Many businesses seek to expand into new markets in order to leverage current success, enjoy economies of scale, grow revenues and products, reduce overall risk, and create a more stable business model.

Should your business enter new markets? The answer may be "yes," but pause and reflect first. If you're considering expansion, either targeting new territories or new customers, the odds are you've enjoyed some level of success in your current market. You know your market, know your customers, and know how to serve that market and those customers. Entering a new market may be less comfortable; in effect, you must prove yourself to a new customer base. On the other hand, you know your current products and services, you may have administrative and distribution systems in place, etc., so you don't have to totally re-invent the wheel. Your goal is to determine ways to extend your operation into new markets.

Let's look at two new market efforts: geographic expansion and customer expansion.

Geographic Expansion

Geographic expansion is the most common way to enter new markets. (Keep in mind geographic expansion includes taking your business online, since by definition online sales open you up to as broad a territory as you choose.)

If you decide to expand geographically, start small. Stick to what you know well. If you run a restaurant in a relatively small town, choose another small town with reasonably similar demographics, customer profiles, and household incomes. By sticking to markets with similar characteristics you may limit the risk of the unknown and make it more likely that you can run your new operation using similar practices and procedures. In short, the closer a new market is to what you already know, the greater your chances for success.

While you may want to become an overnight national brand, take small steps and leverage each success. The same is true where e-commerce is concerned; marketing to a worldwide audience can be expensive, even on the Internet. Start by marketing to areas where your products have the greatest chance of success and then build on that success.

Before you expand:

  • Make sure you develop guidelines, processes, and service standards so that start-up is easier and all locations operate in a similar fashion.
  • Consider the impact on administrative tasks and costs. Will you need additional administrative staffing and resources? What licenses and permits will you need? Is your accounting system set up to handle multiple locations efficiently? Don't think of costs just in terms of opening the new location; think about the cost impact on the rest of your business, too.
  • Conduct market research and a competitive analysis in the new location. Are there differences you will need to adapt to? Can you compete effectively? Can you differentiate your business from others in the area?
  • Assess the effect on current revenues and profits. Will the new location draw business away from current locations?
  • Think about ways to enter the new market less expensively. For example, if you open a new retail location you may not need to stock as much inventory compared to your first location; you could share inventory across multiple stores. Or you could start by limiting the number of products you sell and expand as you gain customers.

Customer Expansion

Expanding your business does not always require setting up new locations in new areas. Often you can grow your business by targeting new customer segments in your existing territory.

Start by evaluating current customers. What products or services do they consume and what needs do those products and services meet? Then think about other customer segments that could enjoy similar benefits.

Can you adapt to meet the needs of different customers? For example, if you provide heating and cooling services for residential customers, can you offer emergency service? Or could you expand to serving small business owners who feel the cost of using industrial-level service providers is too high? The key is to change your offerings so that you not only keep the customers you have, but appeal to customers you currently do not serve. Then make sure you change your operations and systems so you can profitably provide the new service; new customers who do not generate profits are not valuable customers.

Customer expansion can be achieved by taking your business online; it's relatively easy to market to and service new customers in the online environment. What is not so easy is competing with all the other businesses online. Your products and services must be differentiated or your business may be lost in the online clutter.

Before you expand:

  • Consider your current operations. Think about why you are successful, (or are not as successful as you wish). What are the key factors? How can you leverage or adapt to those key factors to service a new customer base?
  • Consider the profile and demographics of your target customers. How are they different from current customers? What are their needs? How can you meet those needs? How can you market and advertise to those customers?
  • Evaluate your competition. Who services those customers today? What are their strengths and weaknesses? Decide how you will differentiate yourself and compete with them. Customers need reasons to switch; make sure you give them those reasons.

Remember that expansion, whether geographically or into new customer bases, may take time to bear fruit. Most new businesses start slowly. So will new locations or new product or service campaigns targeting different customers. Monitor the results and adapt quickly to feedback in order to strengthen your hold on the new territory.