competition you will face. Some means of penetrating new markets:SegmentationExtend current segments - use market research to find new segments that could use your product: men/women, high-income/medium-income, and car owners/boat owners. Re-focus current segments - find new uses or applications to capture new customers - as baby shampoo is also marketed as shampoo for sensitive skin. Geographic outreach Advertise - place ads in select media in new markets, preferably where little competition exists. Go for catalog sales - band together with other producers of related products to publish a catalog and solicit mail-order sales. More locationsMinimize overhead - open new stores, warehouses or factories, but centralize head office functions (buying, accounting, administration, personnel) at old location. Use temporary locations - if it makes sense, try kiosks or temporary office space first. ExportRegister with databases - Overseas databases list companies seeking new markets or suppliers for foreign markets. Get expert assistance - use Bahamian embassies and trade consuls in foreign markets Attend trade shows - quick exposure, easy planning and excellent targeting, plus current market information and immediate knowledge of local competition. Get financial aid - Regional & Local loan programs and other funding mechanisms. Check trade offices and Web sites like the Inter-American Development Bank & BAIC site for details. Pursue education and mentoring - many inexpensive programs exist for new exporters, such as the RBTT Sponsored Small Business Training Course held at the College of The Bahamas. Contact your nearest RBTT office for details. You are on: Tabbed page 6 You are on: Financing Growth tab Income StatementsRod McQueen said it best in The Last Best Hope: "Volume is vanity, profit is sanity, and cash flow is reality." Growing companies pursue new revenues, but volume isn't the same as profitability. There's also the question of whether the company can pay for the assets - current expenses and capital property - it uses in achieving growth. The income statement tracks revenues and expenses over a period of time - a month, quarter or year. A pro forma income statement is simply a forecast of expected revenues and expenses. Revenue: Sales and other income Expenses: Expenditures made to generate revenue Net Profit: Revenue minus expenses Each growth strategy has an impact on the relationship between these three crucial items. Growth strategies can sometimes have negative effects on income statements. Dropping PricesIncreases in revenue may not offset changes in overheads or the increased risk of higher accounts receivable. Even if per-unit overhead costs remain constant - which is not often the case - volume rises may not be sufficient and net profit falls. Example: A specialty coffee shop sells 1,000 cups of coffee every day at $2 each. Each cup of coffee costs $1.50 for the ingredients and cup, so they are making 50 cents on each cup or $500 a day in gross profit. If the owners decide to lower the price by 10% to $1.80, they are now making 30 cents on each cup. They must therefore sell 1,667 cups of coffee each day to maintain their $500 profit (assuming constant overhead costs, which are unlikely.) That's an increase of 67% in sales to offset a 10% drop in price. Depending on your profit margin, you may need to substantially increase your sales volumes simply to maintain your profit level, so carefully consider whether you'll be able to make up the difference either through increased sales or through after-sales options and add-ons. Adding OutletsMarginal outlets can bring down the whole chain at the beginning. Shared overheads can reduce net profit for the chain to less than that of the flagship outlet. The second danger is a general downturn in sales - marginal outlets quickly drain the chain's resources.
Geographic ExpansionShipping, warehouse and travel costs can wipe out new revenue. Define objectives: Treat the new market as a start-up and do a complete costing. Set timelines: Taking too long to establish the market can endanger long-term profit and cash flow. Be strong locally first: If you can't focus on your expansion, neither old nor new locations will be successful. Product Line ExpansionTrack cost of new-product sales separately to determine if it is worth the resources it consumes. You are on: Tabbed page 7 You are on: Managing Growth tab Becoming a ManagerInterestingly, the successful growth of a business is generally reflected in the personal growth of the entrepreneur. It's not just "yours" any more, but you still have a huge influence on company performance through the team you build. The ultimate achievement: true leadership. Undertaking a significant growth strategy often projects an owner into an entirely new orientation. The focus is on what's best for the business, not what the owner wants to do next. The qualities that make entrepreneurs successful - determination, independence and individualism - can become liabilities. Bigger companies require different management skills, especially delegation, teamwork and co-operation. To become a manager:Separate yourself from the business:
When businesses grow, the stakes become higher. Investors, employees, lenders and suppliers are often taking a considerable risk along with the owner.
You are on: Tabbed page 8 You are on: Evaluating the Results tab Measures of SuccessYou have communicated the growth plan, secured adequate financing and sharpened the management of your company. Sales are on the rise. It's time to evaluate results, not to label your efforts as success or failure but to guide you as growth continues and business environments change. Growth is partly about building sales but also getting more out of what you have. In other words, building efficiency. Performance measurement gives your efficiency-building efforts a focus. The first step is to benchmark against past performance and the performance of other companies. Identify key processes affecting performance. Measure:
Benchmarking:Benchmarking not only tells you how well you're doing over time, it also helps avoid "reinventing the wheel" by quickly zoning in on areas of difficulty and then learning from other organizations how to do better. It's a quick and continuous way to research improvement. Types of Benchmarks:
Benchmarking Steps:
DatabasesIf you cannot find or prefer not to ask other non-competitive organizations for comparative data, commercially available databases contain plenty of information - especially for processes such as credit management that reoccur in many types of organizations. Check major consulting companies or those that specialize in your industry. Gap AnalysisFinding the major variations between your data and data from other companies reveals the best opportunities for improvement. Focus on those with greatest impact on performance. Pitfalls
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