Many small-business owners want to expand their operations, but they often don’t know the safest ways to go about it. The bottom line: Duplicating your current success in another market requires careful planning and management. Here are some tips for crafting a sound expansion strategy.
Adding New Locations
Branching out geographically is arguably the safest route to growth, provided that you can sell your products and services in one or more new locations. After all, you’ve already proven your worth to customers in your current community, so chances are your offerings will appeal to a similar group of people elsewhere.
In other words, you have the advantage of knowing who your new customers are likely to be and what it will take to satisfy them. You can also expand at whatever pace you can afford and manage, opening one additional location at a time or three, for example, or advertising in one new city or a new whole region or state.
To determine how ready you are to expand your business geographically, consider the following:
- Does your business have clear processes and standards that you can easily install at one or more new locations?
- Can you find and support the staff, the budget, and other resources — like equipment and facilities — you’ll need to expand into the new area(s)?
- Have you studied any possible differences between doing business in your current location and in your potential new one(s)?
- What new competition will you face in the new location(s)?
Entering New Markets
Expanding into new markets is nearly as safe as expanding into new areas, provided that your products and services can be adjusted or repositioned [PDF] (within reason) to appeal to new groups of customers.
For example, let’s say you run a fitness club that targets young people interested in high-energy activities like aerobics and spinning. To expand into a new market, you could add classes to meet the needs of older adults who enjoy lower-energy workouts, such as chair-based exercises or beginning yoga.
To find new markets into which your business could expand prudently, ask yourself three big questions:
- Why do people buy from me?
- What customer needs do I fulfill?
- What business am I really in?
Once you’ve answered these questions, you can begin to develop one or both of the key strategies for expanding into new markets:
1. Find ways to make what you already offer appeal to additional groups of people.
2. Introduce related products or services that will likely appeal to new and current customers.
McDonald’s, for example, originally targeted consumers craving burgers and fries. More recently, the fast-food chain rethought its menu and reworked its advertising strategy to appeal to “luxury” coffee drinkers [PDF] — the people who might otherwise spend their money at Starbucks, Peet’s Coffee & Tea, or the Coffee Bean & Tea Leaf.
To determine how ready your business may be to expand into a new market, consider the following factors:
- How much overlap is there between your current market(s) and the new one(s)? The greater the overlap, the more likely your expansion will succeed.
- In what ways are your new prospects different from your current customers? How different might their expectations of you be?
- What new competition will you face in the new market(s)?
In reaching out to new customers, it’s important that you target people who won’t be too difficult or expensive to please. Expansion is safest when you leverage your current business to enter a new market — and not when you attempt to build a whole new business from the ground up.