Day: September 11, 2024

This post is the first in several articles about planning to scale a small business into a larger enterprise.

My wheelhouse is working with emerging companies.  My clients are successful business owner-operators seeking a bigger stage.  Their aspiration is admirable.  Notwithstanding their ambition, moving onto a bigger stage requires preparation.  It may include personal growth and development and work on the business.  Entrepreneurs need a strong Ego to become successful.  However, ego is not enough to build a more prominent company.  One must check one’s ego, listen to others, and ask thoughtful questions.  You need a roadmap.  A team of your peers with relevant experience can be helpful.  One should consider an Advisory Board or a more formal Board of Directors.  Some hire a Coach.  A serious focus on one’s transition will help ensure success. 

A former client provides a Case Study of failure to scale a business.  The client thought their successful restaurant concept had legs.  The three owners were an odd mix.  Two were entrepreneurs who created one-off restaurants.  The third was a former major chain restaurant icon.  Regrettably, the former big brand icon was out of touch with the industry.  However, they were well connected.  Their connections helped them raise capital to support their plans.  Their fundamental problem was that they were not a viable team.  They were at odds with one another, each working on their agenda.  They had a Board of Directors, which was equally divided.  They hired a competent CEO who soon left because he could not work in that environment.  They experienced a similar situation with their first CFO.  Their ultimate failure was an inability to execute their development strategy.  This dysfunctional client was beyond salvage mostly because they refused to listen to their advisors.  It was a sad, magnificent failure.

Your Foundation:

1. 1. Know Yourself: Personal Transformation from Small Business Owner to Business Executive
   2. Processes, Systems, and Procedures (including vendors, professional services, and supply chain) are in place with flexibility to grow and expand
   3. Financing is in place:  Stable internal cash flow, retained earnings, and outside financing.
   4. Know Your Customer in depth:  Demographic Profile, Frequency, Check Average, etc.
   5. Development Strategy:  Think Penetration; Your Home Market first

You must understand your customers and why they trade with you to expand your business.  You must know their disposable income, how often they visit your business, and how far they are willing to travel, among other relevant statistics.  This information is necessary to determine which trade areas to target.  You will need a Local Store Marketing Program, possibly a Loyalty Program, and likely, a Cause Marketing Strategy. 

Considering your workforce, can you answer the following questions in the affirmative?  Do you have a stable workforce?  Do you attract high-quality employees?  Do you have a healthy culture that rewards performance and is flexible to accommodate your plan?  Are job functions clear and understood?  Do your employees have the tools to perform their jobs at the highest level?  Do your policies reward results and ethical behavior?  Are you developing leaders?  Are your security policies, procedures, and systems up to par?  Is your compensation program competitive?  Negative responses provide a clear direction for further development.

This client’s Development Strategy was ill-conceived and poorly executed.  The first was to create a strategy based on the success of their original location.  It would make sense if their first location were not in a historic building.  Historic buildings are notoriously problematic as every area is a new adventure.   There is no learning curve, and the development costs are unpredictable.  This flawed strategy set the stage for all the problems that followed.  The second major development mistake was their failure to penetrate each market before moving into a new market.  Instead, they went for a ‘one-off’ strategy, building a single restaurant in markets across the Southeastern U.S.  This strategy failed to leverage their resources.  They incurred unnecessary logistics, operations management, and marketing expenses.  They did not meet the development timeline and unit-level cash flow plan and lost control of their overhead costs.  This client had excellent counsel, which they ignored.  Ultimately,  their assets were sold when they ran out of money.

This sad case provides valuable learning about how not to build a more significant business.  In the following weeks, I will flesh out the issues presented in this post.  Our objective is to provide a clear path to scale your business.

Jim Weber, Managing Partner – ITB Partners

Jim Weber – Managing Partner,  ITB Partners

I hope you enjoyed our perspective and would like to receive regular posts directly in your email inbox. To this end, please put your contact information on my mailing list.

Your feedback helps me continue to publish articles that you want to read.  Your input is very important to me, so please leave a comment.