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The initial expansion path of an entrepreneur

An exploratory study into the different possibilities and factors that determine an entrepreneur’s expansion path

Master thesis research by Roel Denissen

In June 2015, Roel Denissen graduated from the Tilburg School of Economics and Management at Tilburg University. He followed the master Strategic Management and wrote his master thesis in the area of entrepreneurial growth and expansion.

Growth and expansion are the dream of any entrepreneur. How to grow and expand however, is an issue facing both young and established firms in all varieties of size, capacity for growth, organizational structure and management styles. In contemporary literature there are many, sometimes contradictory, visions on how to expand. This gives the entrepreneur a hard time when deciding what strategy fits best. Therefore, this thesis attempts to provide a deeper insight into the reasoning of the entrepreneur for choosing one of the possible expansion paths

Previous studies show different perspectives on growth, for instance: that all firms should expand internationally at an early age (Oviatt and McDougall, 1994), that a firm should expand in different products and product ranges early on in its existence (Chen et al., 2009), or that a firm should expand existing products into given niches and segments of the market, since a niche market is often less complicated to enter (Garnsey, 1998). Aiming to clarify the different possibilities for a firm’s initial expansion and also determine the reasoning for selecting a possible expansion path, this research will investigate how an entrepreneur determines the startup’s initial expansion path.

The research question was answered by performing a literature review, followed by a series of in-depth interviews with a sample of entrepreneurs with current or past expansion experience.

The findings of the study implicate that there are five expansion paths that can be distinguished for entrepreneurs to choose from: geographical expansion (dealing with expansion into a different geographical region, with an existing product), product diversification (targeting the current target group or a different target group, in the same geographic region, with a new product), segmentation (targeting a different target group within the current geographic region, with an existing product), vertical integration (targeting the same target group within the current geographic region and with an existing product, but with an additional value chain position) and generic expansion (occurring when it is perceived that current demand exceeds current capacity; it considers targeting the same target group, within the current geographic region, with an existing product and in the same value chain position). The choice of expansion path is influenced by four types of factors: business- (concerned with the capabilities and structure of the firm), location- (regarding the physical location of a company), entrepreneur- (dealing with the wishes, experiences and motivators of the entrepreneur), and environment- (regarding the context of the firm, such as the industry, environment and regulations). When determining an expansion path, entrepreneurs mostly consider business-specific factors and environment-specific factors. Entrepreneur-specific factors are moderately considered, while location-specific factors have a low degree of influence on the decision.

Finally, this paper suggests that, although there are still drivers to be identified, all factor-types have multiple factors that influence the expansion decision, and entrepreneurs should weigh all the pros and cons, or consider all factors, before choosing an expansion path.

 

References

Garnsey, E. (1998). A theory of the early growth of the firm. Industrial and corporate change, 7(3), 523-556

Oviatt, B., & McDougall, P. (1994). Toward a Theory of International New Ventures. Journal of International Business Studies, 25(1), 45-64