You know that expansion into new markets or new solutions is costly and resource intense, but did you know that 2/3 of expansion plans are abandoned within six months and 85% of expansion plans fail to achieve ROI within the first two years?
Effective managers aren’t cowboys; they are methodical managers of risk. At every turn prudent managers reduce risk before making any significant investment or action.
When risks are removed, value is increased. Not all risks need to be removed, simply the most uncertain coupled with the most costly. All plans are partly right and partly wrong; experimentation and intelligence is the pathway to success. The amount risked should be limited to the cost of the prototype and initial design (typically 5% of annual revenues for small businesses and <1% for large enterprises). Effective management is all about constantly identifying risks and finding creative ways to mitigate them.
Two paths of expansion:
Path #1 is the most common and what I like to call the “Risky Path” because executives strategic plans are often based on past performance, hiring new personnel, and hope and consist of the following:
a. Spending dollars creating promotional materials without testing messaging and pricing on beta or trial clients.
b. Hiring sales personnel without validating the market needs and creating a pipeline.
c. Implementing “on the ground” operational oversight in the form of branch managers without established clients and partners.
Path #2 is the Intelligence Expansion Path:
First, implement cross functional team using existing current resources to validate the market need, create beta clients and partners.
Second, leverage Intelligence from beta or prototype clients and partners for “on the ground” needs including, but not limited to user feedback on sales, service, distribution. Also, confirm the size (#,$) of the demand by customer segment and product mix.
Then, achieve the 3 R’s: Recurring Revenues, Raving Fans, and Repeatable Routines before formally expanding with “feet on the street” in new markets.
Effective managers mitigate expansion risks. For example, presale new products or to new markets to ensure cash flow profitability.
By tackling the highest risks first such as confirming Demand and Product Mix before spending any dollars on marketing or operations a strategy becomes validated and the probability of success exponentially increases.
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