The Australian Small Business Blog

Wednesday, July 18, 2018

Lessons for Small Business from Big Business – Business Expansion

by Dr Greg Chapman

Many years ago, I was in the corporate world, and every couple of years, there would be an acquisition of another company, whether in a different geographical area or in an allied business that was supposedly to add ‘synergies’ to our existing business. This growth strategy was in many cases driven by ambitious executives and a planning group that was seeking to justify its existence.

This ‘grass is greener on the other side of the fence’ strategy was attractive because it’s appealing to believe that expansion in new areas in which you don’t have in depth knowledge might be easier than competing in your existing market. Two examples of this are Woolworths’ expansion into hardware with Masters, a new sector for them, and Bunnings’ expansion into the UK with the takeover of Homebase.

While Woolworths is dominant in their own market in Australia, it was going to go head to head with the market leader in the home improvement market, Bunnings. While it’s joint venture partner, the US firm Lowe had experience in this sector, Woolworths who were driving this in Australia didn’t. It had trouble getting locations, had poor product selection and the wrong culture. Bunnings hire a lot of ex-tradies which gain the customers trust, and they are empowered by their management, and love working there. Woolworths are very top down management which obviously works in the low margin supermarket environment, didn’t work in DIY where service is more important than price.

In other words, Woolworths didn’t understand their new market. For small business, the lesson is an expansion into new products and services can be a significant risk. While they understand their base market, the new one has different customers and competitors and is likely to be every bit as competitive as their current one, except they don’t know all the rules yet. An exception to this is if they have discovered a new niche where there are no competitors, but the risk is that the market may not take to the new services offered. The philosophy of “if you build it, they will come” never works, and a substantial marketing effort will be required to introduce the new product.

Bunnings, on the other hand, were staying in the home improvement market, but moving into a new geographical area. Their biggest mistake was dumping local UK management and importing Bunnings Australia managers who didn’t understand the environment differences in the UK.

In other words, Bunnings didn’t understand their new geographical market. For small business, the lesson is too rapid expansion into new locations can be a significant risk even if you are dominant in your own backyard. Even when selling the same products and services in new locations, there will always be some differences. An additional risk for small business is that they haven’t even dominated their own back yard.

For small business, it’s often better to consolidate your own backyard before expanding either geographically or into other sectors. This doesn’t mean that expansion shouldn’t be considered, but it should be undertaken with a plan that will mitigate the risks. Otherwise, during an expansion, small business owners can easily be distracted from their core business, only to see it decline, while discovering that the grass is not always greener on the other side of the fence.

May Your Business be - As You Plan It.

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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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