Chapter 5 – The New ABC’s: ABG, Always Be Growing

It is said that businesses have two speeds, either they are growing or they are dying.  Now, I think this is a bit dramatic (I know of several service businesses that do just fine with +/- 5% sales growth each year).  But for most companies, there is at least a bit of truth in this axiom.

The fact is, if your business is growing you have proof from your market that your business is viable.  Plus, if your business is growing, you can afford to take some risks.  Smart risks can be the key to business success, and if your business is stagnant, you cannot afford to take these risks because you cannot afford to lose.  Also, taking risks is often how you learn and how you stay current with your market.  If you are not taking risks, chances are that your business is slowly slipping into obscelescence, sometimes without you knowing it.

Growth, expansion, gaining knowledge, and business evolution are the point of the exercise of running a business.  Sometimes, this will be painful, but you usually learn more by falling off the horse than by staying on the whole time.  Your business is meant to be a living, growing, changing thing.

However, growth, at least over the long term, rarely happens by accident.  Most of the time, growth is a result of a well-executed, long-term strategy.  If there is one phrase I am famous for repeating more with clients than anyone else it is “Strategy before tactics”.  As business owners, it can be so tantalizing to jump in to a new opportunity with both feet.  There is excitement in doing something new.  However, what most successful business owners have learned is that adopting the discipline of following paths intentionally (rather than whatever options are the most obvious to us) yields us greater, more consistent dividends that the blindfold-dart-throwing strategy.

Whatever you decide to do, do it on purpose.  It is really hard to tell if you accomplish your goals if you never take the time to set any goals, and as the business owner it is up to you to decide where you want to go.  And, by doing this ahead of time, you will be able to resist the “ooh, shiny!” impulse that all of us have when presented with something new and exciting.  An amateur is someone who is successful on accident.  A professional is someone who is successful on purpose.

As with all things, there is a lot of value in learning the difference between what your business can do and what it should do.  Even the biggest corporations in the world make big mistakes in judgment with this point.  Knowing who your business is, and what your business can do, can be some of the most important knowledge you have at your disposal.

So, when looking for ways to grow your business, the first question you should ask yourself is, “What is my business better at doing than anyone else?”  It makes no sense for you to enter markets you are not naturally suited to, so take the time to really discover all of your business’ true strengths (and weaknesses).  By taking these strengths and applying them to other markets that are thirsty for those very things, you immediately up your odds of success by quite a bit.

When looking to grow your business, do not forget the main rule of business.  Cash is king.  That is, it is important to not only look for opportunities where your business is uniquely suited to thrive, it is just as important to look for opportunities that make sense with your business’ cash position.  Do not make any bets you cannot afford to lose, no matter how sure they seem.  History is littered with the carcasses of businesses that tried to grow too big too fast.  Learn to accept that business growth is a journey without an end, a journey that is the sum of a million small steps all taken in the right direction.

Most entrepreneurs are master problem-solvers, but sometimes they need a little help being problem-finders.  Most businesses are created to solve a problem, so it is important to always be on the lookout of potential problems people have that your business is uniquely suited to solve.

Many businesses were started by frustrated consumers, by people who wanted something they could not find so they set about to provide it.  Many of these “scratch your own itch” companies are successful, simply because the odds are if you have a problem, someone else does too.  As a consumer yourself, you intimately understand your target market’s needs, since you yourself are representative of your target market.  No one needs to tell you anything about you, and if there are enough “yous” out there, your business will probably thrive.

But after a while, it is easy to get out of touch with a market.  After running a business for a time, it can be difficult to see the forest through the trees.   And, by starting a business, we may not be a consumer in this market any more.  If this is the case, we may miss changes in the market, simply because we are not changing with it.

To reconnect with this, simply become a consumer of your own product again.  Evaluate your competition as a consumer, and be honest about where you are really killing it, and where you may be falling down a bit.  Also, ask yourself what else do I, as a consumer of this product/service, need?  It there another dependent product/service that that my company could provide?  Many in the business world call this looking for verticals, that is looking at the entire consumer process around our market and seeing if there are any purchases above or below our product’s that we could capture too.

