Grow Your Business By Expanding Horizontally
By Christopher J. Bachler
Even if you plan to always work from home, you’ll probably need to expand. You might want or need more money. You might need to grow, just to keep up with your competitors. If nothing else, you know that some of your customers will eventually disappear, and the cost of doing business will continue to rise. So expansion isn’t just an ambitious dream—it’s a real-world necessity!
Business expansion usually follows a “vertical” path, meaning the business will try to sell more of its current product or service. That’s so because the effort usually requires few major adjustments or risks. A retailer who sells men’s suits will always try to sell more suits. If the market is hot, that’s all he needs to do.
But the market is probably not hot enough for him to sell only suits. So the retailer expands “horizontally” by adding shirts, ties, belts, shoes, or any other complementary item that his customers might want. In this way, he not only gains more sales from customers who buy suits, but also from those who might only want a shirt or a belt.
The principle is no different for home-based businesses. A self-employed painter might decide to also market plastering or other services, as well. A seminar planner might branch out into special events planning, awards’ ceremonies, or even office parties.
When Horizontal Expansion Makes Sense
Horizontal expansion makes sense when your “vertical growth” has reached its limit, but you still want to grow. Even when more vertical growth is possible, a point of diminishing returns can be reached when further expenditures of time or money are not justified.
David Frey, President of Marketing Best Practices, (www.marketingbestpractices.com) and author of, The Small Business Marketing Bible, suggests that horizontal expansion is best for home businesses whose products or services can be expanded with little cash outlay and risk. “If you have a large and growing customer following and much of your business is brought in through referrals, then offering more products and services might be a good idea since you can expand without all the associated marketing costs. Another good example would be businesses whose vendors can drop ship most of the products to customer, since they won’t need to tie up money in inventory or extra personnel.”
With some exceptions, it’s usually easier to expand product rather than service offerings since product selling tends to require less preparation and involvement than service selling. To add a service, for instance, you might need to learn new skills. Even if you already possess the requisite knowledge, your level of experience in the new area won’t be equal to that associated with your traditional service.
It can also be difficult to frequently shift from one skill to another. Most freelance writers, for instance, won’t find it easy to shift from writing technical manuals to ad copy. Highly skillful people who can quickly shift mental gears are the exception; most others do best by more narrowly focusing on highly specialized tasks.
Making the Move
You’ll be ready to make your move once you’ve gotten your basic business down to a science. Still, there will be more preparation than you might think. For example, you’ll need to specifically identify new target markets, and devise a strategy for reaching them.
Company literature and web sites will also need to be updated to include the new product or service offerings. Along with that, vendors, suppliers, distributors, salespeople, and clients will also need to be updated.
The most important first step is to work out potential conflicts between new and traditional offerings. For example, if the new initiative will take time or money away from your normal work, that should be addressed before you expand.
You should also have concrete answers for a number of other important details. If you plan to offer a new product, for example, you’ll need to address such questions as:
- Where will you get ideas for new products? How do you investigate them and determine their potential?
- From whom will you obtain the new product line? Will there be more than one supplier?
- Will you sell new lines to the same customers, other customers, or both?
- Can you accurately estimate demand for new products? How?
- Are products subject to damage or other risks?
- Where will you store inventory, and how much will that cost?
- Will you need special storage facilities or containers?
- What will be your full spectrum of costs? Are you aware of all potential costs?
- Are there any legal risks associated with your new product lines?
- How will you handle returns?
The “unforeseeable” is usually seeable to those who bother to look.
Expanding through Associates
In addition to offering new products or services, you can also branch out through business associates—a practice called “strategic partnering.” The idea is to take advantage of business alliances that provide additional revenue, while minimizing your effort or risk.
There are several ways to work such partnerships. You might, for example, take referral fees for business you pass to others, while also enjoying business they send your way. Your associates might also be able to provide complementary goods or services that will make your offerings all the more appealing to your customers. For example, a birthday planner would be wise to be associated with various types of entertainers, or companies that provide amusements.
