The current economic environment, although difficult, shouldn't hamper the growth of a forward thinking multi-unit operator. The trick to surviving and growing during uncertain times is to have a well thought out growth plan in place. Proper growth planning identifies and isolates areas of weakness early on before costly problems are encountered.
Unlike a strategic plan, a growth plan is based on facts as we know them now. It focuses on understanding those facts and when projected into the future, how they may change in the face of unforeseen events. Ultimately, the planning process provides an operator with the ability to see the fork in the road, and once there with strategies to properly choose the right direction. Like all planning, process is critical. The following ten points form a basic process tohighlight problem areas that need to be addressed before expansion occurs, rather than after.
1. Assess the Concept: Can it Cross Markets?
Can the concept be rolled out on a national level, or is it better suited to a regional or local market? The best way to assess this is to ask probing questions, provide honest answers, and determine what the basis of your success has been so far. Ask the following questions: are we creating or defining a new segment or niche? Will customers in the new market need to be educated to understand our concept? Is our brand complicated? Local or regional success of a concept doesn't guarantee that a new market will work. Good advice is to follow the same process used to establish the concept in the market where it is successful. At the end of the day you have to understand your customer. Customer profiles are not universal; they change from one market to the next.
2. Develop a Vision: And Validate Your Reasons for Expansion
Expansion of a concept into new markets requires an unwavering dedication to a vision. The vision must center on why the business, and not the executives, are better off if expansion occurs, and what form expansion will take. Validation of this vision comes by determining what drives the brand, what drives the business, and how they co-exist.
3. Be Honest About Executive Management: Can They Execute the Vision?
Do you have the right team? Does management from the CEO on down have the experience and skill-sets to turn the vision into reality? This is a tough question. Personalities, relationships, loyalty, and maybe even family get in the way. Expansion is difficult when individuals in key positions can't perform. Learning on the job can cause unneeded stress and can strain relationships with vendors, lenders and others. Will management know when it is in trouble and recognize how to quickly and effectively solve the problem before the vision or the business is damaged?
4. Adopt an Efficient Legal Structure: It Must Not Be a Roadblock
A complicated legal structure is difficult to explain and difficult to administer. The legal structure of a company influences a variety of areas of its business including valuation, employee participation in ownership, the terms of loan and equity agreements, the cost of audits and tax compliance, and how financial information is disclosed. Changing legal structure can be complicated and time consuming. However it is much better to change in anticipation of future events than to wait for the events to occur. If it takes spreadsheets and flowcharts to explain your legal structure, it's too complicated.
5. Fully Understand the Basics of the Capital Markets
Let's face it;at some point your expansion efforts will require other people's money to succeed. A certain level of knowledge is required to identify the right capital for the company, and the right time to obtain it. This involves understanding what equity players look for and why, what the differences between portfolio lenders and securitized lenders are, and what amount of ownership or control the owners of your company are willing to give up and how. This may seem involved, but the best time to pursue equity is when you don't need it. Plan for it. It's that important.
6. Appoint a Board of Advisors: Make Sure it has Teeth
One great idea to implement early is to appoint a board of advisors. A well chosen, participative board can be key in helping to setcompany strategy, monitor performance, mentor executives, and foster network relationships. Don't appoint a puppet board filled with cronies, and don't appoint a non-participatory board. If a board is going to do its job, it has to have teeth, and the CEO has to respect it.
7. Plan for Failure: How Will Your Business Survive the Worst Case?
Most operators have never planned for failure. It's not a subject that executivesfeel comfortable discussing. However, if you can't recognize the warning signs of impending problems, how can you expect to stop a situation from spinning out of control? A solid analysis is key here, one that presents and solves multiple situations where the expansion could go wrong. It's also a good idea to setup a watch program - a SWAT team - with responsibilities assigned to those executives who are the first to see negative trends. A SWAT team approach can be very effective in dealing with problems before they develop.
8. Adopt a Common Sense Expansion Strategy: Can You Afford it?
Operators have been known to choose the market first and the expansion strategy second. It isn't unheard of to set the pace of expansion to agree to the language of a development agreement, whether it is good for the company or not. The proper expansion strategy is one that works for the company; one that supports the vision, and one that is affordable. An affordable expansion isn't determined just by dollars.Affordability also includes the human cost and the strain to be put on the existing business. All of these factorshave to be considered when determining where and when to open new stores.
9. Communication is Key: Do you have the Appropriate Information Systems?
We all know that information is critical to running a business. But as important as information is, it is more important to get the right information, at the right time, to the right people. This isn't just a question of technology, but a communication issue as well. Proper communication requiresstaff with the right skills, and an appropriate amount of time, to review and assess information, and to disseminate it well and in a timely fashion. The time to put these systems in place is before expansion begins.
10. Review Your Expectations: Are They Reasonable?
After completing the above steps challenge your expectations for the expansion. Instead of focusing on how wonderful the market is going to be, take a look at the down side. Ask challenging questions. Who has survived in the market and why? Who has failed and why? What are the reasons for failure likely to be? Are you expecting too much too fast?
In summary, the road to expanding a multi-unit business can be difficult to be sure. As they say Murphy never sleeps, if something can go wrong it likely will. However, with a proper growth planthe difficultiesof expansion can be significantly reduced; alternative strategies can be developed to reach the intended destination.
Gregory M. Thomas, CPA is Director of the National Restaurant & Retail practice of McTevia & Associates, Inc., specialists in growth management,as well asbusiness advisory and turnaround management services to expanding multi-unit retail operators. Mr. Thomas has served as chief financial officer for many independent and franchised restaurant and retail groups over the past 15 years, including bd's Mongolian Barbeque. He can be reached by phone at (586) 774-5580 or email at gthomas@mctevia.com.
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