See if you're ready to grow and what path to take.
Now that your business is flourishing and you're in the black, you may find your thoughts wandering to franchising, expanding or growing your current location. If you've reached one pinnacle, it may be time to set new goals, but which way to go is right for you? There are a lot of key factors in deciding how you want to grow.
Vertical versus horizontal growth is just one decision, and a lot of it depends on timing, your future goals, and how much time you have to devote to your current business and any new ventures. Follow our guide to help you decide the direction of growth you want for your retail business and figure out what's right for you and your company.
How to know it's time to grow your retail business
Timing is everything in business. If you grow too quickly, you could crash and burn. Take too long to grow and an opportunity could pass you by. There are several indicators that practically scream at you that it's time to expand, grow or diversify.
Customers ask for it
If your customers are begging you to open a shop 200 miles north so they don't have to drive all the way down to wherever you're located to get your goods, that's a good sign that you have both a loyal customer base and a demand for your products in another region. This may mean opening a new store, starting a franchised business or simply opening an online store.
You're out of the red
If your business has been profitable for a couple of years, well, what are you waiting for? It's going to be difficult to grow your customer base if you stand still. And you're likely experiencing more demand than you have supply for (unless you're suffering from a time management issue). Steady profit is a good sign that you can expand and likely do well in other markets.
Business is going stagnant
Ideally, you won't reach this point with your business. Even if your salted caramel chocolate-covered marshmallows are a big seller, you should be creating new products for customers who are ready to try something new – or those who don't like marshmallows. If you do find that you're at a standstill, though, it could be a sign you need to grow – either upward or outward.
Vertical vs. horizontal
Once you've decided your business is a success, you want to grow to new heights and reach more people. One of the ways you can do this is through vertical growth, which helps you control your supply or production.
For example, if you specialize in gourmet chocolates and your store is doing well, but you rely on the biggest supplier of peanuts in Virginia, you could buy that factory. Doing so would put you in control of those peanuts and ensure you control the supply – and possibly demand.
So, consider what you could do with that peanut supplier. Now you can make money by supplying others with peanuts, and you can expand within your own store. Use the peanuts from the plant you now own to create amazing chocolate confections, but also bag them up and sell roasted salted peanuts to your customers. Another benefit is that your cost is decreased, and you can pass those savings on to customers.
Horizontal growth takes a different approach that can be even more dominating of a market. It means expanding your business's growth and reaching outward rather than upward. Generally, this means you'll want to acquire like-minded businesses or products.
An example of horizontal growth on a large scale would be if you own a popular dress shop that specializes in vintage clothing. Your shop has become a household name, but your competitor that sells vintage aprons is also doing well. So, you buy the vintage apron business and start offering those aprons in your dress store – and dresses in the apron shops.
The benefit here is that you're exposing your brand to new customers, and exposing a new brand to existing customers. Ideally, you should see bigger profits on both fronts – and you've eliminated a competitor.
The good news is your retail shop is doing well. The bad news is you're losing money you didn't even know you could've had if you're not selling online as well. Say you're a specialty shop selling natural face care products in a mall. You have several competitors in drugstores, grocery stores and big-box stores, along with specialty stores like yours. Even if you're getting word-of-mouth advertising, it may be ending where it begins.
Not everyone can get to your shop during your business hours. Perhaps they're out of state, or they don't want to drive to a mall, battle other shoppers for a parking spot and locate your store in a maze of other shops. If you have an online store where they can purchase the products, you're less likely to lose those new customers.
Predictions from Forrester Research Inc. show online shopping sales should grow by more than 9 percent over the next few years. That means online sales are expected to hit $523 billion by 2020 in the United States. It's important to make sure you get your slice of that pie.
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What you need in order to expand online
You need more than a shopping cart system – but that's also important. Make sure you have plenty inventory, a shipping plan in place, and a web hosting service that's capable of handling the traffic you expect to get.
Security: This is essential for you and your customers. You want to make sure you have, at the very least, a secure sockets layers (SSL) connection, which encrypts data passed through your website. This helps protect your customers and your business when a payment goes through your site. If you store customer data, such as contact information and credit card numbers, you want to make sure you have even more security. Look into other encryption technologies, especially if you store data.
