Business Expansion

Business Expansion is a stage where the business reaches the point for growth and seeks out for additional options to generate more profit. Different forms of business expansion include opening in another location, adding sales employees, increased marketing, adding franchisees, forming an alliance, offering new products or services, entering new markets, merging with or acquiring another business, expanding globally and expanding through the internet.

Aspects of Business Expansion

The Two Aspects of Business Expansion
Business expansion thus has two aspects. One is planned and carefully managed expansion at the business owner's initiative. The other, which can be much more problematical, is sudden and involuntary expansion that simply happens for various reasons—among them economic expansion or simply because the business caught the market's eye with a novel product or service. Careful management of such good fortune may be even more vital than planned growth.

• Planned Expansion: Those who plan expansion tend to have a different vision of the business, one in which "smallness" is not in itself a goal but a necessary starting point. Others plan to expand because the very logic of the business indicates that a larger size is desirable to achieve the full potential of the enterprise. Every situation is unique, of course, but in broad strokes the methods will largely involve one or the other of the following categories of actions:
  • sell more of the same
  • expand the range of products or services sold
  • sell something very different, and/or
  • change the underlying business concept

Each strategy, of course, implies additional alternatives some of which may be quite risky. By way of an example, the first choice, to sell more of the same, may involve one or a combination of the following:

• regional expansion of outlets
• significant expansion of production facilities
• vertical integration whereby more of the product is made in-house
• revamping the distribution system, and more.

In essence, planned expansion—particularly one based on more complex strategies—is essentially the same as starting a business from scratch with the exception that a running business provides the owner with a minimum base from which to start

• Managing Unexpected Growth: Growth must be managed. Along with much positive reinforcement, unexpected growth also brings danger: it is exuberance. Unless kept in check, it may lead to careless decisions and a temporary relaxation of the very disciplines that made the business successful in the first place. For this reason, management experts counsel caution when sales suddenly surge. Furthermore, unexpected growth is a challenge that may be unavoidable: the business choosing deliberately not to respond to strong demand may, as a consequence, be left behind and find itself contracting. The chief challenge presented by surging growth tends to be financial. Capacity may have to be expanded and money must be spent to purchase inventory way above normal levels. Capital for either purpose may be difficult to find—or expensive to borrow. Most business failures due to unexpected growth are triggered by cash-flow problems. The business will have great sales and high profits, but cash in hand may be inadequate because of the time lag between sales and cash collections from the customer. In a rapid growth situation cash receipts tend to lag sales and deliveries in any case. If growth continues to expand, the business may find itself unable to pay bills even though it has more than adequate resources coming in—later. This can lead to bankruptcies.

Methods of Business Expansion

Methods of Business Growth
Small businesses can expand their operations by pursuing any number of avenues. The most commonplace methods by which small companies increase their business are incremental in character, i.e., increasing product inventory or services rendered without making wholesale changes to facilities or other operational components. But usually, after some period of time, businesses that have the capacity and desire to grow will find that other options should be studied. Common routes of small business expansion include:

• Growth through acquisition of another existing business (almost always smaller in size)
• Offering franchise ownership to other entrepreneurs
• Licensing of intellectual property to third parties
• Establishment of business agreements with distributorships and/or dealerships
• Pursuing new marketing routes (such as catalogs)
• Joining industry cooperatives to achieve savings in certain common areas of operation, including advertising and purchasing

public stock offerings

• Employee stock ownership plans

Of course, none of the above options should be pursued until the business's ownership has laid the necessary groundwork. "The growth process begins with an honest assessment of strengths and weaknesses," wrote Erick Koshner in Human Resource Planning. "Given those skills, the organization then identifies the key markets or types of future market opportunities the company is likely to capture. This, of course, raises another set of issues about how to best develop the structures and processes that will further enhance the organization's core capabilities. Once these structures and processes are identified and the long range planning completed, the business has a view of where it will be in three to five years and agreement on key strategies for building future business."