The Risks and Benefits of Business Expansion

by Granville Triumph

Granville-expansionNo one is in business to get smaller, but there are also plenty of risks associated with business expansion. Your business may be humming along successfully at its current size, but growth puts pressure on your employees, processes, technology and finances in ways that can be difficult to predict. You and your managers may not have the skills or experience to handle new services or increased production, and your staff may not deal well with change. If morale or customer service suffers, it can tarnish your reputation.

In addition, growth may put your business in an unfamiliar marketplace, with a new set of customers and bigger, more aggressive competitors. Do you understand the rules of the game in this new market? Do you have the financial resources to compete? If you expand geographically, can your operations support a new location or serve customers farther away from headquarters?

There are also personal risks associated with business growth. Being a business leader comes with significant stress — growth will only add to the strain on you, your health and your family. Can you manage growth and still maintain a healthy lifestyle and spend quality time with loved ones? It’s important to be brutally honest with yourself as you answer that question.

Bringing in a business partner might seem like a solution, but that can be risky as well. After all, if you started the business and have been its sole owner, you will lose a measure of control if you bring in a partner. Make sure it’s a good fit strategically, operationally and culturally before you sign any partnership agreement.

That said, there can be many benefits to business expansion. Strategic, sustained growth can help you:

  • Attract larger, more lucrative customers by increasing your presence in the marketplace.
  • Achieve economies of scale by stretching your overhead across larger sales volumes and obtaining better pricing from suppliers.
  • Attract and retain the best and brightest employees through the excitement of growth and career challenges.
  • Gain the financial strength to invest in new technologies, new product lines and new opportunities.
  • Increase the value of your business to eventually attract investors or buyers.

Once you’ve decided that expansion makes sense, there are a number of ways to go about it. The safest tactic is to increase sales of your existing products and services in existing markets. A somewhat riskier approach is to introduce a new product and offer it to your existing customer base.

If you decide to move into a new geography or develop a new market segment, the costs and risks are higher. Be sure to conduct market research to determine if your business model will translate to these new areas.

Finally, many businesses grow through mergers, acquisitions and strategic alliances. Just be sure that you’re joining forces with a company that shares your philosophies and quality standards.

Business expansion can be exciting and rewarding or fraught with failure. Business leaders should carefully consider their motivations for expansion, evaluate the risks and develop a growth strategy that will drive their future success.

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