The contribution that South African small businesses make to GDP has continued to increase by at least 12% year on year, since 2013. This consistent upward trajectory not only means that the number of small businesses is increasing, but also that some existing small businesses are expanding albeit many are impacted by the Covid-19 pandemic. In recent columns, we spoke about the importance of a business plan and planning for growth, but for many small businesses, growth is a daunting prospect, and for good reason. Business advisers often warn against expanding too soon, given the risks involved.
Expanding too soon could lead to an overwhelming degree of complexity, exorbitant debt, cash flow issues and reduced profitability. These risks are very real. But on the flip side of the same coin, not expanding at the right time can lead to stagnation, being overtaken by competitors and the loss of top talent and ultimately, also profitability.
For many small businesses who have grown successfully and strategically, the answer lies in recognising the opportune moment. The adage, “timing is everything,” could not be more apt. Knowing when to expand does not come down to a formula – a large component of seizing opportunity at the right time comes down to intuition and perhaps, 5% good luck, but there are signs to look out for.
Consider the following three signs when deciding whether your business is ready to expand:
- There is a noticeable skills gap
To a degree, small business owners – especially those who bootstrap their ventures – need to wear many hats and have a role in every aspect of the business. There are business owners who fill the role of strategist, social media manager, administrator, finance manager – the list goes on. But often, there comes a point at which the skills of one or a few people cannot bridge the gap between the demand for a particular product or service and the skills needed to produce or refine that offering.
It’s a misconception, for example, that every small business owner makes a good CEO. In fact, these roles require completely different skill sets. Often, founders or owners are visionaries, creative thinkers, people who need space and time to innovate. Conversely, CEOs are leaders and decision-makers who are able to manage people, time and resources. When there is a noticeable skills gap, it may be time to expand and bring the people who can take your small business to the next level on board. Wise business owners know when to hire specialists to fulfil specific functions and trust them to do what they are experts at.
Just a decade ago, blockchain technology companies did not exist. In contrast, entire industries like analogue photography development, have become obsolete in a relatively short space of time. This is why it’s important to take the guesswork out of doing business and base your decisions on the facts and figures. Market research is not something that should be relegated to start-up stage – it’s something that needs to be constant and consistent. Staying ahead of industry trends, will help small business make informed forecasts about the future of their business.
In a world that is changing at an unprecedented rate, it’s the small business owners who keep an ear to the ground that are able to expand by being proactive rather than reactive. If your industry is expanding, become a frontrunner in driving that momentum forward. If your industry is not growing, it may not be the end of the line – find ways to incorporate new revenue streams by branching out with your product or service offering. Businesses who were able to adapt by taking their businesses online or changing their offering to meet the change in demand from their target market during lockdown, are prime examples of the correlation between adaptation and survival.
- You or your team have become complacent
In an economic environment such as ours, where the majority of small businesses fail within their first few years, it is prudent for small business owners to pour time and resources into making a success of those formative years. “But what’s next?” is a question that small business owners fail to ask themselves and their teams. The danger of not having a growth plan in place from the very onset is that it leaves space for complacency to creep in. Complacency is the enemy of progress, and in the context of the business world, where innovation is non-negotiable, complacency poses a very real threat to growth.
When a small business is thriving, its cash flow is looking healthy and it has established a loyal customer base, it’s all too easy to become comfortable and assume that the good times will continue. If Covid-19 has taught us anything, it’s that unforeseen circumstances can strike without warning and with devastating effects. Instead of becoming comfortable and “settling,” opt for expansion – working towards the next goal and the next horizon will bring a sense of motivation and renewed excitement to you and your team.