A New Beginning:
Planning for Expansion
Session 10
Date:
Due: 	Cover Page, Table of Contents
Executive Summary, Appendix
Class Opener (10 min.)
Articles of interest, best / worst news, brainteaser, etc.
Instructor Topics (50 min.)
(20 min.)	1.	Managing Growth
Planning for Expansion
Growth Strategies
Tools for Growth
(20 min.)	2.	Overcoming Barriers and Pitfalls
(10 min.)	3.	Moving to the Next Level
Course Evaluation (20 min.)
Break into small groups and discuss the following questions:
What did you like most and least about the class?
What was the most and least difficult subject matter?
Which guest speakers were most effective? Least effective?
Which session(s) would you shorten? Lengthen?
Which session(s) would you like to see added? Deleted?
What suggestions do you have to help the instructor make the course better?
What was the most important thing you got out of this class?
Break & Graduation (100 min.)
See Additional Instructor Notes for graduation ideas.
Additional Instructor Notes
Session 10
NOTE: If you feel your students need additional help, part of the break and graduation time can be spent on helping students complete their plans.
Managing Growth
The biggest challenge entrepreneurs face is choosing the right time and the right way to grow. This might involve finding additional financing to expand your product line, increasing your production capability, extending your geographic reach, tapping into foreign markets, selling to big business or government agencies, or “servicizing” a existing product.
Growth can make managing your business more complicated and time-consuming, and it may require you to give up some control (e.g., by delegating, or because you need equity financing).
Growth affects your customers, too. As your business evolves, your goal should be to grow only as much as will allow you to serve your customers effectively and profitably.
Growth should never be an end in itself. It’s a little like speed when you’re driving a car. The goal is not to drive at the fastest speed possible, but to find the right speed for your schedule, skill level, vehicle, speed limit and road conditions. When you refuse to be constrained by these factors, speed can become destructive rather than constructive. Use OHD 10-1 to highlight the dangers of unmanaged growth.
Planning for Expansion
Planning for growth means assessing your operations and measuring your efficiency. This is a chance for you to look into all the nooks and crannies of your business and address any problems you may have been putting off. This checkup will help set your course for the future. As you perform the assessment, look at your business as a prospective buyer would.
Is it time to grow?
Use OHD 10-2 to show the elements required for successful growth. The most common obstacles to successful growth are poor leadership, lack of innovation, and failure to research, create and follow a plan for growth.
In most cases, you can’t grow safely unless you have a rock-solid core business that is strongly competitive within its market. You must be fully committed to this core business before you consider growth. You should know it inside and out, and you should also know your target markets and understand any trends affecting them.
It’s more difficult to diversify into a type of business in which you lack expertise. That doesn’t mean that you shouldn’t consider new product lines or new possibilities for old ones. But the best foundation for growth is the area where you truly excel.
Are you ready for growth?
Too few entrepreneurs think about the practical effects of growth. Stress the importance of being emotionally prepared for the challenges of a growing business.
Ask the questions: How would you feel if your business were suddenly twice as big? Could you handle it easily, or would it take some readjustment in your personal and business life? Would you still have time for family, friends, and leisure activities? Would you have to give up direct oversight of certain business functions and trust someone else to do them?
If you’re a micromanager who loves calling all the shots, you’ll need to ease up and give employees the latitude they need not just to do their assigned tasks, but also to innovate, improvise and make the independent decisions you used to make.
You may also need to change the look and feel of your business. Familiar products, processes and partners may need to fall by the wayside. A comfortable corporate culture may need to be transformed. Loyal employees may need to be reassigned, retrained or even replaced. Making changes like these can be emotionally difficult for you, your employees and your customers.
That said, it’s also true that the most exciting and positive events often happen in times of change: People develop new skills, set new goals and discover their hidden potential.
Growth Strategies
Your business is profitable, you’re up to date on your market, and you know the direction in which you want to go. You want to take your business to the next level, either by increasing your customer base, tapping into a new market, or offering additional products or services.
There are two basic ways to accomplish this:
Vertical growth happens when you increase sales of an existing product within an existing market. This tends to be the least disruptive form of growth, because it usually doesn’t require a large increase in manufacturing, personnel or warehousing costs.
Horizontal growth happens when you offer a new product or seek a new market for an existing product. The riskiness of this strategy varies depending on how new and different the product or market is. Sometimes, it may require nothing more than creating a new marketing plan, adding additional sales people or offering your products online. In other cases, it will take plenty of new capital, as well as huge changes to business structures.
Next, we’ll consider some specific growth strategies.
Building market share
This means winning new customers, often by coaxing them away from your competitors. This could entail vertical growth (e.g., attracting new customers in an existing market) or horizontal growth (e.g., adapting your product to new customers or diversifying into new product lines).
