When business owners consider the possibility of expansion into new markets, their checklist of considerations typically includes things such as market potential, preparation, lines of credit, loans, cash flow and a contingency plan if the expansion flops. Also, consider the following points:
The labor pool may not be sufficient to support the expansion. If it is, is your business prepared for the effects it will have on your compensation package?
Just because a business owner is ready to pay people wages and salaries does not mean there will be people waiting to fill new vacancies. New Jersey’s unemployment rate is now 3.8 percent; Pennsylvania’s is 5.7 percent. Thirteen percent of adult Americans are functionally illiterate and are therefore unable to meet many of your needs. Fewer and fewer people are willing to serve in support staff roles.
It is a hard reality when the limitations of the available work force stunts business growth. A successful maid service in Camden County (NJ) had to shut down because it had too many customers and too few maids. A Delaware Valley moving company closed after expanding its warehouse and trailer capacity because it no longer could find packers and haulers at a price that would allow the business any profit whatsoever.
More than one business owner has had to re-examine operating premises and staffing ratios as expansion was considered. When grocery stores expand within the same marketplace, they do it through the addition of scanners and increased automation because the length of the checkout lines in understaffed stores limits their growth.
Expansion of your business may have a negative effect on existing sales
Most entrepreneurs expect that their sales to existing customers might slow a bit during expansion into new markets because people within the company will be distracted by the new effort.
What does not occur to many entrepreneurs is that their expansion could turn off sales. Some customers will view the business as too successful. Some will assume that the company will now prefer and favor the new market over them. Some will actually resent that they are funding the expansion.
Expansion can trigger a slowdown in accounts receivable as customers conclude that the expanding business no longer needs the money as badly as other vendors. This customer reaction comes at a very inopportune time for most growing businesses since expansion inevitably stresses cash flow.
It is important to think through the benefits of expansion for existing customers. How will products and services improve for them?
What is in it for them when you expand? One of my clients, an owner of an expanding advertising agency, described her customers’ actions as being like “older siblings who resent the newborn baby.”
Her analogy has merit. A business owner needs to take some of the same precautionary, educational measures prior to an expansion as parents who are expecting their second or third child.
Are your marketing/promotional programs and salespeople sufficiently flexible to respond to the cultural differences, preferences, new objections and demands posed by the new market?
Some business owners minimize the differences in expectations among customers from neighboring communities.
Most entrepreneurs will see the difference between customers from Cherry Hill, NJ, and Moorestown, NJ, but many will overlook the differences between Maple Shade, NJ, and Merchantville, NJ. In Philadelphia, business owners may readily pick up on the distinctions between a Center City clientele and a Main Line customer base, but will they recognize the differences between Germantown-based customers and those from Chestnut Hill or Olney?
If they do not, an expansion can turn into a disaster.
We are entering a period of increasing specialization, intense competition, and target marketing. A few years ago, franchise printing shops could have the same operating procedures in a variety of locations. Now local franchise operators are tailoring their approach to the needs of each target market.
You may have to modify your approach and respond to unique needs. How much change can you afford? Major modifications to promotional materials cost money. Changes in day-to-day operating procedures cost money. Risk increases. Sales training to help your people respond to new situations is not free. These measures may well be necessary, so the associated costs need to be considered.
Finally, what hidden costs will the expansion cause?
Expansion into a new market often poses increases in insurance, taxes and professional and filing fees.
These are obvious costs related to an expansion, but ask anyone who has recently been through it; it is the hidden costs that threaten the expanding business. Go through your budget or chart of accounts. Discuss the possible impact an expansion could have on each. It can affect budgets for dues, books, gifts, and entertainment.
Business expansion can be just the shot in the arm your staff needs. However, that excitement can quickly turn to concern, frustration and doubt when a once-expanding business has to fight for survival as a result of cost overruns and lost business because these points were not considered beforehand.
Known as The Growth Strategist®, Aldonna R. Ambler, CMC, CSP helps rapidly growing midsized companies (typically $20 – 200 million/year) realize their goal of Achieving Accelerated Growth With Sustained Profitability® through opportunity/resource analysis, executive coaching, strategic working sessions, and her intermediary role regarding growth financing. Her clients are among the brightest, most ambitious business leaders whose names now appear on published lists of the fastest growing privately held corporations. The recipient of 23 prestigious awards for her success as an entrepreneur and industry leader, Ambler hosts a peer-to-peer-to-peer Internet radio program, aptly called The Growth Strategist®, which features lively interviews with CEOs of midmarket companies who have successfully executed the growth strategy of the week. She can be reached toll free at 1-888-Aldonna (253-6662), by e-mail at Aldonna@AMBLER.com or online at www.ambler.com.