Great time for growth Featured

8:00pm EDT August 26, 2009

While many businesses are hunkering down in the recession, now is actually a great time to think about growing your business, says Ken Dansie, a partner at Burr Pilger Mayer.

“If you have a strong business plan and manage everything very tightly, only spending on what you absolutely need to expand your business model, it’s absolutely a great time to expand,” he says.

Smart Business spoke with Dansie about how to grow your business in tough times to get a leg up on the competition.

How do you create a business plan that makes financial sense?

You have to figure out, ‘What is the big bet?’ It doesn’t matter if you’re a $1 million company or a $10 million company; if you’re deciding to go into a new venture or open a new division, what is that bet about? If you can’t provide a compelling pitch, it means you haven’t really determined what that market opportunity may be.

It’s a common mistake to overcommit the resources you have. You don’t have the same resources that were available to you two or three years ago, but if you come up with the right business model, you can operate in a lean, mean fashion and grow at the same time. You have to continually re-examine your business plan to optimize your investment dollars and then apply those dollars extremely cautiously.

From a funding perspective, any business plan has to make more financial sense than ever and provide a distinct advantage over any competition that might be out there. If you thought your business plan was going to be tire-kicked before, it’s going to be tested far more now than ever.

How can you overcome the constraints of the market to grow?

The things that may prevent you from growing quickly in a good economy, such as a lack of resources, are readily available to you in this economy. Sometimes it’s internal resources that limit growth. You can’t get the right type of employees or you can’t get that product, but now there are plenty of people and plenty of products that you can get at reasonable prices.

It is tough to scale while trying to do everything in-house from a resource perspective. Outsource any activities that are on the periphery of the business that you really need. Because pricing is so low right now, you can get good people working on your projects and really increase your odds of success.

How else can a business owner take advantage of the current market?

Don’t commit to long-term obligations. You don’t need to sign a three-year lease for property anymore. Go month-to-month instead. Most of those obligations that used to be fixed costs, you can now make variable, within reason. If paying $1,000 a month in rent is too much, ask the landlord if you can pay $800. If the business park is only half full, they’ll probably take it.

Because of the demand and supply perspective today, whatever resources you need, there are plenty around, and you can negotiate a good price. Get whatever you can, as cheap as you can.

How does the current market change how you operate financially?

You have to have liquidity. If you don’t have cash in the bank, you’re not going to be able to deal with problems that may come up because you can’t go out and get money quickly right now. If you have money in the bank, you can cover most contingencies, even if a big, unexpected event occurs.

Businesses that were operating on relatively small margins and high leverage aren’t there anymore because they didn’t have that war chest. So if you’re growing rapidly one of your main targets should be to keep building that war chest.

As you face rapid growth, how can you build relationships?

Focus on continuously strengthening your relationships with current and potential customers, suppliers and distributors. Relationships are extremely valuable in today’s market. If an important customer comes to you and asks you to drop your price, do you do it? Eventually we’re going to come out of this economic mess, so isn’t it worth providing a short-term 20 percent discount to protect that relationship that you’ll probably have for the next 10 years?

How do you make sure you stay on track in a changing market?

The only sure thing at a rapid growth company is that what you did yesterday is not what you’re doing today, and what you’re doing today is not what you’re going to be doing tomorrow. You have to revisit your business model on a regular basis and make sure you’re changing with the times and that you do have that war chest because, eventually, some competitor will come after you.

Some businesses are grasping that new reality and asking, ‘What are the new revenue drivers?’ Some companies think they can get by just by changing slightly. But you have to look at it from all directions and challenge those underlying business assumptions and continually look at change. Don’t just keep going down the same road blindly.

Kenneth J. Dansie is a partner at Burr Pilger Mayer. Reach him at (707) 524-6545 or kdansie@bpmllp.com.