10 Business Expansion Examples and Strategies to Implement Now
Small- and medium-sized businesses are an important driver of global economic growth. According to Oberlo, smaller companies represent over 90 percent of the aggregate business population.
Once a startup business gains its footing in the marketplace, the business owner typically looks for ways to increase company revenue and gain market share. In other words,, this entrepreneur is poised for a business expansion.
By growing its operations, the company can more quickly reach the point at which it begins to make a profit. An expansion also validates an entrepreneur’s initial business idea, and big-picture vision, for her or his business.
Business expansion can take several forms, and it’s possible to improve some metrics while remaining static (or even declining) in other areas. Each business owner should closely examine their company’s goals, and decide which expansion strategy is the right choice, before taking deliberate action.
What is the Importance of Business Expansion?
A small business’ survival depends on well-supported growth that’s consistent with the company’s goals. Ideally, a start-up business should aim for relatively rapid expansion. This action helps to establish the business’ market position and enables it to realize sufficient revenue to make a profit.
A mature company is better positioned for steady growth. With careful attention to metrics, an established business can use its increased profits to build cash reserves. A company without a growth strategy may see competitors swoop in and grab all-important revenue and market share.
Why Small Business Owners Should Have an Expansion Strategy
With a well-crafted business expansion plan, your company can open new markets in which to build its brand. Each market contains new customers for your products and/or services.
Growing your business often provides new revenue streams. Let’s say your store sells climbing gear for use at regional rock-climbing spots. By adding a climbing wall concession, you’ll attract climbing fans eager to hone their skills.
A smart business expansion often leads to economies of scale. As your company orders larger quantities of products, vendors will offer lower prices. And as your business’ revenues increase, you can invest more cash into the company.
10 Business Expansion Strategy Ideas
Embarking on a business expansion often involves a major retooling of the company’s operations. Virtually every facet of the business will undergo changes and/or new resource allocations.
While this is a great time for the business to capitalize on its strengths, its weaknesses will also be magnified. This can cause disruptions in numerous operations areas.
Evaluating Strengths, Weaknesses, and Expansion Readiness
To minimize the chances of potential snafus, the business owner should perform an objective (and honest) evaluation of the company’s strengths and weaknesses. He or she should also assess the company’s readiness before moving ahead with the planned business growth.
10 Important Business Expansion Questions
- Can you realistically manage more business using your current resources?
- Has your research shown that there’s sufficient demand to support growth?
- Have you created a detailed action plan for a successful expansion?
- Do you have the financial resources to expand without risking your business?
- Are your business’ existing systems and technology adequate for the expansion?
- How can you ensure brand consistency while pursuing new markets?
- How will the expansion affect your company’s sales and marketing needs?
- How can you maintain excellent customer service during the expansion?
- Do you have enough current or projected (and trained) staff for an effective expansion?
- If you choose not to expand, will there be a substantial downside?
Every business has different priorities and resources, so a “one size fits all” expansion strategy isn’t a workable blueprint. View these 10 business expansion strategies, accompanied by business expansion examples that showcase companies that successfully executed each method. After analyzing these growth strategy examples, implement the strategy that offers the best chance of growing your business.
1. Add New Products and Services
Business owners often expand their company’s operations by adding new products and/or services. Ideally, the process will begin with thorough market research targeted to current and prospective customers.
Armed with the market research results, you can identify the products and services on your customer base wish list. Next, evaluate the items’ profitability given your financial and operations constraints.
In a variant of the first strategy, consider selling additional products and/or services to your current customers. After a market segmentation analysis, you can determine which customer segments are most likely to purchase additional items from your company.
Mega-brand Coca-Cola Company has used this expansion strategy to add over 500 brands to its portfolio. In some cases, the company introduced new versions of current products, such as adding Diet Coke as an alternative to Coca-Cola.
2. Explore New Sales Channels
Many companies expand their operations by marketing their products or services through a new sales channel. For many retail businesses, an expansion into online (or eCommerce) sales is a natural progression.
Service providers can also effectively adopt this strategy through online advertising augmented by a search engine optimization (SEO) program. Regardless of the product or service offering, the business owner should ensure that the new sales channel aligns with the company’s brand.
3. Expand into New Geographic Areas
A geographic area expansion enables you to market your current products and/or services to brand-new customers. For a brick-and-mortar business, this means establishing new outlets in regional or national locations.
This type of expansion involves a substantial time and capital investment. Therefore, perform your due diligence to ensure that the new territory has sufficient customer demand to justify the investment.
While planning your new stores, aim for a blend of your standardized components along with a local flavor. This approach enables you to better establish a rapport with local shoppers.
