A Primer for Expanding Into New Markets
Amid the excitement of planning an additional branch, prepare by considering these five questions.
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Expanding into new markets is an exciting part of entrepreneurship. But expansion isn't something that entrepreneurs should take lightly. It can be risky and if not done carefully can negatively affect an organization's current operations.
Before expanding into new markets, entrepreneurs should ask themselves these questions:
1. Who will manage the additional branch?
Think about how the new operations will be managed. Will someone relocate? Or should a local managing director be hired instead? Expanding to a new market requires feet on the ground, so figure out whose feet it will be before venturing ahead.
Consider the pros and cons of relocating someone versus hiring a local. Someone who's promoted internally will know the business better, but a local hire may be more familiar with the market.
2. Will the current operation survive the stress?
Only expand into new markets if the current operation can withstand the stress. An expansion takes time and focus and can negatively affect the organization as a whole if it's not performed carefully.
Consider what an expansion would entail and how it could affect current operations. Can the organization handle leaders' traveling and focusing on a new market? Will the product-development team be able to focus, say, 80 percent of its resources to support that new market? Be sure the current business is up for the challenge and can withstand the stress of expansion.
3. Is there financing?
Entrepreneurs without sufficient capital will have trouble getting a new operation off the ground. Insufficient finances could hurt existing operations because funds would have to be reallocated from other areas. Raise enough capital to support the requirements of a new operation.
Additionally, establish a plan for financing once the new office opens. Ideally the new operation would be self-sufficient.
4. Will the business model or strategy work?
Research the market in depth. There's no way to guarantee a business model or strategy will work, but proper research can help managers avoid potential pitfalls.
Start by clearly defining the market and potential customers and identifying the competition. Think about location as well. Are there any location-specific details that might affect the project's fortunes?
Be ready with one or two alternatives and be willing to pivot quickly if the results aren't promising. Don't assume a business strategy that worked in an existing market will work the same way in a new one.
5. Who will help?
Expanding the business will require support from outside partners, as well. Entrepreneurs must consider the contacts they can turn to for advice, insights and opinions during the expansion.
Communicate with trusted contacts about the new venture and begin to build a strong support system.
Vendors can also help an expanding business break into new markets. Think about the services the new venture will require and who will provide them. What additional resources will be needed?
And prepare for plenty of surprises, from financial to legal ones, some pleasant, others discouraging. Lessons learned the hard way can inform managers who are striving for success.
Think ahead about all possible scenarios and create contingency plans. Keep an open mind and be ready to adapt to any situation that might arise.
What other questions should entrepreneurs ask before expanding into new markets?