Avoiding the Pitfalls of Expansion

Avoiding the Pitfalls of Expansion

Don't grow too quickly (and other mistakes) when growing a business.

By Marcia Smith

When it comes to expanding a business, there are typically two main ways to do it:

1. Targeting new market segments or geographic areas.

2. Diversify into new products and services.

The best route for your business will depend on your goals, your past experience and the potential for expansion.

Sometimes the decision can seem easy. If you’re buzzing with loads of great new product ideas, or if you’ve found a neighbouring town with no competitors, then it can make sense to pounce on these opportunities straightaway. However, you should always conduct thorough market research first, so that your expansion will be effectively targeted. Make sure there’s a genuine demand in the market that you can exploit.

Expanding your business too quickly can be dangerous. It should only be done once you’ve had some sales and feedback, and are comfortable that you have a sustainable business model. You should be sure that there is enough demand to scale up, that the route to market is affordable, and that your positioning will be defensible.

Whether expansion is self-funded or financed, cash flow management should be central to any decision, otherwise you may ‘burn’ too much cash before seeing returns. Investigate whether you qualify for local grants or initiatives such as R&D tax credits. These will offset costs and accelerate growth.