Eight Ways to Expand Business

This tool reveals the major advantages and disadvantages of eight methods for entering into a new business or expanding an old one. This tool is often used in conjunction with “New Market Entry Strategies.”

Here are eight ways to expand business:

1. Internal Development

Advantages:

• uses existing resources
• avoids acquisition cost
• (especially if unfamiliar with product/market)

Disadvantages:

• time lag
• uncertain prospects

2. Internal Ventures

Advantages:

• uses existing resources
• may keep talented entrepreneurs

Disadvantages:

• mixed success record
• can create internal stresses

3. Acquisitions

Advantages:

• saves calendar time
• overcomes entry barriers
• problem of integrating two organizations

Disadvantages:

• costly – usually results in the purchase of redundant assets

4. Joint Ventures or Alliances

Advantages:

• technological/ marketing
• can exploit small/large firm synergies
• distributes risk

Disadvantages:

• potential for conflict in operations between firms
• danger of value of one firm reduced over time

5. Educational Acquisitions

Advantages:

• provides window and initial staff

Disadvantages:

• risk of departure of entrepreneurs

6. Venture Capital and Nurturing

Advantages:

• can provide window on new technology or market

Disadvantages:

• unlikely alone to be a major stimulus of firm growth

7. Licensing from Others

Advantages:

• rapid access to technology
• reduced financial risk

Disadvantages:

• will lack proprietary technology and technological skills
• will be dependent upon licensor

8. Licensing to Others

Advantages:

• rapid access to a market
• low cost/risk

Disadvantages:

• will lack knowledge / control of market
• will be dependent upon licensee

Source: Adapted from Edward B. Roberts and Charles A. Berry, “Entering New Businesses: Selecting Strategies for Success,” Sloan Management Review, Spring 1985, pp.3-17.

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Eric Douglas

Eric Douglas is the senior partner and founder of Leading Resources Inc., a consulting firm that focuses on developing high-performing organizations. For more than 20 years, Eric has successfully helped a wide array of government agencies, nonprofit organizations, and corporations achieve breakthroughs in performance. His new book The Leadership Equation helps leaders achieve strategic clarity, manage change effectively, and build a leadership culture.