Entrepreneurs are often faced with the decision to expand their businesses to accommodate growth in demand or market share, or to enter and conquer a new market segment. Such decisions, however, are rife with difficulty, as they need both financial and managerial considerations. For the entrepreneur who has worked hard to build his/her business, two questions race to mind: (a) what do I need to expand, and (b) can (and how will) I be able to afford what I need?
Questions of added workspace, machinery, and working capital first rush in. Following that come questions of how to maintain the quality of the products or services provided, especially given the entrepreneur’s decreased time capacity to thoroughly monitor all aspects of the business. Furthermore, an increase in output also requires an increase in administrative and support functions, which may have been up to that point handled by the entrepreneur personally. The opening of that third branch or that second office in a new city, or taking on that additional request-for-proposal will come with certain HR, finance, accounting, payroll, secretarial and/or IT requirements.
Everyone understands the concept of biting more than being able to chew; and small and midsize businesses love doing that. If not managed properly, however, attempting to grow can lead to deterioration in output quality. This can happen either directly through reductions in production testing, input controls, or outcome monitoring or indirectly through the reduction of employee satisfaction and/or skills. The bottom line is the same: a decrease in profitability; and we all know examples of businesses loosing their spark overtime.
Staying put, on the other hand, exposes the business to being outgrown by its competition, allowing the competitors to eat the market with better products and services. So what should an entrepreneur do when faced with the growth dilemma?
There is no single answer to this question. Naturally, if the business was sitting atop healthy cash positions, the decision to grow will be easier. Most SMEs, however, tend to be strapped for cash, if not for anything else, their heavy owner-payout requirements. Even with abundant cash, the ability to manage growth internally may not always be there, either due to insufficient management capabilities or labor restrictions.
An option that many entrepreneurs pursue in expanding their businesses in the face of such difficulties is outsourcing. Specialized companies have emerged all over the world to generate products and services for other businesses. From outsourcing producing a product line or a product stage to outsourcing administrative services such as accounting, payroll, human resource management, and customer service functions, outsourcing businesses are enabling entrepreneurs expand, reach new markets, and meet new demands. Add to that the fact that outsourced work comes with a degree of flexibility to match cyclical demand, an element absent from internal growth when assessing lost capacity or low utilization. Quality and production can be controlled and monitored to the entrepreneur’s satisfaction through adequate service level agreements to ensure that the entrepreneur gets exactly what he/she wants. All that is left for the entrepreneur to do is strike the right degree of desired control and proportion of profitability.