Market expansion is a type of growth strategy in which you bring your products and services to a new geographic or demographic market, or offer new products and services entirely—and it’s not just for big business and “boom times.”
In challenging economic environments, small and mid-sized business (SMB) leaders can have a tendency to think defensively. But turning points for other businesses may unlock smart moves for you, such as the ability to lower costs by renegotiating vendor terms and pricing or the opportunity to invest in undervalued assets like real estate or equipment priced to go.
With well-timed financial intervention, SMBs with strong fundamentals can deftly navigate new markets and uncertain times much like their larger counterparts.
How to Tell If Your Business Is Ready for Market Expansion
Once you reach a stage of business where you’re accountable to employees, partners and other stakeholders, major decisions like market expansion must be driven by hard data.
If you’re not already tracking your key performance indicators (KPIs) consistently—or better yet, on a KPI dashboard—that’s step one. Look for indicators of business health that suggest you’re ready to expand, such as:
Financial position
Cash flow isn’t just your day-to-day operational engine, it’s also a sign you’re ready to expand. Whether you’ll be seeking funding or using your own cash stores to fuel growth, strong cash flow is a must. (Start with primers on reading your cash flow statement and making cash flow projections.)
According to the U.S. Chamber of Congress, increasing revenue growth and profit margin are also signals for expansion. Look for consistent, double-digit year-over-year revenue growth for several years.
Consider performing a quality of earnings report and analysis, which includes cash flow plus revenue quality, working capital and more to paint a complete picture of your financial health. Now is also the time to truly understand the valuation of your business.
Market traction and viability
Failing to perform market research—or ignoring it—is a common mistake even the biggest businesses make when planning for expansion. Consider three areas when targeting a new market:
- Sustained growth: How long has this market been experiencing growth? Use financial forecasting and scenario planning to project how market growth may change based on supply conditions, geopolitical events and more.
- Market fit: How well do your offerings address customer needs in the market?
- Competition: Are there competitors in the market? How do you plan to differentiate?
System scalability
Think about your operational systems: your people, your processes, your tech stack and your partner ecosystem. How easy is it to replicate what and how you deliver for the new market you’re targeting?
- Can you readily add new users and operational inputs to your core systems?
- Do you have people and resources to train and hire others?
- Can your business run itself while you manage expansion?
- Do your partners have the capabilities to pivot with you?
Document your standard operating procedures, curb inefficiencies and eliminate points of friction now so they don’t grow as you do.
Choosing a Market Expansion Strategy
Once you know expansion is viable, you’ll want to choose a growth strategy, which boils down to two approaches: a slower, organic approach where you’re building from within or a faster M&A-driven one where you acquire from the outside. Below are four ways to bring a market expansion strategy to life. (For a deeper product strategy, the Ansoff matrix is a great resource.)
Creating new product and service lines
This strategy entails developing new products through R&D or white labelling products under your brand.
Brainstorm unmet customer needs that are tangential to your offerings. Is your brand positioned to solve any of them? Think about barriers to consideration for prospects. Is there a segment out there that would jump at a line of similar products at a more affordable price point? Either way, make sure your new ideas fit your organization’s overarching value proposition.
- Pros: Potential for greater competitive advantage and long-term sustainability
- Cons: High R&D and manufacturing costs; need to start marketing early
Finding new use cases or audiences for your product
In this approach, your products largely remain the same with important tweaks to appeal to a new group of people. It requires keeping your finger on the pulse of culture, paying keen attention to where and how your product is used and by whom—and investing in that momentum. Start by analyzing social media and search to better understand the purchase intent of your customers.
- Pros: Minimal product modifications; strengthens core product brands
- Cons: Significant marketing and sales investments
Entering new geographic markets
Entering a geographic market means selling products or services in a new region or opening a new location. You may also have to localize your offerings to appeal to the target market. Start by performing research to identify regions with demand for your offering or areas with similar demographic profiles to your existing customers. Then, pilot sales in a small region before taking the broader leap.
- Pros: Fairly business-as-usual in terms of manufacturing and service delivery; exposure to new audiences
- Cons: Packaging, logistic and staffing costs; compliance and regulatory obligations; currency fluctuations; investments in technology and licensing to globalize digital platforms
Merger or acquisition of competitors, franchises or capabilities
A more aggressive form of growth involves merging with or buying another company to enhance your offerings or absorb market share. This is a complex process that begins with identifying your weaknesses and seeking out businesses that fill those gaps.
- Pros: Rapid increase in customers and market share; reduced costs due to production gains; reduced competition
- Cons: Requires a commercial integration roadmap; high risk to employee wellbeing
The Building Blocks of a Market Expansion Strategy
Once you’ve decided to expand your company, how do you meet the opportunity before you? Here’s how to build out a solid market expansion strategy.
Assess and differentiate
Evaluate your existing business capabilities and articulate your unique value proposition. Make sure you understand what sets you apart and build on that differentiation. Get your business in the best shape possible by refining processes and creating efficiencies.
Conduct market expansion research
Thoroughly comb the market for opportunities that align to any number of growth strategies above. Then, pressure test: Conduct qualitative and quantitative audience research, look into suppliers and regulations, and vet market fit.
Fine-tune your market development strategy
Now’s the time to figure out how you’re going to fund and activate your expansion. This is the stage to focus on your operational planning, pricing strategy, resource allocation and partnerships.
Perform financial modeling
Next, you need to understand what the cost will be, and the ROI you can expect. From cost analysis to merger modeling, understand which models you need and make sure you’re doing them properly.
Assess and manage risk
Many evolving factors go into business expansion, and if you’re eyeing M&A, you’ll need to perform financial due diligence. From data and inventory to insurance and regulation, learn the ins and outs of proactive risk management.
How a Fractional CFO Can Support Your Market Expansion Strategy
Executing a market expansion strategy is no easy task. Here’s how the support of a fractional CFO or other experienced finance leader can help you with each step.
Expansion Strategy Step | How a Fractional CFO Can Help |
Assess and differentiate | Business process consulting |
Market expansion research | Identify and assess M&A opportunities Conduct a SWOT analysis to uncover your strengths and weaknesses in the market |
Market development strategy | Capital planning services Growth strategy consulting to develop a go-to-market strategy and 5-year roadmap |
Financial modeling | Complex forecasting, scenario planning and revenue planning |
Assess and manage risk | Transaction advisory services Comprehensive risk assessment |
Timing and Guidance to Take You Further
Business expansion isn’t just for large companies—experienced finance leaders can bring strategic growth opportunities within reach for SMBs, too. A fractional CFO from Paro can help by holding a financial mirror to your business for a realistic picture of what’s possible, then investigating your opportunities from a numbers perspective to make sure you’re taking a confident leap forward.