If you’re growing your small business by opening an additional location in a new geographic area, you probably already know basic facts like who your competitors are and how much your new office space or retail storefront is going to cost. But there are other, less concrete elements to be considered to ensure the new location is a success. Answering these three essential questions will help any business expansion strategy.
1. How is the New Market Projected to Grow?
Take a look at predictions for how your industry is expected to perform in the new city or state where you’re planning your expansion. Organizations like Economic Modeling Specialists Intl. are always collecting market data about the fastest growing industries, and the U.S. Census Bureau annually records which cities are growing the fastest. While market forecasts about revenue growth are never 100% accurate, they do provide valuable perspective around growth strategies to a business owner considering expanding to a new market.
Consider asking current clients to take a survey about your company to learn what they value most. Then, you need to figure out how to sell that value to the new market.
However, the history of the area’s growth over the last five years is more concrete than predictions for the future. This data should inform your approach to marketing and building relationships. With the economic history of the region in hand, you can see if growth has been slow and steady or a sudden boom, and adjust your strategy accordingly. If it’s been slow and steady, you know your competitors have had time to establish relationships with their closest clients, but maybe they’re ready for a breath of fresh air. If the growth has been a sudden boom, you’ll be on more equal footing with your competitors, but will need to find a way to stand out.
Depending on how the market is projected to grow, you may consider only bringing some of your products or services there to start with, to give the new arm of business room to grow around your core competencies. However, that decision also depends on the answer to our next question.
2. What Does the Market Need?
Market research is essential to any new market expansion. Consider asking current clients to take a survey about your company to learn what they value most. Then, you need to figure out how to promote that value to the new market. Do they value the same qualities, or different ones? Knowing what services or products are most valuable to your current clients will help you translate success to the new market.
You could consider hiring a market research firm to survey your prospective customers in the new market. This will give you a better idea of what is missing from their lives at the moment that you can bring them. But the most effective strategy is often to get out into the new market yourself and do a little talking, but mostly listening. Find other business owners to ask about the market and their growth there. Go to networking events for your target customers and listen to their needs. Then, you’ll better know how to approach them, and what it is about your unique business that makes you such a good solution to their current problems.
3. How Will You Maintain Home Base?
If you’re considering expanding your business to another location, it’s because you’ve already been successful at your current one(s) Make sure your staff is prepared to keep that success rolling on your behalf while you start the new initiative. In a comparative research study for the Journal of Business Venturing, Bruce Barringer and Daniel Greening found that small business owners opening a second location were essentially “confronted with the task of managing an existing business and a start-up at the same time.” 1
The costs to your existing team could be varied, but are likely to include increased workload, longer hours, and the need to train new employees, perhaps from a distance.
It’s important to remember the difference between “eustress” and “distress” when thinking about the impact of the expansion on your existing team. Eustress is positive stress: it's short-term, feels exciting, improves our performance, and motivates us. It’s really unavoidable for your employees to feel this stress during the expansion. And while change can be a source of eustress in our lives, it can also be a source of distress. Distress feels outside our coping abilities. Instead of exciting us, it gives us anxiety or concern.2 When the American Stress Institute conducted a survey in 2014, job pressure (including work overload) was cited as the #1 cause of distress in respondents' lives, outranking money, which was #2.3 Keep channels of communication open constantly during the expansion to ensure no one on your team feels out of their depth.
Expanding to a new market is an exciting step, but the concerns about whether that expansion will be a success extend beyond just questions of cost, profit, and return on investment. We hope considering these key factors help to lay the foundation you need for more growth and success.