“Growth and comfort never coexist.” This quote from Ginni Rometty, former CEO of IBM, illustrates the importance of getting out of your comfort zone in order to grow your business.
Even when it’s uncomfortable, expanding your business is a vital part of any successful company’s lifecycle. Whether it involves hiring a larger workforce, finding new locations, or developing new products, strategically growing your business can help you reach new customers and make more profit.
But when and how should you expand your business? A few tried-and-true best practices can help you craft a business expansion strategy.
What is business expansion?
Business expansion is when a company increases profits and reaches new customers. It can involve a wide variety of strategies, including acquiring or merging with another company, opening new markets, developing new products or services, or increasing marketing efforts to reach more people. Expansion efforts typically require hiring new employees and even forming new departments within the company.
For example, a large corporation could expand its global presence by merging with another corporation or franchising its brand. Small businesses might expand online by investing in a reliable ecommerce platform and launching new digital marketing campaigns.
Potential upsides of business expansion
Business expansion offers the potential for upside in a few key ways:
Grow your total addressable market
The primary advantage of expanding your business is the opportunity to reach more customers and increase revenue. If you expand your digital presence by launching a new blog and developing a social media marketing strategy, for example, you can reach new potential customers online. Similarly, you could aim to increase your revenue by solving different needs for your audience via a new product line.
For example, skin care company Bushbalm originally focused on creating products for ingrown hair prevention, including oils and scrubs for skin irritation. Within each category, it offers various products at different price points, ensuring that customers with different budgets have options.
Over time, it expanded its product line to meet other skin care needs, such as dark spot treatment. This expansion strategy has allowed Bushbalm to significantly grow their business.
“We’ve seen massive changes to our business through horizontal and vertical extensions,” Bushbalm CEO David Gaylord told Shopify in an interview. “Upselling a new product in a category has led to growth in average order value. And new lines have helped us reach completely new audiences to target the growing potential total addressable market.”
Improve performance across channels
Expanding into new distribution channels can not only open new paths to sales—it can also generate valuable insights, which can be applied to the rest of your marketing and sales efforts.
This is exactly what CEO Brad Charron did for protein brand Aloha. When he joined the company in 2017, it was struggling. It had been spending on digital marketing to sell directly to consumers (DTC) online, but not building a loyal audience. So Brad made a big change: He paused its DTC strategy in favor of retail. Aloha established retail partnerships with regional grocers and health food marketplaces, including Harris Teeter and Thrive Market.
“I started to build a retail strategy of building with retail partners in regions who would adopt the brand,” Brad explains on Shopify Masters.
The insights learned from what worked in-store then translated to other, bigger retail partnerships, as well as the DTC side of the business.
“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 says.
Aloha revamped its DTC strategy by partnering with Shopify as its new ecommerce platform, ultimately increasing sales by 289%.
Achieve economy of scale
An economy of scale is the cost advantage businesses experience when they increase production to meet rising demand. For example, if you expand your company’s production, you may need to increase your managerial, manufacturing, and storage capacity. Adding this capacity takes upfront investment, and you may naturally have excess at first. But the idea is to unlock more revenue while keeping your fixed costs the same, reducing your cost per unit and increasing your profit margin.
Potential downsides of business expansion
Business expansion is a major undertaking that entails risk. Consider the following potential downsides you could face when expanding:
Legal complexity
New markets often come with legal considerations like taxes and regulatory compliance—even ecommerce laws. If you decide to take your company international, you’ll need to research the local laws related to commerce, consumer rights, and digital practices for those specific countries, and you may opt to seek legal counsel or professional consulting to help you with this.
For example, if your ambition is to sell in Europe, your website will have to comply with the European Union’s data privacy regulations, outlined in the General Data Protection Regulation (GDPR) law. If you sell beauty products, those products would have to meet the European Union’s regulatory framework for cosmetics, which is more rigorous than the United States’.
