RESULTS

Results of Analytic Induction

Consistent with the logic of analytic induction, the cases were analyzed one by one and the differences between the preliminary model (Figure 1) and the data from the new cases unfolded in an incremental manner. The overall results of this process are shown in Figure 2, which is a revised model of the managerial challenges that influence small business geographic expansion. This figure will be discussed in detail later in this paper.

To better understand the areas that each case contributed to the development of the revised model (Figure 2), the next section of this paper focuses on each case in the stepwise manner suggested by Cressey (1953). Due to space limitation, only the highlights from each of the individual cases are presented.

 

Case Studies

ApplianceCom. ApplianceCom is a retail rent-to-own store that handles furniture, appliances, and jewelry. The business was founded in 1956, initiated its first geographic expansion in 1988, and now has five different sites within a 38 mile radius of the home store.

Consistent with the preliminary model, training and recruitment and selection have been important issues to the company during its geographic expansion. The company has made a practice of promoting employees from its headquarters location to manage the expansion sites. As a result, the company has had very little turnover during their four expansions, providing a measure of consistency in management practices across the sites. Training is an on-going activity in the company, and occurs on a regular and ad hoc basis. Consistent with the preliminary model, however, the owners did indicate that they have found that it is difficult to hire qualified workers. The owners attribute this difficult to their pay scale, which has prohibited them from attracting employees with college degrees. The company does adjust its pay scale to account for cost-of-living differences across geographic sites. The owners also indicated that they understand the need to delegate authority and readily acknowledged that management practices will vary occasionally from the headquarters location to the expansion sites.

In addition to the preliminary model, the owners of ApplianceCom have made an effort to make each geographic site a part of its local community by supporting the Chamber of Commerce and encouraging their employees to become involved in civic groups. In addition, the owners indicated that location, along with a keen sense of the competition, is a critical issue when opening a store in a new area. For example, the owners indicated that they would never put another store in a downtown location. Rather, the owners look for strip mall locations that are in a vibrant part of the community and provide customers easy access to parking. This example indicates that learning is an import part of successful geographic expansion.

As a strong affirmation of the preliminary model, both of the owners of ApplianceCom indicated that the most important issue leading to their success was "recruiting, motivating, and training of managers and staff."

Family Counseling. Family counseling is a mental health organization that provides a variety of services including professional counseling for depression, anxiety, marital problems, and aging issues. The company is also engaged in some educational programs. The company was founded in 1980 by a single psychologist that initially worked part time. The first geographic expansion took place in 1985, and the company now has a total of five sites.

A distinguishing characteristic of Family Counseling is that each expansion was carefully planned and was brought on slowly and methodically. Like ApplianceCom, training is an important issue for the company, partly as a result of laws that stipulate the level of supervision that must be provided to the non-Ph.D. trained psychologists employed by the firm. Consistent with the preliminary model and the first case, the owner of Family Counseling stressed the importance of hiring quality employees, and that finding good key employees is difficult. The owner also stressed that when employing professional people, compensation and benefits are salient issues. Family Counseling’s intention in each site has been to replicate the home office strategy and procedures.

Similar to ApplianceCom, Family Counseling was very careful about selecting each market they entered, and learned from its mistakes. In addition, Family Counseling was looking specifically for expansion sites in rural towns that did not have immediate access to mental health services. As an indication of the importance of site selection and the learning that takes place during expansion, the owner of Family Counseling indicated that if he had it to do over again:

"I may have been a little bit more careful about the selection of the sites. I
went to one site and I should have gone to another town. I didn’t pick the
county seat which is the center of the community, county, and social activity.
I should have picked a different site. We moved it."

In several other areas, the experience of Family Counseling confirms the preliminary model in a fashion that adds depth of perspective to the individual items in the model. For example, when asked "what are the two or three pieces of advice that you would give someone starting out in this business?" the owner replied, "get training on how to operate a small business," and "get a business consultant." This suggests that the owner of a business must supplement the training of his or her employees with professional training for himself or herself, especially in the area of managing for growth. The owner of Family Counseling also provided insight on the topic of reasons for growth. The owner commented that during the evolution of his geographic expansion and the growth of his practice he had to back away from the day to day management of his firm and let his employees assume an appropriate role. Specifically, the owner of Family Counseling remarked,

"One thing that I had to do was to not feel so much of an ownership and
personal identity with the practice." (For a period of time) "I had to stay
for my own emotional needs. When I got rid of that, I could leave and let
them (the employees) take over."

This example suggests that growth that is motivated by personal reasons (i.e., emotional reasons as shown above) may interfere with the prudent management of growth. Another insight provided by the manager of Family Counseling is that small business growth has appropriate limits. When asked why the firm has not expanded beyond five sites the owner said that "it’s because of manageability. That’s all I can handle comfortable and do a good job of supervision."

An important contingency faced by Family Counseling that is not a part of the preliminary model and was not addressed by the first case is the importance of the external environment on small business performance. Commenting on the volatility of the health care industry, the owner of Family Counseling remarked:

"The market changes so rapidly. So what do you do? You can be a very good
psychologist but the marketplace can change totally, and it is now changing.
All the training you had in marketing can be no longer useable. The HMO’s
and others can suddenly, overnight, take all of your referrals away from
you and ruin your business and it has nothing to do with your skills."

This remark illustrates the vulnerability that the owner of Family Counseling, although successful, feels in regard to the volatility of the external environment. This factor is likely to differ depending upon the industry in which a small business competes.

