BREAKING: Expansion May Be the Best Way to Destroy Your Net Worth

 

 

To expand or not to expand, that is the question.

 

Many agents have dreams of building a big, powerful business that not only takes care of their employees and agents but also of themselves and their families.

 

In the last several years, some of the “big box” companies out there have been facilitating expansion strategies to help agents do just that.

While expansion has helped some who’ve taken advantage of the strategy grow their influence and bank accounts, it’s also lightened the wallet of many who’ve attempted to expand, but not do so successfully.

 

For many agents who look to expand, it’s not much more than a solid way to destroy their net worth.

 

You see, expansion requires not only a lot of time, energy, people, and for things to go right, it also depends heavily on spending a lot of money.

 

As you grow your business, the ebb and flow of cash in/cash out gets more and more intricate.

 

To that point, it doesn’t require a whole lot of “expanding” before your ongoing expenses outpace your revenues, cash reserves and any operating credit you might have.

 

Suddenly, one month of lagging sales puts your entire expansion opportunity (and maybe even your main business hub) at risk.

 

Things can get spread thinner than melted butter on toast.

It’s not the least bit shocking to me that business expansion is one of the biggest threats any growth-minded entrepreneur can face.

Here are a few contributing factors to how expansion can have a full-out assault on your net worth:

1. Operational ineptitude: Even if you’ve got a good operational foundation in place, there’s no guarantee that scaling to other locations is going to go smoothly or easily. Running your business smoothly and efficiently takes on a whole new meaning when you add different locations and a large number of new people, at once, to the mix.

2. Customer service shortfalls: Your biggest strength can become your biggest weakness in expansion. Huge popularity and brand recognition get people excited and can certainly drive up demand. The flip side of this is that meeting demand can be challenging, especially when incurring rapid growth.

3. Success can loosen your “purse strings”: Growth does require adding staff, sales people and even infrastructure. That said, seeing your company grow as sales increase can tempt you to do some additional, unnecessary spending, both personally and professionally.

5. Human resource challenges: Not everyone does well with change, especially when that change can put the business at risk. A few months of underperformance can have the people at your company reworking their resume and heading for the doors. Once that happens, it’s virtually impossible to sustain month-over-month revenues, which means you may need to start to dig into savings to stay afloat.

6. Decision-making weaknesses: Expansion means that you need to rely on other people to manage the day-to-day operations of your business and take over a leadership role. While this isn’t necessarily a bad thing, it does distance you from what’s happening in your organization each day and impedes your ability to make solid decisions for your business.

7. Leadership inefficiencies: Expansion can expose a lot of weaknesses, including any gaps in leadership efficiency. In fact, the inefficiencies get magnified in when growth happens and the guidance isn’t dialed in. Leadership skills are tested during expansion and weak leadership can create losses of people, processes and profits.

In the end, doesn’t always need to happen like French electronic music duo, Daft Punk suggests it should: “Harder, Better, Faster, Stronger”

 

Sometimes it’s wiser to do what Jay Abraham suggests and maximize what you’re already doing - no matter what size your business is - before you start working at getting bigger. Often times, looking at and improving what you’re already doing will get you bigger results and help you become more profitable.

 

Optimizing the different aspects of your business, even the parts you do really well, will make sure you do things better than any of your competitors. Spend the time to look at all the areas of your business - systems, technology, communication, sales, customer service, etc. - to see where you can enhance the variety of business segments that make your machine run.

 

Here are three specific strategies to help you optimize and increase profitability;

 

  1. Understand the distinction between revenue and profit

Cash flow is important in any business and it’s the a key number to watch, no doubt. However, while you might have a lot of cash flow, you may not be as profitable as you should be. Once you pay your bills, your salary and the paychecks of your employees, how much have you actually earned?

 

Profitability is 100% based on strong money management. What that means is even though you own and run a small business, you can be more profitable than many big companies if you watch where and how you spend your money. Once you increase your cash flow and bolster your bottom line, the size of your company will require that expand when the time is right.

 

2.   Optimize, optimize, optimize

If you focus on doing a better job on a day-over-day basis, your clients will demand that you expand your operation. Bigger isn’t always the ideal outcome, but better almost always is.

 

Look at how you manage your operation and track where you spend your time, energy and money. Get clear on how every system within your organization works and find out how to improve them. The areas for improvement aren’t going to become immediately apparent, but with time you’ll figure out what you have to do and then get it done. The good news is that even little adjustments here and there can add up to you having some extra money in your bank account.

 

It can really add up over time.

 

 

Whatever you do, don’t just sit back and leave things running the way they are. Change the things that aren’t serving your company at the highest level. Consistently look for ways to improve. When it’s time to expand, your customer base will help you get it done.

 

3.   Get clear on how you add value

There are times when you first become a real estate agent that you leave a listing appointment with the paperwork signed saying to yourself: “I can’t believe those people chose to do business with me.”

 

Then, when you finally figure things out, there are times when you leave a listing appointment with the paperwork not signed and you say to yourself: “I can’t believe those people chose not to do business with me.”

 

It’s at this point, when you’re in disbelief about someone not wanting to do business with you that you’re clear on the value you add in the sales process. As you gain more experience in your field, you need to take stock of what you bring to the table and make sure that sure that your message to your audience articulates that properly.

 

While it is important to look outside your company at things that are working successfully within other real estate companies and industries outside of real estate, it’s also important not to minimize the value you bring to the consumers in your marketplace. Always know the unique value you offer to your clients and then deliver on it at the highest level.

 

When a company delivers on what they do better than any other company in their marketplace, then they have real value they can offer to people.

 

You work hard everyday to build a business that can bring in enough money to take care you and the people in your lives. Since you put in so much time and energy, it’s key that you make solid decisions that will help you not only preserve the success you’ve created, but also put you in a position to grow it on a day-over-day basis. Expanding your operation, especially before your business is ready to grow, could be the one thing that negatively impacts your ability to do both of those things. In fact, it might be that you could live the life you want and have the business you desire without expanding at all.

 

The choice is yours and optimizing what you already do might be the best choice of all.


This post was originally published by Market Maker Leads.

Posted by Mike Oddo

  • Serial Entrpreneur
  • Founder of Market Maker
  • INC 500/5000 Past 2 Years in a row
  • #1 Team in Lake of The Ozarks by 26
  • ​Host Of The Real Estate Rainmakers Podcast
  • ​Technology of The Year Award Winner

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