Unwelcome rapid growth is, in fact, just another business challenge similar to the sudden appearance of a formidable competitor. Many successful businesses adapt to stay small. Invariably, however, they will also change. For example, management may decide that, rather than trying to handle the new demand, it will cut back on its product line and retain a portion of it in a new niche. The adjustment of the business may take the form of concentrating on one kind of customer, for example the household market, whereas the company formerly also worked with corporations. It may mean staying in the high end of a market and repositioning the enterprise accordingly (through changed advertising, signage, sales strategy) while letting others serve the larger but lower-priced segments.
The economy is notoriously cyclical. It expanded forcefully in the 1990s reaching a peak growth of 7.3 percent in the fourth quarter (Q4) of 1999. Growth then dipped to 1 percent in the Q1 of 2000 and hit a negative growth rate of -0.5 percent by Q3 of that year. Growth remained anemic until late 2003 but has not, since, matched "irrational exuberance" as Alan Greenspan, the outgoing Chairman of the Federal Reserve, labeled market behavior late in 1996. Expansions and contractions are thus a normal part of economic life; most businesses expand in good times and contract somewhat in bad. Not surprisingly, a look at business literature for the late 1990s shows scores of articles dealing with the "problems of expansion" and how to deal with them. In 2005 and 2006, such articles were conspicuous by absence. Instead, here and there, an article appeared suggesting how a business might plan to trigger its own growth.
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. Somewhat surprisingly for the layman, the Small Business Administration lists "unexpected growth" as one of 10 causes of business failure. Expansion carries risks, whether it is planned or involuntary.
Especially in small business, not all owners wish to expand—sometimes because they started their small business precisely to maintain what they wished to have in the first place: close contact with customers, employees, or the product/service itself, freedom from the burdens of administrative management, and the autonomy that sole-proprietorship often provides. 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: 1) sell more of the same, 2) expand the range of products or services sold, 3) sell something very different, and/or 4) change the underlying business concept. These strategies are listed roughly in the order in which most small businesses consider them. As we move from 1 to 4, each step is more difficult and requires more comprehensive changes and larger investments.
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: a) regional expansion of outlets, b) significant expansion of production facilities, c) vertical integration whereby more of the product is made in-house, d) revamping the distribution system, and more.
In one of the few recent articles on planned expansion, Julie Monahan, writing in Entrepreneur, lists seven expansion strategies with very similar characteristics. These are 1) introduction of a new product, 2) taking existing product to a new market, 3) licensing the product for others to make, 4) starting a chain, 5) turning the business into a franchise, 6) growing through acquisition or merger, and 7) seeking foreign markets.
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. Important administrative structures are already in place—even if they have to be expanded. For these reasons the same financial, planning, and business skills are needed as were necessary to found the original business. On the whole business owners who stay closest to their experience will have the fewest regrets.
How Small And Medium Companies Can Benefit From A Business Expansion
Different types of business expansion include purchasing new assets, opening new units, adding sales personnel, increasing advertising, adding franchises, entering new markets, providing new products or services, etc.
There are many benefits associated with the expansion of business, and it is something that small and medium businesses should think about when deciding to expand their operations, especially in other countries.
1) Concentrate on new product development
This is necessary if you want to maintain your competitive edge over your competitors. By expanding globally, you can reach new markets without any problem. You can offer new products to existing customers and can make sure that new products get into the hands of as many consumers as possible. This will result in increased sales and profit for your company. You can start developing new products at any time and you can introduce them to the public as soon as they are ready for them. You can also expand your range of products and services globally and this will enable you to make maximum profits.
2) Increase customer base
Another benefit is that expanding globally will increase your customer base and this will, in turn, help you to grow your business. If you expand your business internationally, you will definitely have a more customer base and you can use this to your advantage. You can attract more customers from other countries and you can use their markets to promote your products and services.
Diversification is very important for small businesses because most of the time, they face certain difficulties such as limited resources, less capital, and low margins. On the other hand, if you are expanding internationally, you can diversify in several fields and you can easily make profits.
4) Increase brand awareness internationally
Expanding abroad is an important step for many small businesses, and this step can bring an important benefit in terms of brand awareness. Not only you will be able to attract customers that will buy your products, but also partners that can cooperate or invest in your company, helping you market the products and services in other countries.