4. Target Untapped Customer Segments
Marketing to previously untapped customer segments can be a lucrative expansion strategy. For perspective, within the past couple of decades the United States consumer market has become a collection of different demographic groups.
Segmentation is often based on ethnicities and languages. The United States market can also be characterized by different age groups. For marketing purposes, there’s also a distinction between coastal dwellers vs interior-US residents.
Fast food giant McDonald’s has been recognized for its well-planned and executed expansion into the Hispanic consumer market. The company’s “Me Encanta” (I Love It) marketing campaign is culturally oriented to Latino consumers, and involves 360 annual marketing initiatives.
Latino store operators and marketers are also actively involved in McDonald’s marketing and creative process. As a result of these ongoing efforts, Latino consumers have ranked among McDonald’s most loyal customer groups.
5. Leverage eCommerce Platforms
Automobile sales represent the United States’ biggest retail spending category. Traditionally, buying a car involved visiting the dealership, taking a test drive, and haggling with the salesperson over a fair price.
Most consumers don’t especially enjoy the car-buying process, and it takes valuable time away from work commitments and/or family activities. An unlikely alternative presented itself following implementation of the COVID-19 pandemic restrictions, in effect through much of 2020.
With many brick-and-mortar stores shut down for safety reasons, the automobile sales industry (like much of the American economy) was forced to reconsider its consumer sales approach. Currently, 72 percent of United States car dealerships now offer tailored online shopping experiences. In fact, Ford now sells 25 percent of its cars online.
Currently, under 3 percent of vehicle sales are online based, says a Cox Automotive survey. However, two-thirds of consumers say they plan to purchase a vehicle this way.
For reference, most states don’t allow vehicle manufacturers to sell vehicles directly to end consumers. However, some manufacturers have managed to do a legal end run around the regulations. For example, Tesla can sell a car in Arizona, where selling to consumers is permitted. Then, it ships the vehicle to the consumer’s home state.
6. Merge with or Acquire Another Startup
Merging with another startup, or acquiring one, can quickly increase your business’ size without undergoing a traditional expansion program. Before jumping into an enticing collaboration, however, a business owner should thoroughly investigate their potential business partner.
First, the two business visions should almost completely align. You should also pay close attention to the other business’ financial status, its management team’s strength, its customer base quality, and its contracts integrity. As an underlying guideline, the merger (or acquisition) should result in a business entity that’s stronger than either of the two companies alone.
In January 2018, two startups successfully merged within the property management industry. Hostfully was a property management software platform that funneled listings to TripAdvisor, Booking.com, and Airbnb. Its merger partner was Orbirental, a platform that made the actual booking process more efficient.
The net effect of this merger was positive, providing two important advantages in a competitive industry. First, there were notable increases in lead-to-booking conversion rates. Operational costs decreased in the process, offering benefits on the service side and in the financial arena.
7. Growth Through Diversification
Think of expanding through diversification as an insurance policy of sorts. Regardless of the industry, a downturn could eventually occur, and a business with all its eggs in one basket would likely be scrambling to survive.
Through a diversification strategy, a company frequently expands into an often-unrelated industry. Or, the business may stay within the same industry while capitalizing on an underserved or complementary market component.
One of the most successful diversification proponents is The Walt Disney Company, which originally made its name in the film and entertainment industry. Today, this well-known conglomerate also operates theme parks, maintains a line of children’s retail products, and runs a popular family-oriented cruise ship business.
Before diversifying into another business arena, consider whether that move will make a significant improvement in your existing business’ value proposition. Answering that question should assist you in making the right decision.
8. Work with Distributorships and Dealerships
Expanding through a distributorship or dealership may be a workable option for a manufacturing- or product-based business. Essentially, the company wants to market its products to a certain geographic area or customer segment. However, the company doesn’t have the customers and connections to do so.
That’s where the distributor steps in, becoming the company’s liaison with potential buyers. These business entities purchase non-competing products and sell them to the end user. The distributor knows the market and the customers, and is well acquainted with the general business culture. Distributors also provide technical support, service, and warranty fulfillment.
Grainger, a national industrial and safety product supplier, operates distributorships across the United States. Grainger represents over 1.5 million products, and services over 3.5 million customers. Most orders qualify for next-day delivery, which gets products into customers’ hands very quickly. Grainger also offers live phone, online chat, or in-person customer service at more than 200 branches.
However, Grainger doesn’t just market products. This well-regarded national distributor offers inventory management along with safety-related and facility services. After hours, customers can ask to have a branch opened to serve their needs, even on nights and weekends.