Increased financial commitments
There are also financial risks to consider when expanding your company. For example, growing your online presence through paid ads or influencer marketing requires financial resources. Similarly, launching a new product line takes significant investment in market research, product development, prototyping, and manufacturing. This could sap your working capital, or require you to take on debt (via a loan) or give up equity (to investors), adding liabilities to your business.
Reputational risk
There are reputational risks to consider when expanding your business. For example, if you expand your dropshipping business by partnering with new suppliers, you’ll need to vet those partners to ensure consistent quality. To avoid hurting your brand reputation, examine the customer experience implications of any business expansion strategy.
How to develop a business expansion strategy
- Zero in on the opportunity
- Revisit your brand positioning
- Create a plan
- Get the right tools in place
- Develop your go-to-market plan
Here are some practical tips for how you can strategically expand your business:
1. Zero in on the opportunity
Successful expansion requires a clear understanding of the opportunity and the competition you’ll face. What is the size of the market you want to capture with your expansion?
New product categories and new markets will likely have incumbent players, so do your research to understand the competitor set and their positioning. Then, create a plan to differentiate from and beat the competition.
2. Revisit your brand positioning
Expansion may also require you to broaden your positioning, especially if you’re launching new products. Bushbalm, for example, had to revise its mission to support its growth from a brand focused only on pubic care to one tackling a broader array of skin care challenges.
“Our tagline now is ‘Skincare, Everywhere’ and our mission to solve skin challenges, no matter how niche they sound,” David explains.
The new mission allowed the brand to expand into treating eczema, psoriasis, hyperpigmentation, sun damage, and other types of skin irritation.
When planning your own expansion, make sure you have clear brand messaging to help your customers understand your new products or your new reach.
3. Create a plan
Formalize your expansion plans by creating strategic and financial documentation. Outline the following key points:
- Goals. What are your goals in concrete terms—how much do you expect to grow your customer base, your market share, and your revenue?
- Resources. What resources do you have to invest in the expansion? What additional resources do you need to secure in the form of loans or investment? What’s your hiring plan to support the expansion?
- Timeline. What’s your time table for executing the expansion?
- Measurement. What key performance indicators (KPIs) will you track to measure success throughout the expansion process?
Include financial documentation such as your cash flow statement and balance sheet along with the research you did regarding opportunity size and competitors.
4. Get the right tools in place
Expansion and growth can create operational challenges for your business, so ensure that you have the right tools to support this new undertaking. Evaluate your current tech stack to ensure it can scale as you expand. Specifically look at:
- Financial software. If you’re expanding internationally, does your payment processor and accounting software handle transactions in foreign currencies? Can your accounting software handle an increase in transaction records or invoicing needs?
- CRM. If you’re increasing your marketing efforts, can your customer relationship management system (CRM) handle more leads? Are you collecting the right customer data to get smarter with your marketing efforts as you grow?
- Website and ecommerce platform. If traffic to your website dramatically increases, is your site ready? Can your online store handle a major uptick in orders?
5. Develop your go-to-market plan
Launching new products or in new markets requires a dedicated marketing plan. Think of it like a mini relaunch for your brand. This is your opportunity to share your brand message with new audiences or expand your brand message to your existing audience.
If you’re expanding into new markets, consider a localized approach that shows customers in new locales that you get them. To increase your chances of getting it right, seek out real input from the target audience, which you can gather via focus groups or surveys. Reflect your learnings in your marketing plan, so that everyone working on the expansion is on the same page.
Business expansion FAQ
What is the aim of business expansion?
Business expansions aim to reach new customers and increase profits through new revenue streams, such as product lines or new markets.
What is an expansion strategy in business?
An expansion strategy is a detailed plan for how a business can grow, including clear expansion goals, market research, defined timelines, and financial statements that detail the resources available to invest in business expansion.
What are the types of business expansion?
There are a variety of ways that you can expand your business, including new product lines, new distribution channels (including digital and physical retail), and new markets.
