How to Grow your Business & Keep Control of your Business while Avoiding Over-Expanding and Beware of The Danger of Going International. Tips on going into Business Partnerships with others.

November 9, 2011 by · Leave a Comment
Filed under: Business Management, Business Partnerships 

1) These are my thoughts on how to grow your business while avoiding over- expanding:

  • Just because you have created a successful business in one location, don’t assume your formula will work everywhere.
  • Conducting market research to ensure you have the right customer mix is key before opening branches in any other location.
  • Make sure you have the right operational platform in terms of systems, management information and administrative support to create a firm foundation for the new larger business. You will need to be able to control what is going on.
  • If you need to expand to reach another level in your business, find the finance BEFORE you embark on the project. It’s much easier to negotiate good terms when your business is in the ascendancy, than when you are trying to dig yourself out of a hole.
  • Consider franchising as an alternative option to expand the business. It de-risks things for you as well as providing your business an additional revenue stream. Franchising has enabled great businesses like McDonald’s and The Body Shop to become worldwide brands within a very short space of time.
  • Be mindful that many entrepreneurs have gone down the VC route and lived to regret it. Perhaps you should consider growing your business organically – it’s far less risky, less stressful, and you will remain in control of your future.

2) The Danger of Going International

Here are my observations on successfully taking your business international, based on my own limited experience, plus everything I’ve ever heard or read on the subject:

  • Make sure you have your home market absolutely sewn up first.
  • Find a top-class local management team which understands the culture of your target country and how business is done there.
  • Trust them to run the business the way they believe it should be done, and put in place bulletproof management reporting, to enable you to monitor things from a distance.
  • Be very careful to control the cash.
  • Get some top-quality advisers on board; people who know every pitfall of what you are planning – this is one area where you do not want to be learning by experience.

3) If you want to make sure you keep control of your business then I suggest you:

  • Hang on to your equity at all costs. Once you sell shares it is very difficult to get them back again.
  • Grow organically – even if it takes longer. This also makes for a much more stable, robust business.
  • Remember, profit is the best form of cash injection. Everything you do in business should be in a constant effort to improve the bottom line, but never at the expense of your brand.
  • Don’t issue share options to your staff. They’re a one-way street which, in truth, the vast majority of people don’t actually value nearly as much as cash in hand – and the reality is that very few people within your business, acting alone, can materially affect the bottom line. If you feel you must share the success with staff, use individually performance-linked profit-sharing schemes instead.
  • Avoid all forms of corporate finance – whether through banks, venture capitalists or stock market listings – or you could find yourself dancing to the devil’s tune.

4) Going Into Business with Family and Friends

Here are my thoughts on going into business partnerships with others:

  • If you are thinking of going into business with family and friends, be ruthlessly honest with yourself about the reasons why.
  • What unique skills or other input (eg investment) will they bring to the table? Crucially, ask yourself, whether you would employ these people if they came to you for interview. If any part of the reason behind your decision is to shore up your self-esteem or to make things feel ‘safer’, then you are almost certainly storing up problems for the future.
  • Sit down and discuss in detail exactly what role each of you will play in the business and where your individual responsibilities will lie, including how much time you are each prepared to commit to the business. Also ensure that you discuss the disaster scenario of how you will unravel the partnership if things do not work out – whether by amicable exit or if any one party wishes to force closure. This isn’t being negative, it’s being pragmatic.
  • Document everything, preferably in a legally binding document. But if you don’t have the money to spend on legal fees, even a simply worded letter of agreement jointly constructed and signed by all parties is better than nothing. Although it seems like a waste of time for a start-up business with no revenue, you should also have basic service and shareholder agreements drawn up (if you are a limited company) or a partnership agreement (if you are entering into this as a partnership).
  • Crucially, bear in mind that partnerships usually involve unlimited liability, meaning you could personally become responsible for any debts run up by your partner – even if you’re not aware of them. Creating a limited company is usually a far better route.
  • Be very, very careful to ensure that signing authorities for all the business bank accounts prevent any one party extracting money from the business without the other’s knowledge. Ensure you also have a proper process in place to control purchase authorities and, crucially, joint signing authority over any contracts the company/partnership enters into. One mistake or piece of bad judgement in this area can easily bring an entire business down.
  • Better than all the above, just do it on your own!

5) A few observations on major contracts and handling litigation:

  • Get the best legal advice money can buy, even if you can’t afford it. Believe it or not, there are some people who actually enjoy reviewing legal documentation!
  • Don’t just check what’s in the contract: look for what has been omitted. This is especially so if the legal documentation has been drawn up by the other party – it will always reflect their own most important criteria, not yours.
  • Think of all the things that could possibly go wrong with the deal. How are your interests protected?
  • No matter what assurances you may receive, and no matter how pleasant the other party appears to be, this is business. Trust no one.

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