For small-business owners, expanding outside their local market is a sign of successful growth—and also changes the way they need to operate.

Small-business owners love success. However, success in business fuels growth, which very often creates a need for expansion. When that expansion takes a business outside the realm of its local or regional market, owners must often reevaluate and reassess the way they do business.

When Jane Hedreen started Flora and Henri, a Seattle-based children’s clothier, she wasn’t motivated by a desire to compete with market leaders Carter’s or Gap in the $17 billion children’s apparel industry. Instead, she was driven by what she saw as a hole in that industry.

“To buy clothing for young boys at that time that wasn’t covered in logos was virtually impossible,” says Hedreen, 39, recalling the days leading up to her creation of Flora and Henri in 1998. “I took my oldest child to the Gap, and the only clothes that didn’t have logos were bellbottoms and tube tops.”

Having studied art history at Yale, Hedreen had decided to become a stay-at-home mom at the time, and her husband was a successful Seattle real estate developer. Always interested in starting her own business, she decided children’s clothes were her calling, and with startup funds secured from family members opened the first Flora and Henri in the middle of downtown Seattle’s retail core. Inspired by vintage and European clothing, sporting a milder, neutral palette of colors and, most importantly, devoid of logos, the store’s high-end collection of clothing for the zero to 12-year-old set was a hit with discriminating parents.

When Flora and Henri opened, it wasn’t just a stand-alone retail operation. A catalog and Web site were equally important tools in getting this “brandless” brand to other consumers, many of whom were far from Seattle. Hedreen says most of her Web and catalog shoppers outside of the Pacific Northwest were in the New York and Los Angeles areas; so, in 2003, the business opened a store in the middle of New York City’s Madison Avenue retail corridor. A store in Santa Monica’s swanky Brentwood Country Mart followed in 2005.

“It was important to expand in order to build our brand,” says Hedreen. “The Web site is successful, but we needed to get our products into the customers’ hands, so that they would trust us.”

But there was much more to Hedreen’s geographic expansion than simply hiring a New York and Los Angeles staff. Moving into new markets presented as many challenges as benefits. While expansion certainly helps build a company’s brand recognition, it also poses several unique risks—chief among them, replicating the excellence of the company in other, far-flung locations.

“You have to be certain you can deliver the same level of quality and customer service at your new location,” says Elaine Hagan, director of entrepreneurial studies at UCLA’s Anderson School of Management. “You need people in other locations who share those values.”

Hedreen discovered that very thing after opening her New York City store. Originally, the store was staffed completely by New Yorkers, and shortly after opening, she received angry calls from longtime Internet and catalog customers who said they would not visit the store again because of the poor customer service. Considering 43 percent of the customers visiting the stores are regulars, and those repeat consumers spend almost 19 percent more on average than new customers, this was a major issue. “Our store is welcoming in a way that’s not traditionally associated with New York,” says Hedreen. “Our customers can browse.”

After she moved one of her Seattle managers to New York to run the store, customer relations rapidly improved, as did foot traffic in the store. Providing a compelling experience to customers is not simply limited to clothing retailers. Mega-corporations such as Starbucks and McDonald’s began as small startups that became successful at replicating the customer’s drinking and dining experience across an immense geography.

“We’re also talking about economies of scale,” says Hagan. “You get to a certain level of penetration in a local market, and it’s much easier to secure new customers in a market where that product doesn’t exist.”

That rationale has fueled the dynamic growth of TokyoPop, a Los Angeles–based publisher of Manga, Japanese comic books published in graphic novel form. Since its inception in 1996, TokyoPop has grown to a company with annual revenues of roughly $50 million, and is now the largest publisher of Manga in North America, with 25 to 30 percent of the rapidly growing U.S. Manga market.

“National and international expansion has always been a key part of this company’s mission,” says chief operating officer John Parker. Parker points out that only 1 percent of the U.S. publishing business is currently composed of Manga, compared to 40 percent of the Japanese publishing business. While he acknowledges it is unrealistic to expect the American audience’s Manga habits ever to mirror the Japanese, he points to the much more similar European Manga market as a guide for future growth in the U.S. It’s almost 4 percent in countries like France and Spain. “The U.S. has definitely [come] late to the party,” Parker says.

TokyoPop’s philosophy jibes with how many entrepreneurial experts say small business owners should approach expansion planning. “Day one is not too soon to start thinking about your business expansion strategy,” says Hagan. “There’s a cycle to growing a business, and owners have to think of these things, as well as exit strategies like going public, at the very beginning.”

Still, it can be hard for an owner to cut the purse strings when the daily creative machinations of the business are what inspired them in the first place. Hedreen still designs all the clothing for Flora and Henri, and even though her staff has grown from two employees to 14, she remains adamant about being the company’s only designer, even though designing only takes up about 5 percent of her work time (the rest is spent managing). Hagan says the successful transition of management responsibilities during expansion is a key factor in a company’s success or failure.

“When you’re in the garage, you’re CEO, administration, manufacturing, sales and accounting clerk all at once,” says Hagan. “To make it to the next level, you have to install the systems that will help you manage your growth.” Based on the number of employees a company brings on, that transition is often more difficult than simply bringing in more bodies.

“The culture you create at a business is not nearly as adaptable after you get past a certain number of people,” says Tom O’Malia, director of the Greif Center for Entrepreneurial Studies at the University of Southern California. “Early on, communication between the employer and employees is done almost by osmosis.”

Surveys conducted by O’Malia of growth business owners identified “the day they had to establish personnel policies” as the most common point at which their once romantic business suddenly stopped being fun. “The day every entrepreneur hates is when someone asks them how many paid holidays they have,” says O’Malia. “Many entrepreneurs elect to sell at that point.”

Hedreen agrees, saying the most difficult moment in her business came in 2005, when she had to produce her first employee manual. “You don’t think of managing people when you start out,” she says.

Still, there are no plans to sell Flora and Henri anytime in the near future. The challenges of personnel management, the increased cost of Canadian manufacturing (since the value of the Canadian dollar has risen), a wealth of new competitors and the uncertainty of new and untested markets far from overshadow the happiness she gets from having her business.

Besides, she has much more to do. After a corporate history of building buzz simply through word of mouth, Flora and Henri is running an advertising and marketing campaign for the first time in 2006, another sign that the transition to national player is going as planned.

“It takes 10 years to build a brand,” says Hedreen, “and the bottom line is that many people still have to learn about Flora and Henri.”

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kemp powers is a freelance writer based in Los Angeles. Email Kemp at editor@executivetravelmag.com.