Beating the Odds When You Expand: Expansion Strategy Best Practices

Assuming that you reengineered your business model and optimized your portfolio (i.e. Portfolio Optimization) around today’s buyer demands (and not last decades customers) you are probably evaluating which expansion strategies and options to pursue.

Beyond expanding through Alternative Distribution (expansion  into markets/segments/geographies), which by the way we highly recommend to test new markets, new products, and pricing, one of the strategies that is becoming increasingly common for market leaders is growth through acquisition.   Before you dismiss growth through acquisition think about the following factors that make now an excellent time for acquisitions:

1. Market Consolidation
1. Standardization on a few key technology platforms.
2. Roll-up of existing regional players creates mass and density.
2. Financial and Economic Pressures: Owning a business today is costly, time consuming, and difficult; and many “tired” management teams are looking for alternatives.
3. Potential for Less Risk than Hiring.  

Of course you know that expansion is costly and resource heavy, so why not acquire a company so that you can mitigate hiring risks? 

Expansion via traditional direct sales and branch manager strategies is costly, people dependant and time consuming.   Expansion by acquiring a partner or “book of business” can be much more cost effective than simply hiring staff as these “books of business” bring clients, capabilities, and additional assets. 

Effective leaders aren’t cowboys; they are methodical managers of risk.  At every turn prudent managers reduce risk before making any significant investment or action. The due diligence process by its nature and design minimizes investment and execution risks and so the amount risk can be limited to the cost of strategy validation.  When evaluating growth and expansion options, prudent leaders reduce risks (mitigate growth risks) before making any significant investment or action.

Comments

[Brad Fallon]

I love reading your blog. Very informative. Yes I agree that expansion is costly and we should think of a strategy that would reduce the risk when we invest into expanding our business.

[JDM]

I guess my understanding is that aquisition can add up to a 30% premium to the cost.

Of course, I could be wrong...