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Making it to the next level

ONE of the central challenges faced by successful businesses of any size in WA is that of managing growth.

The size and structure of this State naturally supports businesses that can carve out a competitive advantage here and be successful. The issue, however, is how to take the business to the next level.

There are two central challenges faced by businesses seeking to take their enterprise to the next level. The first is strategic and concerns the optimal business model to adopt in seeking to expand, most likely interstate, and possibly offshore.

The second is financial, and concerns the optimal capital structure to adopt.

Many executives and owners feel they have a good handle on the type of business model they should adopt for expansion. So here are three key considerations, which may assist in clarifying your thoughts regarding expansion.

Firstly, consider the strategic integrity of your business expansion model.

Forget about the type of capitalisation process you have decided upon and the informal advice you may have received from any number of colleagues with relevant or irrelevant experience, and develop a compelling case for why your product or service will succeed in the new market(s) you are entering.

If you can’t convince your own shareholders, you simply won’t convince new investors.

Secondly, consider the organisational structures and competencies you are going to require in order to succeed.

It may well be that, through this process, you discover that simply replicating your existing business model is inadequate. It is safe to assume, on average, that customer and supplier relationships will be more informed and formalised, operating costs will be higher, competition will be stronger and the ease of doing business will be less.

Thirdly, consider your entry strategy.

This strategy needs to ensure that you quickly attain the high ground within a particular market segment – and that may be defined geographically, or according to the specific product or service usage segment you are serving.

There will need to be a “sharp edge” to your entry, such that you gain a foothold.

It is unlikely that you will enjoy immediate success across a full range of products or services but it is critical that you gain traction within one key segment of your range.

If you can convince your executive, board and shareholders that, on the basis of these three considerations, you can be successful interstate or offshore, then it is time to consider the specific and aggregate capital requirements of your expansion.

The challenge of defining optimal capital structure and then raising capital, however, is a significant issue and one that defeats many businesses seeking to expand beyond WA.

In the column next week I will discuss the three key considerations in relation to capitalisation – determining optimal capital structure, the sources of growth capital, and what to expect once you have re-capitalised for growth.

The writer can be contacted at anthony.wooles@trudo.com.au or through the office at Business News.

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