Email marketing campaign: Let your current customers know that you've expanded online. A great way to do this is to send out an email campaign with a percentage off for a customer's first online order. You can expand to new customers by setting up a follow-up campaign. For example, if a customer uses the code to get the discount, send a thank-you with an offer of another 10 percent off if they refer a friend.
Social media: You should be all over your social media accounts announcing the launch of your online store. You can also host a live video on Facebook and offer those who are watching a special code that's only active for, say, three hours, to get 25 percent off their first order. Do this sort of special discount offer again, and you'll find new customers everywhere – it's the new word-of-mouth advertising of the 21st century.
Open another location
Don't overlook the most obvious answer to growing your retail business: opening a new location. Although you have successfully operated your lone retail shop well, another one isn't going to be easy. It's important to remember that opening a second location is going to be double the work you already have.
Also, you don't want to run into competition with your current business. So, when you scout locations, make sure the demand is there and that you aren't going to siphon business from your current store. You're going to want to start at square one with your second business, so go through the process of creating a whole new business plan for your new location.
Franchise vs. chain
All entrepreneurs would love to be the McDonald's of their industry. Franchising is a good way to expand your business if it lends itself well to that sort of expansion. That is to say, you must have a product that lends itself to consistency in customer experience, customer service, quality and a streamlined system of operations.
Franchising isn't just for fast food restaurants. There are franchises for hotels, car rental companies, real estate offices, hardware stores, tutoring services and fitness centers. What they all have in common are strong brands and easily duplicated stores – in service, decor and expectations from customers.
Franchises differ from chains only in who owns the store. An independently owned and operated store is a franchise wherein the concept is owned by you. A chain of stores are all owned by you, the parent company. A chain requires more risk than a franchise – you can rely on an investor who takes on a portion of that risk.
This is also considered diversifying your business – you can expand by selling products that make sense in your store, or start working as a paid speaker about your experience as an entrepreneur. Additionally, you can consider creating an alliance with a like-minded business.
Take the vintage dress shop and vintage apron store example. Instead of acquiring the apron shop, you could consider a coalition. You agree to sell the aprons if they sell your dresses. Both products make sense in each store, and both businesses benefit from the agreement.
Consider a merger
If you aren't in a position to acquire another company because of a lack of resources, or you simply don't want to expand in that way, you could consider a merger. A merger is a good way to reduce costs for both companies, expand the customer base and increase profits across the board.
One of the best examples of a successful merger is that of Disney and Pixar. Disney is a giant in the animated film business and has immense marketing prowess. Pixar was a small company that didn't have the seemingly unlimited resources of its giant competitor, but it did have talent and innovation. When the two combined, Pixar was able to push out more films and reach bigger audiences, thanks to the push from Disney.
When business grows too fast
If you've found that your supply isn't meeting demand, your knee-jerk reaction might be to hire more help. It seems like a good problem to have, but it means you might be overlooking inefficiencies. To ensure you're in charge of your business's growth and to mitigate those risks, be sure to invest in accounting software.
As you expand your business, your expenses will also expand. If those costs are greater than your revenue, you risk running into a cash flow problem. In this case, you may need to use debt in your favor to balance things again, but be careful not to get in over your head.
If you notice more complaints from customers, this could be another sign of growing too quickly. Ensure your customer support representatives and salespeople are trained properly and the customer experience doesn't suffer. Employees working later hours or more hours than normal to keep up with demand may be counterproductive.
Think of your business like a plant. If it isn't growing, it stagnates and eventually dies. Your business needs a loyal customer base, new customers and new products to keep growing. Sometimes this means you need to expand vertically and introduce new or related products to keep things interesting. Other times it means growing with another company or moving into an untapped market.
The important things to remember are to take it slowly and not lose sight of your business's goals. If your brand changes, it should be a careful, planned change, not something that happens because your customer service or quality of products has changed.
Growth is exciting. It means that you're fulfilling a niche and succeeding in business, and more opportunities are presenting themselves to you. As long as you have the right tools and you're prepared to take on those opportunities, your business can continue to thrive – upward, outward and onward.
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