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African Entrepreneur with Feyi Olunuga: How Do I Know It Is Time To Expand?

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Feyi OlunugaBusiness is going well, there is money in the account – maybe not 30 billion, but more than you know what to do with. Your first thought is ‘finally my hard work pays off. ’ Your second thought is ‘it is time to grow?’

If you look back over the years, there have been many brands that have come into the market, expanded rapidly and disappeared… just as quickly. Some others lost what we loved about them when they expanded.

Growth is great; almost every entrepreneur yearns for it, works towards it, and celebrates it. But it is important to make the decision to expand at the right time, to prepare for it in the right way, and to execute your plan… like a master.

Let’s focus on the question of TIMING. Do profit levels trigger the time of expansion? Yes and No.

Finance is a significant consideration that drives the timing of your expansion, but it is neither the only, nor the most important, consideration. Here are a few things to consider in terms of knowing when to expand

Are your customers asking for it?
When your business gains a certain amount of growth , you will observe that your customers are coming to you more than you actively seek them out. At this point you have developed a loyal customer base.

When it gets to a point where one location cannot cater to your growing customer demands, or customers outside your locality are asking you to come to their area – that is an indication that there could be a market that is ripe for entry.

The key is to establish that there is a customer base ready to be served in the new location. You don’t want to have 2 locations that cater to the same customers; that will only split the same amount of revenue across multiple locations. With the additional capital expenditure, you may find your business at a loss.

Do you have operational systems in place?
If your business is still operating by you running around and doing everything, it is not time to expand. Rather, it is time to invest in a good team that will manage the core business functions that your business needs to run smoothly.

If you already have a great team in place, the next question is, are your processes documented? It will be impossible for you to be in Ikeja and Lekki at the same time to give direction for the daily operations. It is essential to have a documented workflow that will be easy to follow by anyone that is trained.

Profitable for 3 years?
This may seem like a long time and some people may beg to differ. It varies from business to business; I have worked with businesses who have expanded before the 3-year mark, but I can only advise a company to go ahead after I have had a look at their numbers.

A surge in profit isn’t enough to justify a move to expand; it could be seasonal. What you need to look out for is trends and steady increase in month on month profit over a period. In certain industries like events and catering, December is peak time; some companies make what they usually make in 6 months in the month of December. Similarly, January could be a very quiet time for some of these companies. In this case December’s profit boom is not enough to trigger a January expansion.

You see a need for related products and services
Expansion for your business may not mean adding a new storefront, but rather, adding a new item to you product line. If sales for your initial product or service offering are doing really well, it could be time to add more products to your line.

My advice on this is to identify what your unique value proposition is and develop products that meet the same need. For example,  a manufacturer of condiments can choose to start with a tomato based pasta sauce, product expansion could lead to a cream based pasta sauce or other sauces that make food delicious. This will mean that you are targeting the same customer base.

It also helps to consider the internal process required to take the product to market. In deciding whether to start offering a new product, consider if the same team using the same equipment can create the product.

Test the market
Finally, it never hurts to test the waters. For instance, you have a store that produces and sells bath and body products and you are considering expanding to Lagos from Abuja. One way to test the market is to stock your products in a Lagos store that gets good traffic from your target customers. This will definitely offer some market insight and will help you decide if it is a good move or not.

Fairs are becoming very popular in Lagos; this is another great way to test the waters. The cost of a stall at a fair is much less than what you will pay to set up a storefront, so it is worth trying out first. Make a lot of noise about your presence at the fair, bring your best sales people, and try to get customer contact details or get them to follow you on social media.

After the fair review your performance: How many people were interested in the product? How many people went ahead and made a purchase? If there is a huge gap between these two stats, consider the feedback. Was it the price, or was there another factor that affected conversion? These are valuable insights you get from adding this step to your expansion plan.

Watch out for two more articles in this series on how to prepare for expansion and how to execute your expansion plan like a master.

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