What works for you?
Business growth sounds wonderful, but all too often successful small or medium enterprises find that their growth strategies grow their turnover, but decrease their profit margins. Their business growth can even lead to business failure. Having a growth strategy that fits your business and that grows both turnover and profits is an aim that no business owner should lose sight of.
You can’t do everything
A strategy requires clarity and focus. If you try to apply too many different growth strategies simultaneously, you won’t be able to achieve great results in any of them. Don’t allow your focus to become diffused.
For example, it may be tempting to pitch hard at every possible market segment your business could generate revenue from. But some market segments are more likely to be profitable than others. The time and resources you spend on marketing your business in unprofitable market segments has a negative effect on your impact in the market that could be the key to your success.
Business growth costs
There’s no getting round it. Business growth costs money. You may need to expand your business infrastructure, employ more people, invest in more equipment or spend more on raw materials or stock. You need to have the capacity to supply your growing market and that means investment. It’s almost like starting a new business. You need to assess your risks, your costs and be realistic about your potential return on investment.
If everything checks out, you may still require a financing option so that you have the start up business loans you need to make your growth strategy work. As economists are fond of saying “There is no such thing as a free lunch”. Many businesses with great growth strategies find that they are unable to implement them owing to lack of financing. Investigate the solutions before you find yourself with a problem!
New Product, new market
You could compare this strategy to starting a new business within your existing business. It’s the riskiest growth strategy, but it can work if you’ve got a great idea and you’ve done your homework.
To successfully launch a new product in a new market, businesses need to determine what competition they are up against as well as understanding the wants and needs of the consumers they will be targeting. The marketing mix (Price, Product, Promotion, Place) must be orchestrated to suit your new target market.
Existing product, new market
Breaking into new markets with an existing product is less risky than trying to enter a new market and it’s usually less costly. Once again, you need to grasp the marketing mix and understand how it will appeal to the market you are targeting.
If you’re expanding into a new geographical area, the cost may be higher and the profit lower. For example, increased delivery costs could eat into your profit margin and a new branch or depot will require an investment of capital.
When targeting a new market within your current geographical area, your costs will be lower, but you should first ensure that your marketing effort in a new segment would not be more effective if applied to your existing marketing segment or segments.
New product, existing market
The risks inherent in introducing a new product to your current market depends on the cost involved. If you’re in a manufacturing business, you may need to invest a fair amount of capital into adapting your facilities to allow for production of your new product. If you’re delivering a service, you may need additional staff and equipment.
Because you’re working with existing clients, you will be able to get a better idea of the impact your new product or service may make on the market by asking for their opinions in advance. You can also test the waters by making your product available on a small scale before committing yourself to the strategy.
If you’re in the type of market that depends on innovation (for example technology-related businesses) this kind of strategy will be essential in maintaining and growing your business.
Existing product, existing market
This is the safest strategy of all. You already know that your product works for your market, now it’s just a matter of making more people in that market aware of the benefits and features of your product or service.
If your marketing drive works, you could find that you need to expand your capacity to accommodate demand. Your primary concern will be whether you’ll be able to afford the necessary production or other input costs to take advantage of your marketing success.
Alliances, partnerships and franchises
Working with suppliers or retailers can help you to achieve better results at a lower cost. For example, if your manufacturing facility can’t keep up with demand, collaborating with another manufacturer could gain you extra turnover and profits without high input costs.
You could also look at creating a franchise option for your successful business model or enter into a partnership with suppliers or retail outlets. A partnership with a supplier could give you a favourable cost advantage, while a retail partner could help you in marketing your product.
Buying into or taking over related businesses
This is a variant of the ‘existing product, existing market’ option. By investing in or taking over related businesses, you obtain their portion of market share. A takeover will offer you complete control over a business that was previously a competitor and gain you their full client base. A buy-in offers you less control over the related business, but a share of its profits.
Once again, doing your homework is essential if you want to succeed. Your potential return on investment is the primary factor that will decide whether you choose this option or not.
Approach growth strategies with caution, but don’t give up on growth
Be aware of the potential implications of your growth strategy, but don’t be afraid to reach for the stars if the chances of success are good. Being an entrepreneur is all about taking risks and reaping the rewards. Make sure that your growth strategy is a gamble with good odds and a good pay out and ensure that you have contingency plans in place.