Geographic expansion - how to make it work and not lose your shirt (3/5)

In our last post we looked at the first step you can take in stacking the geographic expansion deck in your favour: preparing the company internally by using a clear business model that can be replicated easily, multiple times. In this post, we look at the second step: choosing the right commercially attractive location.

We have a mantra for this step; and if we want people to remember one thing from all our findings about geographic expansion it is this mantra: "follow the money". Follow the money means two things. First, it means following demand from existing clients that have major budgets that you expect to be spent on you over a period of years. Second, it means moving into locations that have strong latent demand for your services. These factors both need to be in place. It's just as bad to follow a single client into a backwater as it is to set up in a major corporate centre with no established ongoing client to support you.

"Follow the money" is the demand-side of selecting the right location, but we should also look from the supply-side perspective. That is to choose from locations where you have knowledge, experience and contacts. Failed and loss-making geographic expansions are littered with examples of talented, energetic people starting from scratch in a new location, to abandon the project with few leads and no sales six months later. Even if you are following an existing client, a new location needs this broader base of contacts and internal local knowledge to grow and thrive.

Monitor Company's geographic expansion was based at its core on following the need of long term clients. But if you look at Monitor's network, these client locations are also all major corporate centres. With each of its new offices, Monitor was deliberate in using the knowledge and contacts of nationals of the new location that already worked at the company. At the time of writing, Monitor had established profitable offices in more that 25 locations world-wide. We can contrast Monitor with a supply chain consultancy (which we won't name for obvious reasons) that took the more usual approach to geographic expansion: an enthusaistic individual opened an office on the basis of a one-off client project, but had no knowledge, contacts or experience of the location. After the six-month assignment finished, work dried up; the office was closed two years later with a write-off of more than one million dollars.

Now we have covered the first two steps in improving the chances of profitable expansion: preparing the company and choosing the right location. In our next post, we'll cover the next step to improve the chances of success further: preparing the market.


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