Building a business is always challenging regardless of the economy and having to deal with unforeseen circumstances such as with the ever-evolving COVID pandemic. Key determinations need to be thought through before starting a business or investing in the growth of an existing business.

These include:

Let’s break some of these down.

What is described above is often referred to as a “SWOT” analysis, which stands for “Strengths, Weaknesses, Opportunity, and Threats”. There are numerous free templates available on the web that can help businesses organize priorities and present a relatively objective overview of the challenges that will likely be faced. Most of these templates break the four variables down into boxes where the management team/business owner can list the components that go into that particular space. There will be times when the same variable will fit in more than one box. For example, if targeting an industry or market where there are one or two dominant players who control a majority market share, that would go into the Threat box. However, if a company has locked in a product or brand that will give it a distinct advantage to take on the larger players, that would go into the Strengths box. Companies will then be better able to assess if a product or service will be able to compete in the targeted market space.

As small businesses strive to grow, they can often find that being a smaller player in the market can have some advantages when going up against much larger competitors. Smaller businesses may not have the borrowing or purchasing leverage that bigger companies can bring to bear, but it is much easier for a smaller player to be nimble and seize the initiative with newer or emerging technologies or products to better differentiate them in the market. In many industries that involve manufactured products larger companies will often have supply agreements that are based on guaranteed minimum purchases. This can inhibit them from focusing on new products and technologies giving smaller competitors an edge in the market. Alliance Advisors has a client who had grown their business slowly over the first 10-years of being in business. They were able to secure a product line from a globally respected brand who was relatively new to the market in this space. This gave them a significant advantage vs. their much larger competitors and the company saw growth exceeding 25% over each of the following four years. They further pivoted their contracted services model on this equipment as a result of the pandemic, giving them a further advantage over their much larger rivals. The resulting growth has allowed the company to add two locations in strategically significant parts of the state, again trumping their competition in these smaller but underserved markets with smaller, more nimble, and less expensive overhead than their larger competitor.

Another area of increasing importance to companies as they strive to grow are vendor relationships. The larger a company becomes the more critical these relationships are, so it is important to establish and build these relationships while the company is growing. This holds true whether the product is software, machine parts, construction products, heavy equipment, or widgets. If the growth of a business relies on a consistent and reliable source of supply, then building high-level relationships with vendors is critical. The pandemic-related global supply shortages of so many products is a case in point. Vendors most often could not control shortages as they were felt globally. While people understood the breadth of the problems, it was nonetheless important for companies to keep their customers informed and updated. This would often mean that business owners would need have high-level access to their vendors to be able to get the most reliable updates to provide to customers. We have seen other instances where a vendor might have the ability to offer special deals on products or services that they don’t want to get out in the market. Vendors will usually reach out to customers with whom they have strong and trusted relationships to offer special pricing or terms in such instances. Vendors will often prefer to engage in such special deals with smaller businesses as it can minimize the market blowback of these deals being more broadly known among their other customers. Vendor relationships are an important part of growing a business.

An equally important piece of the puzzle to growing a business is to develop a solid go-to-market strategy and plan. Questions that need to be addressed are the total existing market opportunity and what percentage of that market is attainable, and would that market share result in a profitable and cost-effective return. These are key variables in discussions with lenders regarding an adequate line of credit or other lending options. We have seen too many companies that found themselves in a situation where the potential growth of the business exceeded the company's financial vehicles to support that growth. Having those conversations with lenders based around a well thought out strategic plan will make them more vested in a company’s success. It is in their best interest to see their client succeed, and a good lender who has helped numerous clients with financial needs can help refine the strategic plan to best ensure that success. Growing a business can be very expensive so having the lender be a key part of the strategic plan is crucial.

A final part of the equation that we’ll touch on is logistics. This is more critical when a company is dealing with tangible products that need to be purchased, inventoried, in some cases processed or manufactured, and then shipped to the customer, but it can also come into play with intangible products like software or other products that might require on-site service and support. With hard goods that need to be shipped there are going to be shipping costs involved, and these costs have gone up dramatically during the pandemic. With soft goods like software or operations systems the cost of travel can impact the bottom line. All of these costs are likely to continue to rise, so the question to consider is how much of an advantage or disadvantage will logistics-related costs impact a company’s ability to compete on this basis. As an example, say a company is based in St. Louis and manufactures a building product. The closest competitor in the space is in Indianapolis. Both companies have targeted a customer in Kansas City. The competitor in Indianapolis will have to pay more in freight to be able to compete against the company in St. Louis, and this can have a significant impact on how competitive they can be, giving the St. Louis company an advantage. While not the only factor to consider when working to grow a business, logistics are going to play an ever more important role in a company’s ability to grow and needs to be taken into consideration when formulating a strategic plan.

The above is just an outline of the hundreds of details that come into play when working to grow a business. At Alliance Advisors we have a diverse team of senior professionals with decades of experience in the field business growth. We would appreciate the opportunity to have a conversation with you as to how we might be of assistance to you and your business.