Strategies and Tactics to Consider

There are many different ways to get your products and services in front of new customers, from virtual channels like eBay and e-commerce to boots-on-the-ground tactics like branch outlets and satellite offices. Following are some to consider.

• Open additional locations. This is the first thought that pops into the heads of many small business owners when their original venture starts to take off. It can make sense in some cases, such as when the original outlet has unique attributes that contribute to its success and can be easily replicated elsewhere, or if you need additional space for activities such as manufacturing but expansion of your current location is not a viable option. However, this is one of the most expensive ways to expand and almost always requires significant additional funding, so it makes sense to consider all other options as well.

  If physical expansion is the route you choose, start by doing a full business plan for the new location. Make sure you have the administrative, managerial, financial and other resources in place to support the launch. Location, of course, is key, especially access to transportation if distribution is an important part of your business model. Situated within 600 miles—a day's drive—of 60% of the U.S. population, Appalachian Ohio is a prime location for many types of businesses. It offers easy access to three of the state's four largest airports and is close to Pittsburgh's huge international airport. Appalachian Ohio has 5,800 miles of rail track (4,500 miles of Class I Rail) and borders 450 miles of the Ohio River, which carries as much freight tonnage as the Panama Canal every year. Ohio also boasts the fourth-largest Interstate highway system of any state. (For more information, visit the Enterprise Appalachia "Market Access" page.

• Franchise your business. Franchising shifts much of a business's expansion costs to other entrepreneurs, who open additional outlets as franchisees, using the franchisor's trade dress, business model and operations and management procedures. Franchisees own their businesses individually but pay ongoing royalty and advertising/marketing fees, typically amounting to 5%-10% of revenues, to the franchisor. In exchange for this ongoing revenue stream, the franchisor provides training, marketing, advertising, group buying power and other ongoing support. In most cases, franchisees also pay an initial fee in exchange for the franchisor's help with launching new outlets. The International Franchise Association is a good starting point for entrepreneurs interested in exploring this means of expanding their market reach.

  Notwithstanding its many advantages, franchising as a method of expanding your market reach is only appropriate for certain kinds of companies, advises Andrew Sherman, an adjunct professor who teaches courses on business growth, capital formation and entrepreneurship in the MBA programs of Georgetown University and the University of Maryland and is a principal in Grow Fast Grow Right Enterprises LLC, a consulting and training firm headquartered in Rockville, Maryland. "The most important prerequisites are the operation and management of a successful prototype and a business and financial model which makes sense for both franchisor and franchisee," he says. "Franchising should not be viewed as a solution to undercapitalization or as a get-rich-quick scheme." While expanding through franchising is less capital-intensive than building company-owned sites, Sherman warns that start-up costs to launch a franchising program can be extensive.

• Explore strategic partnerships. "Before trying any other strategy, I'd look at partnering with another business that's already active in a market or audience segment you'd like to reach, and seeing if you can structure a deal that makes it advantageous for them to put your products or services in front of their audience," suggests Shel Horowitz, a small business consultant based in Hadley, Massachusetts. Yoon Cannon, president of Paramount Business Coach, based in Doylestown, Pennsylvania, says you can multiply the impact of your marketing initiatives by teaming up with one or more complementary businesses. "Joining forces can be as simple as a joint direct mail campaign or as involved as an alliance of businesses sponsoring a special event," she says. "Plus, multiple businesses together will always add more value to the end customer who attends the event, besides expanding the market reach of each of the businesses participating in the event."

  Some small businesses, particularly in the manufacturing sector, find distributorships or authorized reseller arrangements a good way to expand market reach, especially into distant locales, such as international markets, which would be prohibitively expensive to access directly. While profits are shared with the distributor or reseller, the partnering entity also assumes much of the risk. Licensing is another strategy small businesses can leverage to reach new markets in a cost-effective manner requiring minimal capital outlay and a manageable degree of risk.

• Consider a merger or acquisition. This makes the most sense when both companies are involved in similar or complementary businesses and are likely to be worth more as a single, combined unit than they were as separate entities. Fast-growing companies that have their overhead cost structure under control and a historical sales performance track record that supports forecasted demand for its products or services are the best candidates for this approach to market expansion (see, for example, "Expansion Case Study: Diagnostic HYBRIDS, Inc.," below). By combining the complementary resources of two companies, mergers and acquisitions can expand the market reach of both participants, reduce expenses by providing economies of scale, provide tax benefits in some cases and eliminate other inefficiencies. However, mergers and acquisitions tend to be complex transactions requiring the expertise of third-party professionals such as lawyers, accountants, brokers and business valuation experts. A significant upfront investment may be required to determine all the associated costs and potential benefits and pitfalls.
• Make the Federal government your customer. Some small business owners are under the mistaken impression that the only way to do business with the Federal government is by competing against much larger enterprises. In fact, to ensure that small businesses get a fair share of government's roughly $425 billion annual spending on products and services , contracting goals have been established by law for Federal executive agencies. These goals call for 23% of prime contracts to go to small businesses, 5% of prime contracts and subcontracts to go to women-owned small businesses, 3% of prime contracts to HUBZone small businesses, and 3% of prime contracts and subcontracts to service-disabled veteran-owned small businesses. What's more, the government uses many business-friendly practices, such as buying off-the-shelf items and paying by credit card, and it generally pays its bills within 30 days of receiving an invoice.

  For the purpose of determining eligibility for these set-aside contracts, the government defines small businesses by industry segment. In manufacturing, for instance, firms of up to 500 employees are eligible, while the cap is 100 employees in wholesale trade. It uses annual revenues as the differentiator in other segments: up to $7 million for most business and personal services firms, but no more than $4.5 million for architectural/engineering/surveying and mapping firms or dry cleaning/carpet cleaning firms. Participating firms must complete the Federal government's Central Contractor Registration process and be willing to learn and follow an extensive set of guidelines, but there is lots of help available at the SBA site.

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