How to Grow a Business Geographically
Canadians are a pretty entrepreneurial bunch. As of late 2015, there were 1.17 million employer businesses across the country. As you might expect, a lot of CI Direct Investing’s clients are business owners, or part of a team that’s helping a company grow.
For our clients, we’re their trusted financial adviser. But we’re a business, too. We’re no strangers to the work required to grow a business.
As a robo-adviser, there were no groundbreaking ceremonies as we expanded coast-to-coast. Behind-the-scenes paperwork, audits and code tweaks and a lot of in-person Lunch & Learns and Wine & Wealth gatherings that helped us build up to where we are today. So we know a little something about growing a business. But this week, we thought we would chat with an expert on the topic.
Peter Mogan, Lawyer at Mogan Daniels Slager LLP, is one of our earliest investors. For more than 39 years, he has helped companies with business transactions such as mergers, acquisitions and financings at all sizes – helping them to grow to their full potential. We had a few questions for him.
How to grow a business Q&A
WB. Before we get into the weeds, maybe give our readers a sense of your background and expertise.
Peter. Our firm and I personally do two things: we’re lawyers for entrepreneurial-type businesses. Some are small. Some have gotten big, with a couple of billion in sales. In the last 6 years, we’ve built a strong brand around the M&A space. We’re involved with purchasing, finance, sale and equity investing in businesses, not just in an advisory capacity.
WB. For entrepreneurs and others looking to grow a business, what has changed lately?
Peter. There is a huge shortage of businesses compared to the number of buyers out there… If a business says they want to fold in a new business under their tent to grow, they’re doing it in an unusually competitive market and may pay a premium.
There’s so much money in private equity markets that just wasn’t there before. There’s over $600 billion in USA committed to private equity funds looking for private acquisition targets. In the early 90s it was nonexistent. That’s why it’s a sellers’ market now.
WB. How do companies know when it is the right time to grow?
Peter. If you haven’t hit market saturation and if you’re not the gorilla in your market, the easiest way to expand is to just grow market share in your own market. Do a better marketing job and just acquire more customers.
But let’s take an example, where we’re hitting saturation in our market space. To grow, we either have to grow somewhere else or expand what we do.
Organic growth is non-disruptive and is just a matter of how much you can do. But there’s a limit to your market space.
WB. So let’s say a company is thinking about expanding from a single location. What are the different strategies?
Peter. When we’re talking about geographic expansion, there are a few questions they could ask. For instance, do I go across the country or south of the border? For instance, if you take the restaurant business, a BC restaurant might find more alignment going along the west coast than across the country to Ontario or Quebec.
Now, one approach is to grow nationally by going to the major centres like Vancouver, Calgary, Toronto, Montreal, etc. For service companies, that’s a real option. However, for certain kinds of brick-and-mortar companies such as lumber manufacturing services, where they need to be near the manufacturers, it wouldn’t make sense.
The other strategy is to penetrate deeper into the local geography. For instance, a Vancouver-based company might go to Kamloops, Kelowna, Fort St. John, etc. That kind of geographic expansion has the advantage of building brand recognition with a similar kind of consumer. It’s about going deep instead of wide.
WB. What are the pros and cons of greenfielding a business in a new location versus expanding through acquisition?
Peter. With greenfielding, you have to start the workforce and building your customer base and there’s a fair amount of risk involved. You hope that what you did with your mothership, you can do somewhere else. But is the competitive landscape different? It’s expensive and comes with a market risk. But on the plus side, it’s all your people and your culture.
In contrast, the biggest challenge to an acquisition is culture. You’re trying to take something that used to be something else and make it yours. There are a lot of challenges involved with merging cultures.
WB. Tell me a little more about the cultural challenges involved in growing a business.
Peter. As you grow geographically, whether you greenfield or acquire, how will you maintain consistency of leadership and culture across locations?
I’ll give you an example. One client, JJ Bean Coffee Roasters, was setting up stores in Toronto. It’s an iconic Vancouver brand. How do you get JJ Bean feeling like a JJ Bean in Toronto?
They got some of their store managers to go there for several months to be champions of the culture. Of course, you’ve got to incentivize them.
WB. If growth isn’t well-thought out, how badly can things go off the rails?
Peter. Companies that merge can be de-merged. There are huge professional costs and internal costs as well that go along with that. It doesn’t happen too often, but it does happen.
There are other risks with acquisitions. With one company that went through this process of buying to expand, the client retention just wasn’t what they thought it would be. After the original owners aren’t around, you can start losing customers.
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