Hunting out growth in a challenging economic environment is no mean feat. For many of the businesses we are fortunate enough to work with at YFM, the answer may lie in extending the reach of their products and services into new locations, sounds easy right? Open a new office, hire a load of people and off you go.
Of course, if it were as simple as that this would be a much shorter post. For small companies looking to expand there are a multitude of pitfalls waiting to trap the unprepared, and while it is impossible to take all the risk out of a geographic expansion there are always ways to make things run a little smoother. Here are three broadly sequential questions which I think are useful to consider when weighing up the pros and cons of opening in new locations:
Ask yourself if you really need to open in a new location to achieve your business goals. There may be more than enough to go for in your home market and it may be more important to focus on maximising that opportunity rather than take on the cost, effort and risk of extending into new markets.
Think carefully about whether you have the resources to manage operating out of multiple locations. Finances will be key – new locations often take longer than expected to become self-sustaining, so it is essential the business can be funded through this period. More importantly, especially in smaller high growth companies, it is crucial that there is sufficient bandwidth in the management team to deal with the challenges which will inevitably come.
Don’t go in blind. Ask your contacts and advisors who have been through the same process and if possible leverage their networks and experience so you don’t make the same mistakes they did. Help is always out there…
The above commentary is deliberately a bit negative. The point really is that it is key for business owners to really challenge themselves when considering geographic expansion. The risk is high so the barriers should be set high.
At YFM we believe that if done right, the impact on a business can deliver transformational upside and so this is a major theme in much of our recent investment activity. Portfolio companies Matillion, Ncam, Eikon and Springboard are all targeting expansion in the USA to exploit opportunities for their respective technologies. Closer to home, Bristol-based food to go chain Friska is soon to open its third site in Manchester and passive fire protection consultant Checkmate based in West Yorkshire, has opened a new depot in the Midlands. We are excited to be working with and supporting so many UK SMEs and teams that have made the decision to grow into new territories.