Business lifecycle stages: Maturity/expansion
"An extension plan puts a new spin on your existing brand, products, or services."
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Welcome to this segment of the business lifecycle video series. Hi, I'm Jeff Sloan of StartupNation.com. In the next few minutes, you'll get strategies, tips from fellow business owners, and resources that can help you through the maturity and expansion stages of the business lifecycle.
If success has brought your business to the stage of maturity, there's still no time to coast. Even if you don't have big plans for change, continue to build on your strengths so you don't lose customers to the competition. Key considerations for this stage include extending your market share, developing your work force, and staying profitable and protected.
One way to build on your success is by drawing on what your company already does right. An extension strategy puts a new spin on your existing brand, products, or services, either to better serve your current customers or to attract new ones. Here's how one successful business owner is extending a proven approach to drive growth.
We grew very fast that we needed more space, so we took over our next-door neighbor's business, which was a beauty salon before. And Wells Fargo helped us in financing our expansion through their line of credit. We were looking at doing more catering, outside catering, and actually looking for other locations.
In the employment relationship, money isn't everything – because benefits make up almost 30% of an average employee's total compensation – providing a strong benefits package, can position your company to win the battle for talent.
To stay profitable, keep a close watch on your financial indicators, especially cash flow metrics. And even if things are running smoothly, stay lean and competitive by reducing operating costs wherever you can. This veteran business owner shares a tip for success.
I did not need bank financing this time to grow my business because my customers are paying me faster than ever. And a lot of my customers today are wiring me money, so they're not even mailing. You know, in the past, they mailed checks. You have to take them to the bank. Today, a lot of our customers are paying us through electronic deposits, and so we're just getting paid really fast and we've been able to cash flow the business for the last few years, and it's been very exciting to do that.
Now let's look at some common questions about the maturity stage. What are some ways that can reduce operating costs for my business? Real estate can be a key tool for controlling your costs. If you rent, you may be able to reduce your expenses by renegotiating your lease and exploring virtual office space. If you own property, consider renting out under-utilized space to generate additional revenue.
What is the most important financial indicator I should be monitoring? Net operating margin, also known as net profit margin, is the best measure of a company's performance. This is simply net profit divided by sales. The ratio tells how well a company converts revenue from core operations into actual profit. How many cents you get from every dollar of sales. Depending on the size of the business and the industry you're in, a healthy profit margin can be anywhere from just a few percent up to 25% or more.
They say the best defense is a good offense, and driving forward into new areas of business can be a powerful strategy to keep a mature company healthy. As a seasoned business owner, you have the knowledge, relationships, and vision to make big changes that can take you into the expansion stage. Key considerations for this stage include adding new products and services, moving into new markets, and finding the financing to expand.
Expanding your business is a lot like starting it up in the first place. So before you launch into new areas, be sure you're ready. Understand the kind of investments you'll make and the new revenues you can realistically expect. Get buy-in from your team. Make sure you have the capacity, staff, skills, and perhaps most importantly, the funding to succeed. Let's see how one business owner looks at the opportunity for expansion.
Today, what I'm looking for is a banking relationship that can help finance a building. You know, that would be my next, it's another opportunity for me because we've over-utilized our space. We've outgrown it. We need to hire five or ten more people, and we either need more space to rent or to buy a building, and then we can rent the space to the companies. So that's an opportunity that I didn't look at 10 years ago that is now at the stage where we're at is an opportunity where we'll need a good banking relationship to have that come into fruition.
Now let's look at some common questions about the expansion stage. Is expansion a good idea in an uncertain economy? Every successful venture involves some risk through recession, recovery and rebound, companies that spot and pursue real opportunities and manage cash well can thrive, while poorly run companies can struggle in any environment. Either way, lenders will focus on your unique circumstances. How much money can I expect to borrow? The amount depends on your plans, your credit, and your cash flow – among other factors. Avoid the common mistake of borrowing too little. Ask for the specific amount that matches your strategy.
Thank you for joining us for this segment of the business lifecycle video series. To find out more about other stages in the business lifecycle, click on the relevant video chapters. We'll conclude with a recap of the key considerations for the maturity and the expansion stages, and provide you with some additional resources.