Even having access to those who might be useful to your customers can be surprisingly advantageous to your business. For instance, a home-based dress maker—though she only makes women’s dresses—might do well to work with a tailor or with any other persons who can address clothing-related needs for her customers or their families. In this way, she can expand to dress maker to a one-stop service center for those in need of new or tailored clothing.
In addition to these direct benefits, strategic partners can also provide many other benefits, such as providing you with valuable leads, useful information, or even just sound advice!
Strategic partners come in all forms and can be found just about anywhere. A surprising number, in fact, are found accidentally or through casual contacts. But if you prefer to find them now rather than waiting to chance upon them, begin by asking yourself what sorts of partners would be most helpful to you. Those who can complement your services would be obvious choices. A carpenter, for example, would do well to hook up with painters, plumbers or masons.
For specific ideas, you might attend trade shows or business card swaps. Trade magazines and business-to-business directories might also offer you some food for thought.
You don’t, however, want to be linked to disreputable or unreliable people. So before you enter into any business alliance, do some background checking. One way is to talk to business leaders who are familiar with the person you’re thinking of teaming with. The best way is by talking to a number of the prospective associate’s clients. Credit reports can also shed some light on the person’s financial status and character.
Choose Good Mentors
Frey advises home businesses to calculate anticipated expansion expenses and income very conservatively. “But beware,” he cautions. “Most home-based entrepreneurs underestimate expansion costs. I usually multiply my expense estimates by two or three. If I can’t make the numbers work to my favor by doubling or tripling my expense estimates, I don’t move forward with the expansion.”
It was during his early years as a home-based entrepreneur when Frey learned that valuable approach from a trusted mentor. “My mentor talked me through the ‘break even’ decision making process,” he recounts, “which gave me confidence to expand into a new office and hire employees. But I don’t like a business that requires me to carry inventory or to make large advance cash outlays.”
As in Frey’s case, businesspeople that are destined to succeed are those who are wise enough to consult the right experts. Through the Small Business Association (SBA) (www.sba.gov), you can pick the brains of expert advisors through their Service Corps of Retired Executives (SCORE).
Business associations, such as the Chamber of Commerce, or professional groups that you might have joined might also be able to steer you to some good counsel. Just be careful not to leak a potentially great new idea to sources you’re not sure you can trust!
“Venture capitalists” or “Business angels” (so listed on the Web) can be another good source for financing and expert advice. Of course, they’re not there for free advice; and they’ll only be useful to those who barter for their services.
No matter what the experts say, remember this: No one has a crystal ball, and no one knows you as well as you do!
Blueprint for Horizontal Expansion
Before you launch your horizontal expansion, consider these basic tips:
Do first things first. Before you expand, be sure you are well established in one main line of business. Even if you’ve planned from the outset to offer multiple products or services, it’s always easier to advance one step at a time and to work through initial problems before you move into another area. As a new entrepreneur, you also need to get to discover your own strengths and weaknesses—something that only experience can teach. You also need to learn the tastes and idiosyncrasies of your market before you can gauge its wants.
Prepare a blueprint. Because expansion requires very careful thought, it should—like a business plan—be plotted in a written plan. Be sure to address such considerations as:
1. What you plan to offer.
2. Where you will obtain the product, materials, or skills.
3. Whose help you will need.
4. How much you will budget.
5. What markets you will target.
6. The timetable you will follow.
7. Current and likely competitors.
8. Amount of income needed to justify the expansion.
9. Potential conflicts between old and new offerings.
10. How the new offering might boost your current offerings.
Master the details. Learn everything you can about any new product or service before you market it. Not only will your customers expect your expertise, but you will also need to know how well you will work with it. If it’s a product, examine it closely and try it for yourself. If useful, seek the input of friends, relatives, or business associates. Give away some for free, if you can. It can be a very worthwhile investment in order to learn how much people will value your new product.
Study competitors. What are they offering? How widely have they expanded? Take special note of those that have narrowed their range of offerings. You can be sure there’s a reason for that.
Test market. Another good way to test the waters is through test marketing your new product or service to a limited number of prospects. You might begin with a small circle of close acquaintances of familiar customers from whom you can get honest feedback. This will also enable you to discover the costs and demands the expansion will place on you before you have taken it too far. HBM