I meet many owners who seem to have more in common than would meet the eye. The conversation begins with “we aren’t making enough money.” When I ask the usual basic business questions, nothing unusual is uncovered. Then, out of nowhere, I hear of the latest expansion or product.

It was such a great idea. How could it fail? Along with our primary widget or service, we’ll expand and go after another area in our market. Others are making money. We will too! That seems all too often the means to the end for so many companies. Roofers doing windows, lawn moving service companies begin to do hardscape layouts, home builders venture out to pretend to be commercial contractors, and the list goes on.

While the original thought was to expand to gain market exposure or increase sales by cross-selling products and services, owners make expansion mistakes along the same lines as Starbucks and KrispyKreme. Often, there is a failure to identify the risks of the new venture and also the financial and time considerations that they addressed initially when starting their current business. Many times, the new enterprise takes the owner’s eye off the ball, and takes money from the primary business to seed and feed the new “baby”, and that is the point where they begin the downward spiral.

If you are considering expanding your current operation, or start a complimentary line or service, you should only proceed once you have completed an indepth investigation into the proposed enterprise. The business plan should be funded independent of financing via the existing company. In other words, it should stand on it’s own. Don’t make the fatal mistake of believing all of the competitors in the new area are profitable. I find it interesting that many times I do a market investigation only to find that all of the players are losing money. Imagine wanting to open a new buisiness in an arena where all of your competitors are going broke. I see an opportunity here, but you can’t jump in without a well thought out strategy. Focus on your primary business purpose first. You may find that there is room to increase profits without taking on a new load of time and financial responsibility.

Email me your thoughts on expansion and associated businesses to ron@ronhammons.com. I am always interested.