Expansion: When it Makes Good Business Sense
Some business owners are reluctant to take the risk of expansion. With good reason, expansion often means increased costs for space, people and inventory. If the business is already successful there is something to be said for remaining status quo and earning risk-free profits with stability.
However, done correctly, expansion offers increased revenue, profits and future opportunity. It’s an important business decision and the trick is developing the right strategy for your company.
Here’s a look at a Barrie, Ontario company that has weighed the risk of expansion and has decided yes, this is a good next step for their business.
Founded in 1971, Prodomax Automation Ltd. is an automation equipment builder providing automated manufacturing solutions in the areas of welding, assembly, machining, laser cutting and material handling to the automotive industry.
In a time when other manufacturers in the automotive industry have been downsizing, Prodomax has seen substantial growth. In the last 7 years they have more than doubled their business in terms of annual revenue. Their plan is to double business again in the next five years. With a new building expansion their facilities are about 121,000 square feet; the new large production space will help them take on more business. I spoke with Carolyn Garvey, Executive Vice President & Chief Financial Officer and Don Leslie, Executive Vice President & Chief Executive Officer on their expansion and growth.
What led to such massive growth in such a short period of time?
DL: The auto industry recovering; it shrunk and then it recovered. People held onto their cars for longer (the average car is now 11 years old in North America) and now have to replace them. While other companies went bankrupt during that time we were fortunate to take on more work.
CG: During the recession Prodomax had to regroup; we right-sized ourselves to get as competitive as we could. By closing our US and Mexican offices we were able to focus on this facility. In the last year, by realigining the plant and improving the workflow, we are able to do double the work with 30% more people. This keeps us competitive, keeps our rates down and creates a customer demand for our equipment that far exceeds our revenue in any year. Our goal is to always be able to select the opportunities that we want and not have to take on unprofitable work.
Automotive automation is a very specialized business and the history of the company’s ownership has been succession planning through managers within the company. The most recent change in ownership included a private equity firm investment.
DL: The latest transition in the company will help Prodomax take the next step. Until now the growth has been very well managed, especially for the last 5-7 years after the recession. The importance of the private equity firm is to give us depth and leverage so that we can further expand the business to take advantage of opportunities out there.
What makes Prodomax different from other companies?
CG: We try to be big business in terms of formal strategies, strong processes and good documentation. We try to be small in that everyone feels very effective in the organization; they have multiple hats and multiple opportunities. That’s what makes us different from some bigger organizations.
Locally, Prodomax supports Georgian College through co-op students and hiring graduates, as well as providing an annual bursary scholarship program in Electrical Design. Co-op students from the University of Waterloo are brought into mechanical engineering and in their project management office. They also implemented a referral program with their staff to attract new employees, building a team that their employees can count on.
For small or medium sized businesses that are considering expansion, both Don and Carolyn strongly advise to look for government and other forms of grant funding.
“Understand that there is a lot of government funding for various programs. For things that you are doing to improve your business, there is funding out there. Capitalize on that.” Don Leslie, Executive Vice President & Chief Executive Officer, Prodomax
Jane is Editor-in-Chief and writer for Sunday Crush. She lives in Barrie, ON