Understanding your competitive landscape is essential to building market share. Without this understanding, you’ll find it difficult to communicate your competitive advantage.
When pursuing new markets, you must maintain high service and quality standards. Remember: Gaining new customers only leads to growth if you keep your existing customers!
Demand innovation
Demand innovation focuses on business opportunities that stem from customer use of your product. A major example is servicizing (i.e., growth based on selling the function of a product as opposed to the product itself, or by adding services to an existing product).
Strategic acquisitions
Strategic acquisitions typically involve buying another business to reach new markets or to better serve an existing one. This can be risky without thorough due diligence. It usually requires research and negotiation, in addition to excellent legal advice and access to adequate financing.
Joint ventures and partnerships
Growing through partnership can be a great way to get access to technical knowhow, expand your geographic reach or customer base, or achieve economies of scale. Alliances and partnerships can be as complex or simple as you choose to make them, but the principle always remains the same: You must identify what each side contributes to and takes away from the deal, and negotiate a win-win agreement where all parties work toward a shared goal.
Going international
E-commerce and globalization make international business an attractive option for growth. In order to determine if exporting or importing is worth pursuing, you will need to prepare a professional international marketing plan. This might mean working with an international business consultant or hiring someone with a strong background in international trade.
Consulting
It may be that over the course of your business, you’ve built up a certain type of expertise or developed the ability to solve certain types of problems for customers, suppliers or partners. If so, you may be able to grow by making that expertise available to others.
Tools for Growth
The primary tools for managing growth have been discussed throughout this course:
Managing your cash
Managing your time
Leading and motivating your employees
Updating your business plan regularly
If it sounds like we’ve come full circle, we have! Preparing for and managing new growth requires repeating the business planning process, which includes reevaluating your personal goals, desires and values. Once you decide it’s time to grow, the first step is to review your business plan. Use OHD 10-3 to discuss this process.
Cash management
Good cash management shows lenders and investors that you can run a profitable business while servicing your debt. That’s why you should cultivate relationships with prospective funding sources while your business is doing well.
Your ability to manage cash skillfully also determines your business’s ability to grow. By contrast, poorly managed cash can drain your business’s vitality in the blink of an eye. Projecting, monitoring and conserving cash is fundamental to sustaining growth and profitability.
Leadership and team management
The success or failure of your growing business hinges on your ability to think strategically, delegate when necessary, and manage people, time and resources. Your task is to maintain the internal health of your organization during these turbulent, exciting times. This means creating a system of checks and balances that will allow your business to perform consistently, professionally and profitably.
The key to being a good leader is creating a good team. This means gathering committed, inspired people who will work together toward shared goals. You can’t grow your business alone, so start building a high-performance team now.
Focusing on innovation
The role that innovation plays in attracting and keeping customers can’t be overemphasized. What’s great today may not be good enough tomorrow!
Planning for growth must include a company-wide focus on innovation. If you aren’t prepared to innovate, your employees won’t be either. Empower them to act and think in creative ways, without facing censure when things don’t work out perfectly. Treat these events not as failures, but as moments for learning.
You can also turn to your best customers for ideas. As everyday users of your product, they may be able to help you make incremental or even breakthrough changes to your products, processes, marketing and services.
Budgeting and financial management
Forecasting and planning are the cornerstones of well-managed growth. Use OHD 10-4 to discuss the role of budgeting in growth planning.
Planning for profitability
In early or rapid growth stages, the costs of ramping up can easily erode profits. Without profitability, you must find additional funding, which adds to your costs. Note that these strategies for profit grow tie directly back to the break-even discussions in Sessions 5 and 7.
Increase your sales (without increasing your fixed costs)
Reduce your fixed costs (without decreasing your sales volume)
Increase your contribution margin by:
Increasing sales price (without decreasing sales volume)
Decreasing variable costs
Changing your product mix to achieve higher contribution margins (without decreasing sales volume)
Although sales volume, market share, and employee growth can be indicators of success, a truly thriving business is one in which profit is maximized. Use OHD 10-5 to stress this critical point.
Overcoming Barriers and Pitfalls
Briefly discuss the following common barriers and pitfalls, along with their solutions.
Moving Too Quickly
Being in a hurry to grow can result in poor decision-making, which often causes long-term problems. Planning ahead helps you avoid pitfalls and solve problems before they become disasters.
Solutions
Slow down. Take the time to analyze the long-term consequences of your decisions.
Review decisions before you act, especially in the early stages of a new business idea.
Set realistic goals and use planning techniques to manage your time.
Avoid making rash financial decisions. Entrepreneurs often make the mistake of putting their life savings into a project in order to avoid applying for a loan or giving up control.