9. Grow Your Business Through Franchising
Some business owners expand their companies by selling franchises to qualified applicants. The franchise owner provides detailed guidelines and ongoing support to the franchisee. Therefore, the franchise owner can grow the business without the need for raising capital.
By franchising the business rather than adding a company-owned outlet, the business owner avoids the often-complicated issues that arise from hiring employees. Finally, by offering franchises rather than adding company-owned stores, the business can expand more quickly over a broader geographic region.
The UPS Store is a good example of a successful franchise business. In fact, this retail shipping, printing, postal, and business service company is the leading global franchisor in this business arena.
The company has sold over 5,200 global franchise units in North America. Over 4,800 of these franchise stores are located in the United States. In 2019, the UPS Store ranked as #55 on the list of top franchises, per the Franchise Times.
10. Explore Public Stock Offerings
Executing an expansion through a public stock offering can be a way to raise beneficial capital and provide the business with added credibility. Companies that have been in the public spotlight often see industry excitement around their stock offering. Newer businesses that debut their Initial Public Offering (or IPO) may see even more fanfare around this event.
In December 2020, two well-known technology brands executed their IPOs, and received an enthusiastic reception. Airbnb and DoorDash each raised more than $3 billion, and they have market caps ranging from $55 billion to $100 billion. These impressive numbers have catapulted the businesses onto the list of the 30 most valuable United States technology companies.
Before considering a public stock offering, however, the company should closely evaluate its strengths and weaknesses, recommends Erick Koshner in Human Resource Planning. With those skills in hand, the business should identify its projected future market opportunities.
To accomplish those goals, the business owner should determine how it will fine-tune its core capabilities and processes. Once the company completes that process, leaders can develop a three-to-five-year strategic plan that will provide a good roadmap for growth.
Common Business Expansion Challenges Faced by Small Business Owners
Growing a business involves significant changes at every level. The company may restructure its operations, and could revamp or enlarge its management team.
As the business commands a larger market share, it must develop a strategy to deal with bigger, well-funded competitors. New legal and financial issues may also take center stage. To put it into perspective, even the best-run company will undergo growing pains as it steps up to the next level.
Not surprisingly, small businesses face several common expansion challenges. Learning about each potential obstacle in advance enables a company to develop a strategy to navigate it and move confidently toward its goal. Each expansion cycle is different, and the business can potentially face more than one challenge at once.
Excessively Rapid Expansion
Enthusiastic entrepreneurs, especially those with businesses that meet the heavy demand for specific products or services, often face the consequences of growing too quickly. If the business owner hasn’t built a solid foundation for growth, they’ll likely face infrastructure, supply chain, and even personnel and customer service issues. Over time, these problems can complicate (and even derail) an otherwise promising company’s growth.
Expansion Financing Issues
A growing small business frequently needs additional capital to execute its expansion plans. If the business owner hasn’t laid the groundwork for timely business financing, they may find it difficult to secure those operating funds when they’re needed the most.
It’s also a good idea to identify areas in your business where you can lower costs. Many companies, for example, are finding that they’re overpaying in things like insurance or payment processing.
By negotiating your contracts or finding other vendors, you could potentially free up more capital to help you fund your expansion.
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Complex Infrastructure and Operational Needs
A small business in the midst of expansion may find that its infrastructure and operations framework can’t handle the additional load. Product demand may exceed the business’ production capability. The company may face severe space shortages, but is locked into an extended lease at its current facility. The current inventory management system, and other recordkeeping software, may be inadequate to handle additional data demands.
Talent Recruitment Problems
An expanding business needs a skilled management team, along with dedicated employees, who are committed to helping the company grow. Lack of focus during the recruitment process can result in lackluster hires who can negatively impact work quality, efficiency, and even other employees’ morale.
Erosion of Company Culture and Values
As a small business begins to grow, the business owner faces challenges in keeping the original company culture and values intact. He or she often becomes preoccupied with numerous other tasks, often resulting in a diminished emphasis on the spirit and mindset that gave the company its original spark.
ALSO READ: The 5 Stages of Business Growth and Strategies for Success
How Business Owners Can Move Forward
A well-coordinated business expansion strategy can provide small business owners with several advantages. After a business owner takes off the rose-colored glasses, and takes a realistic look at their strengths and weaknesses, they can select the best growth plan for the business’ needs.
With any business endeavor, the company will face substantial challenges along the way. Potential obstacles pertain to funding, infrastructure, personnel recruitment, and even dilution of the company culture. By keeping an eye on the business’ well-defined goals, and using these guidelines to resolve emerging issues, the company has an excellent chance of becoming a successful small business.
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