The risks of expanding a small business may remain unconsidered by hopeful entrepreneurs, and unwisely so. In every start-up’s effort to become to next worldwide, billions-making corporation, many enterprising hopefuls may forget that expanding their small operation actually holds a few significant risks that should be carefully considered before making any moves that are too big to sustain or even survive.
While it is true that risks are a necessary part of the business world, just as in life altogether, the key to success is being prudent and responsible in the choice of which risks to pursue; the case of the risks of expanding a small business is no exception, and should be taken just as seriously. A sound investment can provide a great turnaround, but sinking too much money into a toxic idea, fund, good, service, or other item may prove to be the nail in the coffin of yet another small business to fail far too soon. Fortunately, experience witnesses in the fortunes and misfortunes of others has taught us some valuable lessons to learn from.
Perhaps a small business has decided to go global, or aggressively market its online store, or otherwise massively expand the offering for its goods and services. The challenge will be to find the fine line between having the personnel and capital on hand that are able to keep up with demand, and not being overwhelming by the sudden increase of customers and their needs. If a clever little company has a certain unique good that they offer, and get greedy, and decide to offer it to a larger target audience, they may find that they cannot keep up production, at which point the consequences are terrible: Filling orders later than promised creates sour customers, who not only will not likely return to the same place but will spread negative word-of-mouth remarks. In the age of blogging and consumer opinions broadcast instantly to a wide viewership, that is a serious blow, and one that some may not be able to sustain. In addition, the simple manufacturing processes that were capable before may soon show to be obsolete, or simply too slow, to meet the rising demand. Furthermore, meeting the demand at a higher capacity may cripple the manufacturing capital on hand, or overwork the employees, neither of which is a positive scenario.
One potentially unforeseen issue is a sudden, sharp rise in cost: This may be involved in the need to instantly produce many more goods, creating the necessity of
purchasing much more base material or even renting further production capital, or the cost of hiring additional help. That consideration may seem like common sense, and a likely consideration for expanding business, but one significant distinction to account for is the possibility of the base material, hired help, or other integral capitalistic ingredient rising in its cost. Whether due to a coastal hurricane sharpening the cost of seafood, a sudden rise in raw material costs, or other unforeseen element that will require more spending than expected, it can be difficult but essential to account for the unpredictability of the market, and there are few points in the business timeline more vulnerable than the first significant expansion effort.
This one is simplistic in its workings but unfortunately so brutally true: If a small business starts to succeed to expand, it had better expect to encounter more aggressive attacks from its competition. This is especially true for local businesses, where word can spread fast, be taken personally, and be countered in a creative manner. Opposition may conveniently come out with sales that undercut your rates, or cut off supply lines by over-purchasing from your supplier, or incorporate badmouthing your business as part of their sales pitches or promotional packages.
Hopefully, such attacks from competition, rises in costs, or an increase in demand will occur in ways that will not prove to be unethical, unexpected, or insurmountable. The creative, visionary, prepared, and nimble small business should fully have the tools equipped and research done to ensure a smooth transition into a substantially more profitable period as they move to expand, keeping those risks of expanding a small business in mind.