Many small businesses dream of expanding to multiple locations. When done deliberately, building a business chain follows a clear process that can generate jobs and influence the market, writes ARINZE NWAFOR
Building a chain of businesses can be a tricky endeavour. It can signal ambition and confidence, but it also exposes weakness and impatience. True business expansion means advancing a company’s economic, social, and strategic footprint to multiply value, not merely opening another shop, hiring more people, or printing a new signboard. The latter, more often than not, dilutes value.
Important point: it takes time and planning to open multiple locations for a shop and remain profitable. In this article, I will explain the forms a business chain can take and show what works and what does not.
Forms of business chains
There are company-owned chains, franchise chains, branch networks, management contract chains, dealer or distributor chains and licensing chains, among others. Each form of a chain suits a type of business.
There are some popular companies with a great model for their chain of business. McDonald’s, Starbucks and Walmart are ideal in their expansion through subsidiaries that operate as semi-independent units, franchises that replicate a proven model, or retail chains that spread a single brand across cities and regions.
In Nigeria, we have Dangote Group, Shoprite, Chicken Republic, Access Bank and other tier 1 banks. We also have recent chains such as Bokku Mart.
These are great examples, but expansion can also be a tailoring shop adding a second production line or a bakery introducing complementary products.
Director of the Africa Retail Academy at the Lagos Business School, Prof. Uchenna Uzo, states that expansion allows a business to measure whether it is truly making a difference to society, its industry and its people. But he and other business leaders warn that expansion done for the wrong reasons or at the wrong time often destroys value.
Since small business owners in Nigeria operate in a volatile economy, the question is not whether to expand, but how to do so wisely.
Why you should expand your business
When a business expands properly, it reflects relevance. The LBS don, Uzo, explained that growth enables a business to widen its reach, mobilise more resources and innovate at scale.
A firm that expands gains access to deeper talent pools, stronger supplier relationships and broader market intelligence. Uzo told The PUNCH, “It is good to aspire to expand… It helps to see if a business is making a difference when there is some level of expansion going on. It also means that they have more resources available to grow, be more innovative, and widen their reach.”
Here is the tricky part: Many entrepreneurs equate size with success and think new outlets automatically translate into profitability. Uzo warned, “The first pitfall is assuming that expansion or growth is the same thing as profitability. Often, people are ambitious about adding new outlets, but they don’t think carefully about the financial impact of doing that. And so you find businesses that end up costing them more to stay in business.”
He explained that it became less profitable just because the owners were carried away by the need to expand. Uzo noted that the financial technology sector faces this pressure the most.
“This is very common, especially among fintechs that have received funding from different places and are under pressure to prove that they are being successful, to the point that they end up being unprofitable in the process. Not all forms of expansion are healthy for a business,” he remarked.
You may ask, ‘Well, how can we solve this problem and expand into more locations sustainably?’ It lies in consolidation.
Consolidate before replication
President of the Association of Small Business Owners of Nigeria, Dr Femi Egbesola, observed that many Nigerian businesses expand before they mature. SME owners who rush to open multiple branches of their business before consolidating operations, strengthening controls and stabilising cash flow risk collapse.
“Expansion is expected to be a sign of growth, and that is the prayer of everybody,” Egbesola noted. “But you discover that those who are expanding are not even mature enough to expand. At the time they expand, their businesses are not doing too well, but they still decide to branch out. It is why you see that over time, those businesses begin to wobble, and some die.”
He advised businesses to consolidate what they are doing at the moment and ensure that it is well-grounded. “Sometimes expansion can even take place in one location in the same place,” he added.
A baker who adds baking accessories or related products expands revenue streams without multiplying overheads. This form of deepening often prepares a business for later geographic growth. It forces the owner to refine processes, understand customers better and build managerial discipline.
Knowing when not to expand
Not all businesses should expand, and not all seasons favour expansion. The LBS don, Uzo, stressed that a factor to note is the people who will drive the expansion and growth in any given business.
“There are a lot of businesses that grow faster than the people that they have,” he cautioned. “Faster in the sense that people don’t have the growth mindset of that business. They are not ready for the quick-paced change that the business is aspiring to. And it ends up happening that that expansion is not well implemented.”
ASBON president Egbesola warned against copying another firm’s move without analysing one’s own capacity, as it leads to overextension. “Peer pressure: they see other businesses expanding, and they feel the right thing is also for them to expand, even without taking the cost and doing the right analysis to see if that business can sustain the right expansion.”
Understand the market
“Nigeria is not one market,” Uzo stressed. “A pitfall around expansion is not fully understanding the new terrain, that is, the nature of business, the nature of regulation, and even the culture of the environment where people are expanding to.”
He insisted that businesses must study territorial differences before expanding. Lagos, Abuja, Port Harcourt, Onitsha and Ibadan differ in consumer behaviour, regulation, logistics and culture.
Market understanding requires patience. It involves gathering insights on pricing sensitivity, competition, local supply chains and regulatory enforcement. Businesses that rush this process usually pay for it later through low sales, high compliance costs or reputational damage.
Be disciplined with numbers
Every successful expansion is anchored on being financially healthy. Uzo cautioned entrepreneurs against assuming that growth automatically improves the bottom line and warned that without rigorous financial modelling, expansion drains resources.
He proposed a practical benchmark: businesses should maintain a sufficient cash runway to sustain their existing operations for at least 12 months, and ideally up to two years, even in the event of losses.
Uzo advised, “The SME owner must ensure that the amount of cash they have is available to run their business and that the financial runway they have can cater to their needs for at least 12 months to 2 years.
And in the case that they run a loss, they would have backups that enabled them to invest in and try out new places and new opportunities.”
Perform feasibility studies
Uzo and Egbesola agreed that feasibility studies are a non-negotiable step. Before opening a new location or launching a new unit, businesses must analyse demand, costs, competition and regulatory requirements.
Egbesola lamented that many entrepreneurs rely on intuition instead of evidence. “Sit down and do your feasibility study,” he remarked. “The study will let you know the successes and otherwise of what will likely happen if you expand. But in our time here, people don’t perform feasibility studies. They just believe that they can base everything on their head knowledge. Eventually, they discover that they made a wrong decision.”
Sectors with room to grow
There are some sectors to look out for as you expand. Director of the African Retail Academy, Uzo, identified agribusiness, mining, services, education and fintech as areas with strong growth prospects.
ASBON chief Egbesola added hospitality, entertainment, fast-moving consumer goods, education and real estate to the list.
Retail also offers opportunities, though Uzo viewed it as less robust compared to other sectors.
Be ready
Consistency is as important as the right location is to successfully building a chain of businesses. Dr Egbesola emphasised the importance of prime locations, especially for hospitality, retail and education. He advised prioritising owned properties or long-term leases over short-term rentals. Ownership stabilises costs and protects against sudden rent increases.
Uzo explained that a business must be financially prepared to take on the kind of growth it is looking for. “Expansion requires consistency in service delivery, having the right people, and making sure that the expansion plan ties with the overall strategy of the business,” he advised.
