As you develop your business, you’ll naturally want to expand. And you’ll likely start looking to new markets as potential venues for growth.
Geographic expansion has just as many benefits as it does challenges. If you have a robust business expansion plan and you get it right, everything can go smoothly. If you’re off the mark with it, you could be in trouble.
Take for example, Brenda Coffman (or “Blondie” as she likes to be called), the bright, bubbly CEO of Blondie’s Cookies who we met in Shark Tank season 3. She asked the sharks for $200,000 for 3 percent equity in her gourmet cookie business.
- Blondie’s Cookies makes more than 25 varieties of the “best cookies and brownies you’ll ever taste”
- Very popular brand in home state of Indiana
- In one year, the firm enjoyed sales of $2.3 million
- Its rapid expansion approach had the firm open four stores in the non-adjacent state of Florida, all at the same time
But hang on:
- Blondie’s now has 12 sites across Indiana and Florida
- The expansion costs led to zero profit, because new stores were a loss – to the tune of $175,000
- The business failed to capture the corporate market in Florida
- It also has $800,000 in bank loans
It started well – a popular company with a scalable product and a passionate, hard-working leader at the helm. But in the end, Brenda left with nothing as the sharks opted not to invest because they were concerned about Blondie’s Cookies’ financial resilience and questioned its aggressive expansion strategy into a different territory.
Brenda’s appearance on Shark Tank revealed a number of expansion challenges that many small business owners know all too well.
The benefits of business expansion
Before we look at the challenges, it’s important to acknowledge the many potential benefits of expanding your business. Whether “expanding” means in the same zip code, into a neighbouring state or a totally new territory, expansion can help you:
- widen your customer base
- increase your profits
- employ new talent, and therefore new skills
- make your business attractive to investors
Geographic expansion is a good idea for small businesses that have a healthy local market, know their product is popular, and think it will appeal to customers in new markets.
But we should all know that expanding – domestically or abroad – has its challenges.
Growing through the pain
Without a doubt, expanding into new territories presents a host of challenges. Here are some of the larger ones to think about when you’re putting together a plan:
- Can you manage your existing sites while trying to nurture new ones?
- Do you understand your new target market?
- Can you meet the logistical challenges of expanding to a non-adjacent state?
- How can you transfer your current brand appeal to a completely new site?
Due to logistics and branding requirements, Brenda thought she should open several new sites in Florida and not just one. As she discovered, it wasn’t quite as easy as planned.
Here are three lessons we can take from Brenda’s experience:
1. Good neighbors make good friends
Blondie’s first attempt into expansion was not into a neighboring state, but to a non-adjacent one. Florida is more than 900 miles away from Indiana. Moving into a new market this way presents a number of logistical challenges.
Perhaps a better idea is to expand locally. Move into a neighboring state to test the waters and take things from there.
2. Plan and prepare
Blondie’s Cookies moved quickly into Florida, with four new sites at once. Four new sites required a substantial investment, and they struggled to make money, so Blondie’s made zero profit. It may have helped to stagger the launch of the new stores or secure more investment, to alleviate the financial strain.
3. Know your new market
Blondie’s Cookies also had trouble replicating its brand appeal in a completely new territory. The business originated on the campus of Indiana State University in the mid-1980s, so it was a homegrown company. It had eight stores across the state, each decked out with the same yellow branding, which made Blondie’s a highly recognizable, successful brand in Indiana.
As Brenda acknowledged on Shark Tank, the company forgot how popular it was in its home state, and struggled in Florida. What could have been done differently? More market research? Initiating a single store on a trial basis, first? Designing new branding specifically for the Florida market? Those are the types of questions to consider before expanding in a new market.
How is Blondie’s doing today?
Blondie’s Cookies is still going strong. Following Brenda’s appearance on Shark Tank, the firm reported an increase in online sales. It now plans to open two or three more new sites in Indiana, before expanding into neighboring states.