Before you entered the build-out phase, your business had finally achieved its first level of precarious sustainability. You could finally pay your bills, not with investor’s money, but with revenue! Imagine that! You had finally achieved a few big clients who were making you cashflow positive for the first time since you launched your startup. You had built your business up to a point where you had proven your market proposition and some degree of stability did result, if only for a while.
It wasn’t long before you realized that the few big clients you were so proud of and dependent upon actually had you over a barrel. All your eggs were in one basket. Any one of those big clients could dictate terms or worse, stop buying and put you out of business right then and there. Lucky for you, you listened to your accountant and your salespeople who agreed that you were in a compromised position – until you got some new clients to mitigate the risk of coercion or financial disruption.
So, you decided to expand. You decided to get more customers so no one customer could hold you hostage. You decided to protect your revenue with more sources of income. And then what happened? You hit the wall! Like so many other build-out businesses, you were hit with costs and overhead you hadn’t seen coming. You found out the hard way about the cost of sales. Not the cost of goods. But the cost of sales!
We have found it to be the number one underestimated cost in business. Before the build-out expansion phase, these costs were spread out and absorbed under general “overhead.” But once you start moving into new markets, these costs make themselves known in no uncertain terms.
Suddenly you feel stuck. If you borrow money to expand, how long will it take to pay off the loan? If you sell equity to expand, how much control will you have to give up? And more importantly, what are the costs of expansion anyway? And are they the same in all markets? How can you know them ahead of time? And can you cashflow your way to achieve expansion?
The implications of growth are many. Here are 3 ways to survive this Build-out or Blowout challenge to your business:
Of course, there’s a lot more to this tricky expansion business. The main thing is to not over extend yourself, make strategic alliances, grow slowly, and notice what it costs to actually make a sale, service a sale, and keep the sales coming. Work with a cost accountant and your suppliers, and follow a sensible strategy and you can build-out and not blowout! You can do this, right?
Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.
Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.
They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.
Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.
To make inquiries for keynote speaking, trainings or consulting, please contact sales@thebarefootspirit.com.
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