Small business growth through geographic expansion

Abstract Although the small business sector as a whole is achieving phenomenal growth, an important concern in the field has been identifying the problems, challenges, and success characteristics associated with the prudent growth of individual firms. A strategy utilized by many small firms to achieve their growth objectives is one of geographic expansion. This approach involves expanding a firm’s business from its original location to one or more additional geographic sites, and is particularly well suited for firms that cannot expand in their present location but believe that their products or services may be appealing to consumers in other markets. Surprisingly, despite the prevalence of geographic expansion as a means of small firm growth, this is a neglected area of small business research. Although researchers have examined the common challenges associated with small firm growth, a small business that expands from one location to several locations is subject to a number of potentially unique challenges. For example, during the course of opening a new geographic site, a small business manager will be confronted with the task of managing an existing business and a start-up at the same time. The challenge created by this undertaking, along with the other challenges associated with geographic expansion, have not been specifically identified. An improved understanding of these challenges may help small firm managers maximize their changes of leading successful expansion efforts. As a result of the lack of research in this area, this study used a comparative case study methodology to develop a theoretical model of the antecedents of effective small business geographic expansion. The model was developed in two steps. First, a preliminary model of the antecedents of effective small business geographic expansion was developed from the existing small business growth literature. Second, using analytic induction, the preliminary model was compared with the experiences of five small businesses that have engaged in a growth strategy of geographic expansion for the purpose of developing a more thorough and more valid theoretical model. A unique attribute of the sample is that not all of the businesses have been successful in their expansion efforts. Two of the five small businesses included in the study have had failed expansions, providing us the rare opportunity to contrast failed expansion efforts against successful ones. The model that emerged from this approach supports the notion that geographic expansion involves a unique set of managerial challenges. The consistent evidence across the five case studies indicated that effective small business geographic expansion involves the following six major areas of concern: planning for growth, managing growth, reasons for growth, expansion site characteristics, a set of moderator variables, and expansion performance. Among the implications of the study is that the unique nature of the geographic expansion process adds a layer of complexity to firm growth that exacerbates the need for planning. Along with the normal challenges involved with adding structure to accommodate growth, a firm that engages in geographic expansion must do this in an unfamiliar location, where the market potential and legitimacy of the firm’s business concept is untested. The consistent evidence that emerged from the cases is that planning helps attenuate these challenges. In addition, the recruitment and selection of qualified personnel to staff expansion sites is a critical activity, along with networking in the expansion site locations to establish organizational legitimacy. Three variables were found to moderate the relationship between managing growth and expansion performance. Learning and flexibility were found to have a positive influence on the managing growth expansion performance relationship, whereas environmental turbulence was found to have the opposite impact. Finally, a complex set of relationships emerged from the study pertaining to expansion site characteristics. For instance, the evidence generated across the cases suggested that planning helps a firm develop a set of heuristics for expansion site selection, which helps a firm avoid placing a site in an undesirable location.