The Women’s Shop. The Women’s Shop was a retail business, offering women’s clothing and accessories. The business was founded in 1984 by a husband and wife team, made its first expansion in 1985, and eventually expanded to a total of four sites. Unlike the previous two cases, the Women’s Shop was not successful and eventually went out of business.

The owners of the Women’s Shop stressed training and recruitment and selection, but like the owners in the first two cases, found that finding good employees was more difficult than they anticipated. The "hands-on" owner of the business also found that it was difficult to staff her expansion sites with employees that had the skill and enthusiasm to replicate the success that she had enjoyed in her original store. Like the first two cases, the owners of the Women’s Shop also stressed the importance of location. Even though the geographical distance between the sites was modest (3-8 miles), the demographics of the metro area that the stores were located in varied dramatically. In reflecting on this issue, the owner commented that:

"It never occurred to me that one of the reasons that I was being successful
(in her original site) besides the fact that I was on the sales floor is that I had
a good feel for what the market was in terms of fashion."

She went on to divulge that one of her expansion sites was located in a market close by that had a completely different clothing preference. She did not recognize the difference in markets at the time, which had a negative impact on the eventual success of that particular expansion.

Two additional key issues emerged from this case analysis. The influence of the external environment was very important to the eventual lack of survivability of the business. Competing with big discounters was a continual problem. In addition, at one point a large department store in the area went out of business and flooded the with below wholesale priced apparel. A particularly interesting finding from this case pertains to the importance of nurturing a climate of entrepreneurship in expansion sites (as prescribed by the preliminary model). When asked about this issue, the hands-on owner of the Women’s Shop commented:

"I am surprised by my answer. When you first started to ask, I though of
course I wanted a spirit of entrepreneurship -- but now that I think about it,
no, I wanted them to follow a certain prescribed way of doing things and
where I got my ideas was from people who had been in the business for 20
and 30 years."

This answer suggests that the spirit of entrepreneurship that the owner enjoyed in her first store (which remained successful, although the company as a whole did not) may not have been present in the expansion locations.

Finally, the first geographic expansion undertaken by the owners of the Women’s Shop was in partnership with some close friends. That site was not successful. In retrospect, the owners of the Women’s Shop both commented that going into business with close friends caused complications that did not contribute to the success of the business.

 

REVISED MODEL, DISCUSSION, AND CONCLUSION

A revised model of the managerial challenges that influence the performance of small business geographic expansion is shown in Figure 2. As described, this model was develop through a process of refining the preliminary model (Figure 1) by comparing it to the three case studies discussed above. As a result, the revised model represents the cumulative knowledge derived through the development of the preliminary model and the subsequent case studies.

The revised model extends understanding of the managerial challenges that influence the performance of small business geographic expansion in several areas. First, the model postulates a weak relationship between reasons for growth and performance. In two of the three cases analyzed, growth was motivated to a degree by personal rather than strictly economic reasons. The owners of the Women’s Shop initiated their first expansion primarily because some close friends asked to become partners in the business. That initiative ended in failure. During the growth of his firm, the owner of Family Counseling indicated that he had to work hard at detaching himself from the firm and not allowing his ego to interfere with the prudent management of the business. Both of these examples suggest that allowing personal rather than purely economic reasons to motivate growth may have a negative impact on performance.

In the area of planning for growth, Figure 2 postulates that small business expansion is a process that begins with prudent planning. In all three of the cases, the owners engaged in various forms of planning that facilitated the management of their geographic sites. An important moderator relationship that was not included in the preliminary model (Figure 1) but was clearly in evidence in each of the cases is the importance of location. For instance, the owner of Family Counseling was specifically looking for sites in rural communities that did not already have access to mental health services. Despite the salience of this issue, however, all three companies reported that they made mistakes in location decisions. This indicates that planning for growth is a particularly important activity when location is an important issue.

In the area of managing growth, the preliminary model was largely supported by the subsequent analysis. One variable, employee motivation, was added to the revised model. A key issue involved in successful geographic expansion may be the ability of the owner/manager of a small business to replicate not only his or her product or service in another geographic site, but also his or her expertise and enthusiasm for the business. The owner of the Women’s Shop made a direct reference to this issue, and indicated that no one that she hired was able to replicate her level of sales. This was despite training and a high level of employee supervision.

Finally, the revised model includes three variables that moderate the relationship between managing growth and performance. First, all three case studies showed evidence that the management of growth can be made more effective through learning. For example, the owners of ApplianceCom "learned" that it was a mistake to locate their stores in downtown areas that do not have convenient access to parking. Second, two of the three companies analyzed used business consultants to assist in their geographic expansion efforts. The owner of both Family Counseling and the Women’s shop reported that the use of consultants had a positive influence of their business performance. Finally, in the case of Family Counseling and the Women’s Shop, environmental volatility interfered with their growth initiatives. At a critical time in its history, the Women’s Shop was financially crippled by a large discount store that went out of business, flooding the market with below wholesale priced products. Similarly, according to the owner of Family Counseling, the long-term viability of his business in its present form is being threatened by the continued proliferation of HMOs and mergers in the health care industry. What is particularly striking about these examples is that a small business can essentially be doing everything right, but can be severely threatened by changes in its external environment.

In summary, as pictured in Figure 2, the revised model provides an extension of understanding of the managerial challenges that influence the performance of small business geographic expansion, and also provides practical advice to small business managers that are considering geographic expansion as a growth strategy.

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Last Updated 1/15/97 by Geoff Goldman & Dennis Valencia

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