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10 Ways to Build Your Business

By Nathaniel Gilbert

Page 1

Ask most new business owners how they're progressing, and you'll probably hear:

They're so busy they barely have time to breathe.

If they could only obtain more financing, they could expand.

You don't have to analyze their books to realize these entrepreneurs are bogged down in the first stage of development. Ironically, success can leave you so busy you don't have the time or the energy to plan for your business's eventual expansion. Must progress always be stymied so soon after initial success? Four small-business specialists at major U.S. accounting and consulting firms gave the steps they would take to ensure growth past the first stage of business development. If you and your business are stuck on first base, try these 10 suggestions:

1 ^{Re-examine your original business plan.}

Most business plans, no matter how elaborate, fail to properly anticipate the second and third stages of development. Yet most businesses, with the exception of some professional services, change their character - their thrust, prime markets, or product/service lines - within the first three years.

"The basic business plan should be a living, breathing, dynamic document - a road map to the future," says Louis Salamone, a partner at Deloitte & Touche and head of the firm's middle market companies services in the New York City area. Salamone and other consultants agree that few entrepreneurs look at or adhere to the initial business plan they labored over after they use it for the purpose of interesting financiers.

Review your initial business plan, and ask yourself these questions:

If I were to revise the plan today, what would I change? What parts am I holding onto even though they have proven incorrect?

Have my original assumptions about the dimensions and characteristics of my market held true?

Has the demand for my product or service lived up to my original expectations?

Were my original estimates of income, profits, and the required capital accurate?

If your original business plan is accurate in all these major respects, you are either a genius or a victim of your own limitations. Every growing business - whether it is a huge multinationl corporation listed on the New York Stock Exchange or a one-person service operating out of a homebased office - needs to change and adapt constantly in order to keep up with the new trends and circumstances continually occuring in the marketplace.

To finance expansion, it's important to look for strategies that require less cash, says Ralph Ells, a partner and director of entrepreneurial services in the Milwaukee office of Ernst & Young. "Entrepreneurs tend to think in terms of profitability rather than the dynamics of their cash position," Ells says. "But if they revisit their basic business concepts and look for creative ways to minimize inventory, work in progress, receivables and other items, they may be able to find the cash necessary for business expansion."

2 ^{Know the critical success factors necessary to keep your business growing.}

Business owners often let their initial business plans gather dust because they are creative, dedicated and resourceful, and have a highly defined vision of their firm's future, says Paul Sherman, a partner and head of the accounting and business advisory services division at Laventhol & Horwath in New York City.

However, Sherman quickly adds, initially successful entrepreneurs are rarely aware of the "mechanics of success." He says the new company's back office typically does not keep up with sales and marketing.

Defining critical factors for successful growth does not mean jotting down "more time" and "more money." This task requires a three-column list for:

Setting forth the critical factors;

Defining the factors as a specific, quantifiable goal; and

Listing all of the procedures or sources necessary to achieve those business goals.

Do not accept the two favorite excuses of all "has-been," "never-was," and "never-will-be" personalities; not enough time or not enough money. Any entrepreneur who accepts these limitations and lives by them, will find it almost impossible to grow beyond the initial development.

(For more information see "Make Success Measurable!: A Mindbook-Workbook for Setting Goals and Taking Action" by Douglas K. Smith).

3 ^{Study the critical factors that will produce the greatest yield.}

Then assess each factor in terms of three things:

Timeliness. What can be done immediately?

Accessibility. What action requires the least amount of money?

Size of Yield. What action will yield the greatest end result as a multiple of time and money invested?

Ells says he finds success usually depends on a few factors - which should be quantified. "The entrepreneur should start to collect statistics about these factors, once they're indentified," he says. "Displaying them graphically on charts is helpful because it instantly shows trends and can be communicated to others in your organization.

These factors require formal study, since everyone's natural inclination is to do what is obvious, what they know best and what seems easiest to achieve. Unfortunately, this attitude equates your personal limitations with those of your business. It can also result in one of two major mistakes: egotistical complacency or a desire to do something - anything - even if it wastes time and money.

The best way to find the answers to questions of priority is to distance yourself from them. Have your accountant or a business consultant work with you. "Too many entrepreneurs operate without external advisers because they want to project a Superman personality."

4 ^{Decide whether the current organizational structure is the most efficient one to facilitate growth.}

Most new companies start as sole proprietorships or partnerships which are not necessarily ideal for second-stage growth. Many bankers prefer not to lend money to sole proprietors, and some retail chains do not want to do business with suppliers who are not incorporated. It's also difficult to attract executives during early stages of development without giving them a limited piece of the pie, usually equity or warrants; this can only be achieved easily in the corporate structure. The tax benefits unincorporated companies enjoy may not be worth the restrictions they impose on growth in the second and third stages of development.

Salamone says many entrepreneurs are comfortable with the S corporation form of ownership because it is flexible enough to meet the needs of suppliers and customers, yet it allows for maximum tax benefits, similar to those found in a sole proprietorship or partnership. The S corporation form is used by many companies well into the second stage of development, and sometimes even into the third.

Another concept to consider is "critical mass" - the point at which your company is big enough to be a significant factor in the marketplace and large enough to enjoy "economies of scale," or obtaining better service at the bank, and receive better prices from suppliers. Growth is not always simply a matter of bigger numbers, more products or larger market areas. Often it involves buying (or buying into) independent dealers, suppliers, and competitors. In any case, you can be sure of one thing: If your organization isn't ready for the next stage of development, you're not going to get from here to there efficiently.

(For more information see "Choosing a Legal Structure for Your Business (Run Your Own Business)" by Stuart A. Handmaker).

5 ^{Examine what your chief competitor does well that you haven't done.}

Truly competitive business owners ask this question constantly. First, ask yourself, "What are my competitors doing?" Talk to prospects who are now using your competitors' products or services. Then ask, "How can I offer and deliver the same things my competitors do - or better?"

More than likely, you will need to utilize the expertise of other individuals or businesses to remain competitive. As Ells points out, it is not always necessary to put experts on the payroll to gain specialized knowledge.

(For more information see "Competitive Strategy : Techniques for Analyzing Industries and Competitors" by Michael E. Porter).

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Nathaniel Gilbert is a journalist and business analyst in Westport, Connecticut.

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