All entrepreneurs dream of becoming successful, but the risks can sometimes outweigh any rewards. As a business owner, you may have to make a big decision about whether or not to expand your business. Scale up, or risk compromising the core business by doing so? Do you follow the original plan or refine your product?
Here are some considerations that will help you decide whether to expand your business or not.
Pro: Scaling opportunity
Simply put, if your business produces more products, the greater your chances are to lower costs. Theoretically, when you grow your business, you should expect to experience greater economies of size.
If you are in the business of making gourmet ice cream and decide to open a second store, you will need to produce more ice cream. You can then start purchasing the ingredients in greater bulk quantities. This will reduce the cost of the goods you sell. This ideal scenario allows you to increase your purchases and boost the potential profit.
Con: To make money, you have to spend money
Growth is costly. You’ll have to invest a lot of money to see a positive return on all the ice cream you sell. This includes opening new stores, investing in equipment, hiring more staff, and purchasing ingredients. You should take the leap if you are ready. If you have not already reached financial stability in your business, then you may want to think twice before taking on additional risk.
Pro: Repositioning the business is an opportunity
You can redefine and reposition your business by expanding it. This is a great opportunity to enhance your business processes and implement new strategies within your company. You could, for example, create new marketing strategies and update your website. Communication is key to the success of your pivot, whether it’s due to internal or external changes.
When handled correctly, repositioning is a huge success. The success of a business is dependent on determining the best approach to repositioning. This can be a very useful tool for businesses that want to grow along with the market.
Con: Doing many things at once can cause problems
Another common risk is the expansion of a business too quickly. Sometimes business managers will try to do too many things at once using their current resources. This can lead to inefficiencies across the board. It can happen when businesses are unable to hire enough staff and enter surplus markets.
Psychologists call these negative effects of switching between tasks “task switch costs.” Task switch costs are a result of increased mental demands that come with switching from one task to another.
Pro: Increased demand for goods and services
You can expand your business to accommodate any sudden increase in demand. It will also help you take on more clients. It is possible to expand your business by opening up more stores and hiring more staff.
The ability to influence market prices is one of the most important benefits of expanding your business. You can expand your business to offer multiple products and services that will meet the needs of your customers. By offering a variety of products and services, you can diversify your revenue streams.
Con: Lack of control and compromised quality
Achieving a new height may be a fantastic success story, but rapid growth can place new demands on a company. There are suddenly multiple locations, many more employees to manage, or too many orders to handle. Owners must delegate their operations and other aspects of the business. It’s not always easy to let go of control.
A potential drop in quality can also be a downside to expanding your business and increasing production. This could lead to lost customers. Staying small and agile is beneficial for small businesses who are still developing their products or services.
Pros: A larger customer base and more brand recognition
You can expand your business by increasing your market through attracting new customers, or by offering new products or services. It is also important to have a diverse and large customer base in order to protect your business from being overly dependent on one type of client. You can increase your clientele by adding new services or products to your existing business. It is the best way to achieve stable profits.
Takeaway for small business owners
Growth is important for any business. However, it’s important to make sure that you can control the pace of growth and put your foot down when you see trouble. Remember that there is no one-size-fits-all solution. Weigh up the important factors and consider your own situation alongside these handy pros and cons.
