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The Dangers of Over-Expanding

The very nature of the consummate entrepreneur is to think big and to take the risks necessary to be big. This trait, in the many who have built American businesses from solid ideas, has made our country what it is today. After a few years of success, most entrepreneurs look for ways to expand upon that success.

However, an entrepreneur must answer these questions before devoting the resources necessary for expansion:

  • First, and foremost, is there an untapped market or opportunity into which I can move?

  • If there is, do I have the resources and infrastructure to handle this expansion?

  • Will this expansion be detrimental to my existing customer base?

  • As the company grows, will I be able to maintain the passion that is the driving force in the company’s success so far?

Being too caught up in potential revenue growth at the expense of the needed resources (both money and labor) to preserve the core business is a recipe for disaster. Though you may be an independent thinker, you need to get input from the frontline managers on how an expansion would affect their departments. Ask them to give you honest assessments. Even if their input doesn’t sway your decision, it will give you a heads up on what the future challenges maybe, if you go forward.

One of the risks today with the business expansion is the continued volatility of the United States’ market. Prior to the 2008 collapse, our business cycle experienced normal ups and downs. The economy always came roaring back after a slow-down or a recession. Since 2008, the business cycle has not been as predictable. When the business started to get better, something would happen to throw the economy into a tailspin. For almost ten years, growth was minuscule at best, due to the skittishness of American business owners. A good example of a successful company that expanded at the wrong time was Large Format Digital of Edgerton, Wisconsin. This simple and initially successful business printed advertising for the side panels of large trucks. By 2007 they had $3 million in annual sales and employed 15 people. In 2008 they decided to do a $1 million expansion just before the financial market crash, which left them vulnerable due to lack of cash. By March 2011, they had closed their doors forever.

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