Growth is an exciting prospect, but sustainable growth is the ideal that businesses should be looking to achieve. Before laying out blueprints for expansion, it is essential that decision makers break down the reason for growth, and whether the projected results justify the effort. The below is an excerpt from the complete guide for business expansion. You can get the complete guide for free here.
5 Reasons to Expand a Small Business
1. Customer Demands
There are two ways that businesses can meet the needs of increased customers. One is to work extended hours and tire the workforce. The other is to put customers on long wait lists. This is a common reaction in the food and beverages industry, from restaurants to food trucks. J. Dawgs, a hot dog chain in Utah, is a great example of using expansion to meet customer demand. The original hot dog stand was doing well, so creator Jayson Edwards made a decision to expand to other locations.
Now, the franchise operates successfully out of 7 locations across Utah and outside it. By expanding, businesses can increase their market share, and capitalize on the brand equity made possible by their first branch’s success. This establishes brand value, and helps the business become a market leader.
2. Economies of Scale
Usually cited as a reason for expanding an already large business, economies of scale also benefit the small business that expands. When a business grows, they tend to order larger quantities from vendors and suppliers. Vendors, in turn, are inclined to offer better discounts, because of the larger volume of orders. This buying power means that the business takes advantage of slashed prices, and therefore directly makes a profit
in the process.
3. Multiple Revenue Streams
Expansion through diversifying the range of services or products offered,
lets a business open up additional streams of revenue. A bakery, for instance, may offer a dine-in breakfast menu or takeaway. A fitness center may experiment with a dedicated health product mini-mart. In both cases, the business in question gets a double advantage. First, there can be additional revenue earned by the new division. Second, the business protects itself against market fluctuations in either one of its revenue streams, as the other one might not be affected at the same time.
4. Running out of Space
When a small business starts achieving good business results, it may hire more employees. This can get chaotic quickly—long wait lists for customers, waiters with little room to maneuver in, and no space for critical inventory storage. Even those with desk jobs may find it difficult to be productive when they are sitting elbow-to-elbow. This is a sign that it’s time to either lease a new office space, or renovate and expand the current location.
5. A Perfect Product-Market Fit
When a business has identified a product that is such a perfect fit for its target market that demand is extremely high, it’s time to take the plunge. With a perfect fit, quick growth measures are justified.
Take the case of the now-ubiquitous rental electric scooters across the US. Bird, the Santa Monica manufacturer, started in September 2017. When they realized how in demand their products were, they wasted no time, establishing themselves in as many as 100 cities within 12 months.