Knowledgeable SCORE advisors offer free business advice and helpful how-to’s in order to help small businesses succeed in the Williamsburg community. Have a business question you’d like answered?
Most entrepreneurs seek to build their small business. Some are interested in expanding their existing markets, whereas others want to enter entirely new markets. Which type of growth will be right for you?
If your goal is to achieve sensible, sustainable growth, you’ll want to balance your expansion plan with flexibility. While organic growth is the avenue most businesses pursue, there are other methods that allow faster expansion and largely avoid the capital and management constraints of growing internally. Franchising, licensing and distributorships or dealerships are three possible ways to expand an already healthy small business.
Franchising is an option for some product and service companies that are not in a position to finance internal growth. Franchisees share the risk of expanding market share, because they are committing their own capital and resources to model satellite locations after the existing business. However, there are a variety of state and federal regulatory issues around the sale of a franchise. Sufficient capitalization is only the beginning of a building a solid foundation from which to launch franchises.
Licensing enables a business owner to spread the risk and cost of developing and distributing a product. Licensing typically falls into two categories: intellectual property, such as computer software and high technology, and merchandise and character licensing, having to do with trademarks and images. In the second category, the name, logo, symbol or character is the “property,” whereas the actual product, such as a toy, becomes the “licensed product.”
One way to bring a manufactured product to the marketplace is through independent, third-party distributorships and dealerships. A distributor buys the product from the manufacturer-your small business-at wholesale prices and then resells either to a retailer or directly to customers. Your controls over the dealer must be minimized to avoid the business being classified as a franchise, which entails more complex regulation.
All of the above approaches can permit much more rapid expansion, both geographically and across market segments, than can usually be achieved internally. However, this is achieved at the cost of diminished control of the business by the entrepreneur. So which is better-organic growth or outsourcing growth? The answer is that neither is necessarily better; the choice depends upon the objectives and priorities of the entrepreneur.
If you have questions about this or other business subjects, call SCORE at 757-229-6511 or e-mail info@SCOREwilliamsburg.org to arrange for a free and confidential appointment. The Williamsburg SCORE office is located in the Williamsburg Chamber and Tourism Alliance Building at 421 North Boundary St.
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