Ask These 4 Questions Before Expanding Into New Markets Business expansion is a big step with many risks and rewards, so before making the leap, answer the following questions.
By Douglas Wilber Edited by Maria Bailey
Opinions expressed by Entrepreneur contributors are their own.
If you're a venture-backed company, you're probably being told to get profitable and to do it quickly.
Although it might sound counterintuitive, the path to profitability for many business leaders could lie in expansion. Even during challenging economic times — with the consumer price index increasing 6.5% at the end of 2022 from the prior year and interest rates predicted to continue to rise in 2023 — entrepreneurs continue to consider expansions into new markets and verticals. But how do you know if it's the right time to expand?
Expansion is always risky for an entrepreneur. The fundamentals matter more than ever, especially with the current economic status. It's best to set yourself up for success in a supportive, structured way that doesn't work against your core efforts.
Remember the obvious: Your business will never grow or get traction if you don't have a game plan — what consumer needs are you meeting? Also, don't get distracted or spread your resources too thin in the face of external business risks or threats.
Related: You Have a Product, Now You Need a Strategy
There are a handful of questions you can ask yourself to know if it's time to fuel growth and profitability with expansion:
1. How full is your plate, and what is your goal?
Do you have the capacity and bandwidth to support a new segment, vertical or initiative? You shouldn't add more to your plate if it's already full. The same goes for your supporting team members. Adding more responsibilities than they can reasonably take on will end in disaster. It can also derail the business expansion plans.
According to McKinsey & Company, 25% of companies don't grow at all. Growth initiatives fail for many reasons, but company vision and strategic planning can help you avoid those pitfalls. Building sustainable growth requires leadership to have a serious conversation about company resources, why they want to grow the business and how they'll make that growth a reality.
Before going full-scale into new market expansion, get a pulse-check of the people most affected by your move. If everyone's working at the max, consider shifting responsibilities or adding to your payroll. Sometimes, this means shelving growth ambitions temporarily to ensure better outcomes.
Related: Here's How to Make Your Expansion Into New Markets a Success
2. Do you have the funding?
Launching into new verticals without enough capital won't do you any good. If you lack budget support, you can't pay for additional product or service development, let alone bring in more people or tools. It might seem obvious to check your funding before considering market expansion, but it's a serious question you must consider from all angles.
For my company, market expansion was always a direct result of additional fundraising. To help fund our business expansion, we underwent a Series B investment round and raised $5 million. It's important to note that we didn't enter the second funding round quickly. We carefully weighed benefits and trade-offs to see how a Series B round would impact our overall valuation. In the end, raising capital in that way worked for us. Your business might be better off tapping into other funding sources. Make sure long-term funding is secured before pulling the lever on growth-heavy projects.
3. Will growth help you solve a real problem for customers?
Expansion should only be considered if there is an untapped market you can access and improve. You can't just expand because you like the idea of your business getting bigger. You must solve a real problem with your product or service. Otherwise, potential customers won't see you offering much value, which will likely cause you to take a hit financially.
Expansion must offer value for both existing and new customers. Amazon started as a bookseller, but its greatest value was logistics. By growing its offerings, Amazon provided centralized resources to online shoppers and lightning-speed delivery. Today, it offers exemplary value to more than 98 million app users per month, according to Statista. Identifying what consumers need drives the biggest results.
Your company needs to identify the gap in your market and where you excel before embarking on an expansion journey. That might mean looking inward and growing your business with your existing customer set. Expansion should bring more value to more of your target audience.
Related: How to Tackle the 5 Challenges Every Expanding Business Faces
4. What's your growth story?
Behind every expansion is a good story. Tech giants starting in garages might sound cliche, but it's a testament to the power of narrative. Think about what story your company will tell about the why and how of expansion. No one else will get it if you can't articulate it.
Creating a compelling narrative will help new customers understand your value and believe you're the right choice. Look for real-life examples or case studies to bolster the story you tell about your company. If you can share your vision through storytelling, you'll have a better chance of getting investors on board and securing funds to expand.
Use storytelling internally, too, as part of your expansion exploration. Discuss the stories behind the expansion and be ready to answer the why. It all goes back to value. Look for ways to connect your growth to the value you provide to customers. Once you've identified your unique story, use it in your marketing to build your brand narrative.
Growing your business can take many forms, from considering new markets to building new verticals to meet customer demands. While most entrepreneurs are optimists and problem solvers, they need to prepare for the risk that comes with expanding into new markets. Ensuring you have the funding and capacity, can fill a gap in the industry, and have a cohesive brand narrative are all essential for hedging against risk and preparing for new business ventures. After that, it's onward (and upward).
