All successful small business startups eventually face the issue of handling business expansion or growth. Business expansion is a stage of a company’s life that is fraught with both opportunities and perils. On the one hand, business growth often carries with it a corresponding increase in financial fortunes for owners and employees alike. In addition, expansion is usually seen as a validation of the entrepreneur’s initial business startup idea, and of his or her subsequent efforts to bring that vision to fruition.
Growth causes a variety of changes, all of which present different managerial, legal, and financial challenges. Growth means that new employees will be hired who will be looking to the top management of the company for leadership. Growth means that the company’s management will become less and less centralized, and this may raise the levels of internal politics, protectionism, and dissension over what goals and projects the company should pursue. Growth means that market share will expand, calling for new strategies for dealing with larger competitors. Growth also means that additional capital will be required, creating new responsibilities to shareholders, investors, and institutional lenders. Thus, growth brings with it a variety of changes in the company’s structure, needs, and objectives." Given these realities, Sherman stated that “the need of the organization to grow must be tempered by the need to understand that meaningful, long-term, profitable growth is a by-product of effective management and planning."
METHODS OF GROWTH
Small businesses can expand their operations by pursuing any number of avenues. The most commonplace methods by which small companies increase their business are incremental in character, i.e., increasing product inventory or services rendered without making wholesale changes to facilities or other operational components. But usually, after some period of time, businesses that have the capacity and desire to grow will find that other options should be studied. Common routes of small business expansion include:
- Growth through acquisition of another existing business (almost always smaller in size)
- Offering franchise ownership to other entrepreneurs
- Licensing of intellectual property to third parties
- Establishment of business agreements with distributorships and/or dealerships
- Pursuing new marketing routes (such as catalogs)
- Joining industry cooperatives to achieve savings in certain common areas of operation, including advertising and purchasing
- public stock offerings
- Employee stock ownership plans
