Growing Pains

Hit that crossroads between startup and growth phase? Learn how to manage expansion and take risks—yet thrive—during this critical transition.

Larry and Jennifer Salberg are no strangers to stage fright. The couple, both trained as actors, have a regimen of tricks they use to overcome butterflies before a performance. Those kind of calming techniques have certainly come in handy for the pair’s next act: Doing what it takes to grow their Atlanta-based performing arts studio for children, called Applause… For Kids, (www.applauseforkids.com) into a multi-faceted program with multiple locations.

Applause… For Kids, which the Salbergs started in May 2002 on a hunch and with money raised from family and friends, has blossomed over the last two years into a legitimate business, with a thriving after-school drama program along with half-day spring break and summer camps. There’s also an in-school business, in which Applause… For Kids’ instructors teach an arts program in select Atlanta schools. And if all goes as planned, the Salbergs’ goal is to open up additional studios over the next few years throughout the surrounding Atlanta suburbs.

As part of the journey, the Salbergs, like most small-business owners, have had to shoulder some risk. First, there was an investment to move the studio from a relatively obscure, inexpensive location to a mainstream, upscale mall that commands a much higher rent. There was a decision to hire additional instructors so the pair could be freed up from day-to-day instruction to concentrate more fully on growing the business and responding to customers. The latest gamble involves committing to an additional 2,000 square feet of space in the same fashionable building to accommodate a professional-size stage and more room for its growing summer camp. A bank loan, a higher payroll commitment each month, and additional lease demands are all part of the growth equation. Yet without this kind of risk—as long as it’s managed properly—there can be no opportunity for expansion. “We’re still in the startup phase, but [these investments] will help us turn the corner to get to the next phase,” Jennifer Salberg says.

At some point, every small-business owner comes to that fork in the road, where they need to decide whether they’re willing to do what it takes to propel their company to the next level. For some companies, that opening comes with the decision to increase head count; for others, it’s about moving to a more desirable, but more costly location or investing in the tools (a Web site, for example) to promote their business beyond its original scope. The trick to making a sound choice when it comes to expansion, according to the experts, is to do the proper planning. Yet it’s also critical to ensure that this next direction meets all your business and personal goals. “The biggest mistake most small-business owners make is not having the clarity of direction and not doing the right planning,” says Frances McGuckin, author of Big Ideas for Growing Your Small Business, and president of SmallBizPro.com Services and Eastleigh Publications, a Langley, Canada–based consulting company that caters to small businesses. “You need to take a step back and look at your strengths and weaknesses. You also need to ask yourself whether you have the time and energy to [give this next level] what it takes.”

Mitigating risk
Small-business owners, such as Jeff Plimpton, have sought out measures that help them minimize the risk. Plimpton, owner of a Floor Coverings International franchise in Exeter, NH, says going the franchise route meant a minimal investment on his part, while also providing him with a variety of tools needed to grow his business. Floor Coverings is a mobile floor coverings business that sells materials and services out of a van that functions as a mobile showroom. The edge is that customers can evaluate a variety of flooring materials right in their own home, enabling them to get a better feel for the type of product that best suits their environment.

Buying a franchise vs. starting a floor coverings business himself meant Plimpton had to invest only around $25,000 for the van (around the same as any car loan, he says) compared with having to take out a bank loan for $150,000 or more. The main company also provides franchise owners with advertising resources, training, help filing credit applications and opening accounts, as well as assistance in getting new flooring materials—a practice that would have been far more difficult as a sole proprietor. He also gets to schmooze with other franchise owners and learn from their ideas and experiences. “I never took a business class in my life—I didn’t know what a profit margin was,” Plimpton says. “By being a franchise [owner], I got help with all the nitty-gritty stuff of setting up a business that I would have eventually figured out on my own, but this allowed me to be so much more prepared.”

Plimpton is also taking a conservative approach to next steps. He relies on subcontractors to expand his manpower when projects heat up instead of hiring full-time or part-time employees. And although sales are strong, he is waiting to see a protracted period of growth before he makes the next series of investments. Next steps might include taking on some additional space for an expanded warehouse and new showroom as well as hiring another person to run the warehouse while conducting some sales and administrative work. “Once we get through this year and start to tie some months together, I’ll have a bigger picture of what we’re doing on a monthly basis, and what we can afford,” Plimpton says.

For some businesses, making some sort of significant investment is critical to the next phase of growth—and even for survival. Kathy Lindberg, owner of Giftbaskets.com (www.giftbaskets.com) realized that early on. The former music therapist, who started a gift-basket business in 1997 out of her house in Wooster, OH, realized pretty quickly that in order to grow, she would need to do something to expand her customer base beyond the local area. After attending a conference on building a gift-basket business, she decided to focus primarily on building her business online. She invested in shopping cart software, hired someone to help her get the site up and running, and pays a monthly fee to a hosting provider. Over the years, she’s also invested in a service that submits her business’s URL to a search engine so customers around the country can easily find Giftbaskets.com.

The investment in Web technology proved itself a success. Now, nearly 95 percent of Lindberg’s business comes from the Web, and orders for the company’s themed birthday, thank-you, and sympathy baskets, among others, are sold across the country and even internationally to both individuals and corporations. Had Lindberg opted to continue as a company with only a local presence, she admits she probably wouldn’t have survived. “I believe if we had stuck strictly to the local market, we’d be out of business,” she says. “I wanted to be able to expand on a national level, and the cheapest way to do that was on the Web.”

Sometimes making a one-time investment—particularly in new technology—is a way to grow your business and generate efficiencies without the pressure to fund other expansion tactics. After growing and shrinking during the rise and fall of the Internet boom from late 1999 through early 2002, Batteriesdirect.com (www.batteriesdirect.com) decided that as part of its retrenchment strategy, it would focus on becoming more efficient. Instead of hiring additional employees, the Palo Alto, CA–based online marketer for replacement batteries for camcorders, laptops, cordless phones, and cell phones, invested $7,000 in Web-based software that would help automate order fulfillment and inventory management, allowing it to operate more efficiently.

Batteriesdirect.com has also learned an important lesson from scaling up—then scaling back—to accommodate shifting sales cycles. Instead of embarking on an all-out course for growth, hiring new employees and taking on additional space, Batteriesdirect.com, in hindsight, would have tightened up first, before taking steps to move forward. Maintaining an infrastructure that gives a business some sort of fluidity to ride out the highs and lows of the market is also important, says David Bryne, Batteriesdirect.com’s president.

After surviving the worst of the Internet downturn, Bryne is happy with his company’s growth projections. But he’s also more clear on his expectations for the business. Says Bryne: “We want to keep this small and manageable and very profitable. We want to be able to support the people here and have the lifestyle we want. It’s not an ego trip—it’s about making a business that works for us.” BA

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