Adrie's Blog

Expansion

.
Expanding your company is a very interesting theme in the life of all entrepreneurs - we all want to go further, higher, and above all faster.... even if we may not be ready for it yet.

The question is therefore - how should you handle your company's expansion - organically, via acquisition or simply through re-sellers.

I have always had the urge myself to want to expand rapidly. Not always rationally and not always at the right moment. But I have to say when I had built a business in the Netherlands for many years, and then moved to the US to offer our dutch services on the local market - it was a tremendous feeling, a feeling of elation even when I got my first contract from Citicorp no less. I remember that feeling, as I walked down Wall Street - proud as anything, thinking "just look at me" - that was 1983 and I remember it as clearly as if it was yesterday.

It gave me extra energy, looking at expansion, which I utilised to build a company even faster although I have to admit that it may have been on the early side before the company was truly ready for such a big step. On the other hand, it gave the whole organisation an enormous boost and it was the start to our ability to always do substantial business in the US, partly by founding new companies, and party by acquisition.

Rule number 1 to expansion always has to be that you have to have your homebase in order. Processes should be stable, revenue and profit margins growing and you need a management team that can handle the task. If you do not have these factors clearly assessed and ready - you run the risk of falling into a deep pit - losing revenues in your homebase, and losses abroad. Always a bad combination.
In addition, you should be aware that you will have to deal with a different culture - that will cost money and almost always will take longer to turn into profits.
The golden rule stated by VCs in Silicon Valley was that a portfolio company should not even begin to think of expansion abroad until they had achieved US$15 million turnover at a minimum.

The hardest road, which often seems the easiest, is acquisition. Whilst you feel you are buying turnover, a client base and profits, it requires a tremendous amount of management attention, which leads to an internally focused culture (temporarily at least) due to the need for integration, people that are leaving, cultural differences and arguments, internal battles for position and so on. You have to be totally on top of that yourself in order to make it succeed. And that means you can't be on top of other vital components in the continued running of your business. Acquisition looks easy - but I am not so sure it really is in practice.

The savest route to expansion abroad is to work with partners and resellers. Whilst it will earn you less, the risk is a great deal smaller. Of course you will fail with resellers a number of times as well - you should expect to at least before you find the right people.

Having said all that - it is great fun doing business abroad. Accept new challenges, take your dreams to a new level against all the good advice from people around you that tell you you shouldn't do it....

Keep dreaming.