Growing Too Fast
A common problem for high-growth businesses that have latched onto a significant technological breakthrough or trend is that demand may be much greater than anticipated.
Although this might seem like a problem you’d love to have, it can destroy a business that lacks access to adequate growth capital or has failed to create infrastructure that accommodates growth. Too often, businesses go from booming sales to bankruptcy because they fail to notice these warning signs of out-of-control growth:
Cash flow problems
High employee turnover or dissatisfaction
Poor day-to-day business management
Increased customer complaints
A lack of focus on the business’s core competencies
Diminished quality of products and services
Solutions
Grow gradually. Keep your business on track by initially limiting it to a set level of customers, a specific geographic region, or a particular product or order size.
Anticipate ramp-up costs. If you have limited access to financing, create a cash flow model that determines how much additional funding you’ll need to keep pace with demand.
Estimate costs. Although it may not be possible to anticipate all growth expenses, a reasonable estimate of costs is essential during a high-growth phase.
Manage your workload. Some businesses fail because the owners are too busy making products to take care of basic management tasks. Again, the ability to delegate responsibility and authority is crucial during a growth phase.
Look for your next level of financing early. Negotiations for second-round funding can be slow, especially when there’s a short time between the first round and expansion.
Failure to Innovate
When businesses become complacent about their success, they may ignore new technological developments or looming changes in customer demand or competition. Soon, growth slows and fizzles, leaving the entrepreneur wondering what happened.
Solutions
Never stop learning. Stay on top of emerging issues and resources by reading trade journals, and attending industry trade shows and functions.
Keep close tabs on your competitors. Do your best to understand which market conditions are driving their decisions.
Encourage innovative thinking. Always ask yourself and your team, “Can we do this better?” and “Are we being as creative and efficient as possible?” Don’t take any materials or processes for granted. There’s always room for improvement.
Be aware of new technology. New technology can completely change how customers research, buy or use products like yours.
Understand your customers. Has the market for your products or services changed? Are your customers’ needs, habits and preferences changing?
Employee Management Problems
Growing businesses often focus on making sales and meeting orders at the expense of managing employees. This can result in inefficiency and low morale. Also, if growth forces you to hire new personnel, your regular employees may feel threatened or crowded.
Solutions
Allocate responsibility clearly. Create or update an organizational chart for your business, including written job descriptions.
Set fair compensation. Reassess compensation and incentives at least once a year.
Set clear performance objectives. Update these objectives frequently with a formal performance evaluation system.
Prepare for hiring. Before hiring any new workers, meet with your current employees and explain your plans. Where possible, invite current employees to participate in creating new job descriptions or interviewing prospective team members.
Follow the golden rule. Treat your employees as you would like to be treated.
Workspace Limitations
Growth may require a larger office, factory or warehouse to make room for additional equipment, materials, inventory and staff. This can be complicated and confusing.
Solutions
Be cautious. Look for an extended period of growth—or a solid promise of it—before making any big moves.
Be flexible. If your office is getting a little cramped—but is functioning well otherwise—think of it as a temporary sacrifice to make a move more feasible. (Be sure to explain this to your employees!) Otherwise, consider renting or subletting an extra workspace for one or two departments or business functions until you can afford a new facility.
Consider telecommuting. Have some employees work from home, if possible.
Technological Limitations
Growth often requires new technology, new equipment, or better Internet service. Before you grow, make sure your business systems and equipment are up to the job.
Solutions
Assess your tech needs. Will you be able to meet your goals with your existing technology, or will you have to upgrade? Business owners who overlook the strain that growth puts on these systems often end up underestimating costs.
Look before you leap. All new business systems have a learning curve. Also, they need to be tested thoroughly to ensure that they’re right for your business. Always allow ample time to evaluate new technology and work the bugs out.
Keep learning. If your suppliers offer training on new software or equipment, use it! You should also keep up with upgrades and new capabilities. Many businesses neglect the expense of new software as they grow. If you’re adding personnel, consider how this will affect software needs and subscription-based online services.
Facilitate collaboration. If you will work with contractors or virtual teams, or allow workers to use their own devices, make sure your technology works across platforms and devices.
Look for outsourcing opportunities. If you can’t afford to create an in-house capability for a specific business function, or it’s not really a core competency, consider outsourcing it.
Moving to the Next Level
Ask the question: What’s the next step for you? Use OHD 10-6 to go over next steps.
Celebrate what you’ve accomplished! You may not have totally finished your business plan, but you probably have a lot of it sketched out. You may not have all the answers, but you have a lot more than you did a few short weeks ago. In taking these steps, you’ve shown that you have what it takes to be a successful entrepreneur!
Organize what you’ve learned! Are you missing anything important? You won’t know until you take the time to sort through your materials and organize them.
