How To Develop a Business Expansion Strategy

Business expansion is about growing your company to reach new customers. Do it well and you can increase your profits.

"Growth and comfort never coexist." This quote from Ginni Rometty, former CEO of IBM, encapsulates an essential truth for business success: growth requires stepping out of your comfort zone. For any company aiming to thrive, embracing the challenges of expansion is crucial.

Although it may be uncomfortable, expanding your business is an inevitable part of its lifecycle. Whether it involves hiring additional staff, exploring new locations, or launching new products, strategic business growth enables companies to attract new customers and increase profitability.

But when and how should you pursue expansion? By adopting tried-and-tested best practices, you can create a clear and effective business expansion strategy.

What is Business Expansion?

Business expansion refers to the process by which a company seeks to increase its profits and expand its customer base. Expansion strategies can vary widely and may include mergers and acquisitions, entering new markets, launching new products or services, or ramping up marketing efforts to attract a broader audience. Expansion typically requires hiring more employees and potentially establishing new departments.

For example, a large corporation may expand globally by merging with another business or franchising its operations, while a smaller business might focus on expanding its online presence by investing in an e-commerce platform and boosting digital marketing initiatives.

Potential Benefits of Business Expansion

1. Growing Your Total Addressable Market

Expanding your business allows you to reach new customers and increase revenue. For example, expanding your digital footprint—such as launching a blog or developing a social media strategy—can help you connect with potential customers online. Additionally, expanding your product range can generate more revenue by addressing additional customer needs.

Take Bushbalm, a skincare company that initially focused on products for ingrown hair prevention. Over time, it expanded its product line to meet other skincare needs, such as dark spot treatment. This horizontal and vertical product expansion enabled Bushbalm to significantly grow its customer base and increase average order values.

David Gaylord, CEO of Bushbalm, explained: “Upselling a new product in a category has led to growth in average order value, while new product lines have helped us reach new audiences.”

2. Improving Performance Across Channels

Expanding into new distribution channels not only opens up new avenues for sales but also generates valuable insights that can be applied across your business. For example, Aloha, a protein brand, was struggling with its direct-to-consumer (DTC) sales when CEO Brad Charron joined the company in 2017. He shifted the focus from online sales to retail partnerships with regional grocers, including Harris Teeter and Thrive Market. This shift provided important insights that helped Aloha refine its retail strategy and ultimately boosted its online presence.

“I could go to that naturally from a position of strength, as opposed to just trying to throw stuff on the wall and see what hits,” Brad explained. The strategy ultimately led to a 289% increase in sales.

3. Achieving Economies of Scale

Economies of scale occur when increasing production leads to lower per-unit costs, thus improving profitability. Expanding your production capacity may require significant upfront investment in infrastructure, but the goal is to unlock higher revenues while controlling fixed costs, thereby increasing profit margins.

For example, a company that expands its manufacturing capabilities to meet rising demand may initially face excess capacity but will benefit from a reduced cost per unit as demand increases.

Potential Risks of Business Expansion

While expansion offers numerous advantages, it also comes with certain risks that should be carefully evaluated:

1. Legal Complexity

Entering new markets often introduces legal challenges, such as complying with taxes, regulations, and e-commerce laws. If you plan to expand internationally, it’s essential to understand the legal landscape in each country, including consumer protection laws, data privacy regulations, and product-specific requirements. For instance, selling in the European Union requires compliance with the General Data Protection Regulation (GDPR) and may necessitate adjustments to meet stricter product regulations, especially in industries like cosmetics.

2. Increased Financial Commitments

Expanding your business usually requires significant financial investment. For example, growing your online presence through paid ads, influencer marketing, or launching new product lines demands considerable resources. This could deplete working capital or force you to secure external funding through loans or equity investment, increasing the financial burden on your business.

3. Reputational Risk

Reputation is one of your most valuable assets, and expansion can sometimes introduce risks to your brand image. For instance, if you expand your dropshipping business by partnering with new suppliers, you must vet those partners carefully to ensure consistent product quality and customer satisfaction. A lapse in quality or service could harm your brand’s reputation.

How to Develop a Business Expansion Strategy

1. Identify the Opportunity

Successful expansion begins with a clear understanding of the opportunity and the competitive landscape. How large is the market you want to capture? What is the competition like? Conduct thorough research to identify key competitors and determine how your business can differentiate itself.

2. Revisit Your Brand Positioning

Expansion often requires broadening your brand positioning, especially if you’re introducing new products. For example, Bushbalm shifted its brand messaging from a focus solely on pubic care to a broader skincare brand. This repositioning allowed them to tackle a wider range of skin conditions, such as eczema and psoriasis, helping them reach new customer segments.

When planning your expansion, make sure you have clear, updated brand messaging that communicates the new value your company offers and resonates with your target audience.

3. Create a Detailed Plan

Formalise your expansion strategy by developing a comprehensive plan that includes both strategic and financial components. Ensure you cover the following key points:

• Goals: Define clear, measurable goals for growth—such as customer acquisition, market share, and revenue targets.
• Resources: Assess the resources you have available and what additional resources you may need to secure, such as loans, investors, or new hires.
• Timeline: Set a realistic timeline for executing your expansion strategy.
• Measurement: Establish key performance indicators (KPIs) to track success and progress throughout the expansion process.

Incorporate financial documentation, such as cash flow statements and balance sheets, to support your projections.

4. Implement the Right Tools

As your business grows, operational efficiency becomes even more critical. Ensure that your current technology stack can scale to meet new demands. Consider the following:

• Financial Software: If you plan to expand internationally, does your accounting software support foreign currency transactions? Can it handle an increase in invoices or transaction records?
• CRM Systems: If you’re increasing your marketing efforts, can your customer relationship management (CRM) system handle more leads and customer data?
• Website and E-commerce Platform: If your website traffic is expected to increase, ensure your platform can accommodate the higher volume of orders.

5. Develop a Go-to-Market Plan

Launching new products or entering new markets requires a dedicated marketing strategy. Consider this as a "mini relaunch" of your brand. Focus on clearly communicating your brand’s value proposition to both new and existing audiences. If you’re expanding into new markets, consider localising your approach to connect with regional customers. To increase your chances of success, gather input from your target audience through surveys or focus groups and incorporate these insights into your marketing plan.