For example, Apple is ingenious at doing this.  After dominating the media player marketplace with their iPods, they shifted into the content market with the iTunes Store.  After all, with all of these players out there, people are going to need something to play, and who better to sell them the content than Apple?  With their iTunes store, Apple increased their sales into a new, high-margin area that required far less effort than manufacturing.  Since this content is digital, whether they sell one copy or a song, or one million copies of a song, after the licensing fees are paid, the cost to them is (roughly) the same.  And, Apple repeated this stroke of genius with their App Store.  They invented a whole new paradigm, and arguably a whole new market, for content on devices they already had a gigantic market position in with their iPhone.  Now, think what you will about Apple, but as far as looking for verticals (other low-risk opportunities to sell additional goods and services to the same customer), they are absolutely in a league of their own.

When looking to expand, though, I have one bias that I try and pass along to all business owners I work with.  That is, especially for new business ideas, I do not believe in borrowing money.  This goes even more so for the new business owner.

Now, sometimes this cannot be avoided.  Sometimes you need to buy that million-dollar machine to manufacture a new product.  But even if that was the case, I would still question whether it being a “need” was true.  Often there are other ways to accomplish the same goal with less risk, and at the end of the day, the most successful business owners are usually the one who trade maximum reward for minimum risk.

So, even though it is a bit of a wet blanket, I have seen very few circumstances where borrowing money was truly the best way to expand, especially for the new business owner.  As such, for me, I have adopted the strong stance that borrowing money is the very last resort, with most of the time it being off the table as an option.

Now, I know this may sound overly fearful, and it is true that I don’t generally like to borrow money for anything.  However, I am speaking from experience.  If you borrow money, and something goes wrong, having to make loan payments can make the situation much, much worse.

Here is an example, let’s say you go out and borrow $100,000 to open a new facility.  You have everything costed out, and you know that this new facility will allow you a 20% cost savings.  You know things are going well, you are doing a little over a million in sales a year, and this seems like a slam dunk.

Well, not so fast.  What happens when your market starts to shrink?  That 20% savings can be eaten up really fast if your sales drop even 10%.  And, what if your business is seasonal?  You have to make those payments every single month.

This is my main problem with borrowing money on a business, it does not scale.  Unlike most of your other business expenses, you cannot adjust your loan payments dependent on your business volume.  That is, if your business shrinks, you will automatically be buying fewer supplies, and if the shrinking trend holds (as much as you don’t want to), you could move to a smaller space, lay off some staff, etc.  With a loan, though, most of the time you are stuck, especially if you are shrinking.  This is a huge risk many business owners take on without really even knowing it.  No business just grows and grows forever, and by setting yourself up with an inflexible monthly payment, you are playing with fire.

More importantly, though, by self-financing growth, you take smaller steps, steps you can afford to make incorrectly from time to time.  By growing in huge plateaus, you create a have-to-win situation, which can be really, really hard.

Also, by borrowing money, you miss out on the proof of concept profitability can give you.  That is, if you grow slowly, with your own money, you more than likely have a very viable business (since you have the profit to grow with).  Businesses that just run on funding are not really under the scrutiny of the market, and thus bad ideas can run on way, way longer than they should.  By having your own skin in the game, you are far more likely to develop many more contingency plans.  Luck favors the prepared, and it is typically the people who have Plans A-Z developed whose Plan A works.

Plus, since you are not spending someone else’s money, you are apt to make far more calculated, intentional steps.  You are learning more than you would have if you had borrowed money simply because you are paying attention.  You are not letting hope guide your actions, you are making sure things are working before you move on.  You are a smarter business person for it, and you will most likely be more successful for it.

I speak from experience.  I have paid off loans whose initial intent had long since failed before I made the final payment.  Use self-financing as a way to lower your risk, and create maximum opportunities to learn.  It may not be as exciting as doing something all at once, but I can guarantee, in the long run, it will be a whole lot more enjoyable.