Fill in the blanks! Collect the remaining details that will strengthen your business plan.
Ask for help! Did you get stuck on a certain part of your business plan? Don’t feel like you have to do everything alone. Your team of advisors can help you. You can also contact your local economic development agency, SCORE office or SBDC for help.
Finish your business plan! First, put your draft business plan together as best you can. Ask your mentor, an advisor or a family member to review it and offer honest feedback. Then, make the appropriate changes.
Check and doublecheck! After finishing your plan, read it again carefully to make sure it clearly answers the questions lenders and investors will ask. Is your business concept viable? Are you targeting the right growth market? Are your financial projections credible?
Polish your presentation! Once you’ve proofread your plan and cleaned up its formatting, pass it along to a trusted friend, relative or mentor for a final review. Also, prepare to present your plan in person. Offer a compelling executive summary in the first 30 seconds, and use the next two or three minutes to provide details and supporting information on your target market, ideal customer, financials and growth goals. Finish with a clear call to action that explains what you want from the listener.
Don’t stop planning! Even the most carefully researched business plan becomes obsolete when conditions change. Your target customer profile can shift, economic conditions can change, your competitors can introduce new products, or a new technology can emerge. For these reasons, we strongly recommend reviewing your business plan every year.
Take advantage of the NxLeveL® Training Network! One of the greatest assets NxLeveL® gives its students is access to other people who have participated in and taught programs. By sharing ideas and supporting one another, entrepreneurs learn from each other’s mistakes and explore new ways to achieve their goals. Encourage students to visit our website and to build on the relationships they formed with fellow students.
Optional Exercise
Encourage students to make brief business presentations or to read their Executive Summary. Invite them to bring samples of products, office or business floor plans, and so on. Have other students constructively critique the content, paying particular attention to the purpose of the Executive Summary (which is to get the reader interested enough to want to know more).
Course Evaluation
Break into groups of four to six, and have student discuss the following questions:
What did you like most and least about the class?
What was the most and least difficult subject matter
Which guest speakers were most effective? Least effective?
Which session(s) would you shorten? Lengthen?
Which session(s) would you like to see added? Deleted?
What suggestions do you have to help the instructor make the course better?
What was the most important thing you got out of this class?
Allow about 10 minutes for discussion and 10 minutes for reporting. This is a “constructive critique” segment, with the instructor doing the listening and taking notes. Have a spokesperson from each group summarize the group’s answers for the class.
See Tab C: NxLeveL® Course Evaluation Form. We strongly encourage you to have students fill the form out in class to ensure that it gets completed.
Graduation Ideas
Formal
Set up a dinner or social hour. Invite the state administrator, the head of the state department of commerce, or any other official small-business advocate to speak on the importance of programs like this to state economic development. Have that individual hand out graduation certificates, and leave the rest of the time open for food and socializing.
–OR–
Invite the families and friends of the students, and all prior guest speakers and program administrators, to a formal ceremony (either at another time, or on the evening of the last class). Deliver a brief, positive statement about each student while handing out graduation certificates.
Informal
After the course evaluation, have each students draw a name slip. Instruct each student to keep the name secret, and to think about what they’d like to say to that person about his or her business endeavor, participation in class, or whatever parting thoughts seem appropriate.
Break for food for about 15 minutes. After the break, each student should present the graduation certificate to the assigned classmate, along with the parting thoughts they chose.
–OR–
Invite one or more successful entrepreneurs (who’ve written business plans) to class for an informal discussion about the realities of operating a business. Brief them on the purpose of the class, so that they stress the importance of planning. Then, ask them to help you distribute the graduation certificates. You could also develop a brief statement (preferably humorous) about each student to share with the group while you’re presenting the certificates.
Overheads for Session 10
OHD 	10-1	Dangers of Unmanaged Growth
OHD 	10-2	Requirements for Successful Growth
OHD 	10-3	Planning for Growth
OHD 	10-4	Budgeting for Growth
OHD 	10-5	Growth Means Profits
OHD 	10-6	Moving to the Next Level
Suggested Supplemental Materials for Session 10
Graduation certificates
Written course evaluation form
Current articles on challenges faced by fast-growth businesses
You have the option of finding reputable articles and publications for use in class, or suggesting that students search them out on their own and share what they find with the rest of the class. Keep track of supplemental materials you used by making notes below. (This will be helpful if you choose to teach this course again.)
Supplemental materials used for Session 10
Notes

Learning Objectives
Recognize and prepare for the risks and opportunities of business expansion. Recognize and prepare for barriers and pitfalls that often arise during periods of rapid growth. Discuss plan implementation decisions and next steps. Evaluate students’ NxLeveL® learning experience.