When To Branch Out
Like a houseplant with roots busting out of a clay pot, a healthy small business will eventually reach the point where the confines of its region won't sustain growth. At some point, the operation has to branch out, but how do you know when the time is right?
Like a houseplant with roots busting out of a clay pot, a healthy small business will eventually reach the point where the confines of its region won't sustain growth. A small AV systems integration company might conquer one or several vertical niches in its home market only to find that the region has only so many new clients and that existing service contracts can only supply so much business. At some point, the operation has to branch out, but how do you know when the time is right?
Once this question is answered, a slew of others follow, such as: Should you acquire an existing operation or start from scratch? How do you staff such a location? And how do you make sure this new adjunct adheres to the systems and culture that made you successful enough to consider expanding in the first place? The tips and anecdotes of systems integrators who've already taken the plunge can help answer these questions.Why expand?
Now employing 57 workers in five offices scattered about the Midwest, with projected sales of nearly $21 million this year, Indianapolis-based Sensory Technologies used a combination of acquisition and grassroots expansion strategies to more than double in size in short order. A number of factors motivated the company to grow.
Previously known as Video Images, the integrator — which reported sales of $7 million last year — made its first expansion move several years ago because it simply felt “cramped,” says company Principal Andy Sellers.
“We just felt like we were hitting the ceiling of Indianapolis in terms of market share,” he explains. “We felt like we needed to reach out to corporate entities that were looking for a technologically advanced company and were willing to pay for it.”
Sensing the potential to work with larger corporate clients in Chicago and Milwaukee, Video Images established small branch offices, each started from scratch and employing a lone sales rep. “We hired somebody with local sales contacts in Chicago and mentored her quite a bit,” Sellers explains. “Our director of sales spent a lot of time out there, and we supported her with engineers who would rotate up there for weeks at a time.”
However, as the AV integration business has consolidated in recent years, expansion has occurred more frequently through mergers or acquisitions. While Sellers went looking for his firm's first expansion opportunity, the next one found him on the field of his daughter's youth-league soccer team. It was there that he struck up regular conversations with fellow soccer dad Kevin Markey, a principal in Markey's Audio Visual, also based in Indianapolis. Those conversations led to the merger several months ago of Video Images and the sales and installation division of Markey's Audio Visual — and the subsequent folding of Markey's branch offices in Fort Wayne, IN, and Dayton, OH, into a Visual Images fold that was re-christened as Sensory Technologies.
“Kevin was looking to do some things on his own with the sales and installation side of the business, and combining the two companies gives us an opportunity to become more of a regional presence with more connections and better economies of scale,” Sellers explains.
Indeed, as Sensory Technologies shows, there are a number of motivating factors that lead integrators to add additional outlets. But timing is everything.When is the right time to expand?
Before an integrator branches out, operations at the home office must be in order. If basic systems like accounting and payroll, human resource management, and information technology (IT) are to be effectively managed in a new location, they must first work efficiently at headquarters. “If you have screwed up internal systems, you'd better fix them before you open up a branch office,” notes business consultant Bill Sharer, president of Lambert, NJ-based Exxel Management and Marketing Corp. “It'll be much harder to fix them when you can't just walk across the hall.”