1.03 – Thinking about Future Growth
Growth is as natural in business as it is in biological life. Just like people, animals, and plants grow to a certain size range, businesses too often hit a plateau after a few years. Most successful new businesses reach a stable size within five to seven years, typically employing 5 to 20 people and generating annual sales between £250,000 and £1 million. Of the 4.8 million private businesses in the United Kingdom, fewer than 125,000 have a turnover exceeding £1 million a year. This shows that achieving a few hundred thousand pounds in annual sales is an admirable and relatively uncommon success.
Benefits of Growth
Growing your business offers numerous advantages, as outlined in the following sections.
Gaining Economies of Scale
As a business grows, it can spread its overhead costs over a wider base, allowing for the purchase of materials and services in larger quantities. This usually results in better terms and lower costs. These factors generally lead to a higher profit margin, which provides funds for further business improvements, creating a cycle of increased cost competitiveness and growth.
Securing A Competitive Advantage
A new business can gain a competitive edge by doing things established businesses can’t easily imitate. For instance, a new hairdressing shop can choose a prime location, whereas an existing shop is tied to its current lease.
Growing firms can also gain an edge over slower competitors by launching new products or services, offering more options to their existing customer base. This strategy can improve customer retention, leading to higher profits and further growth.
Employee retention is crucial for business success. High employee turnover can waste valuable time and money. Contrary to popular belief, employees value interesting work and recognition more than money. By growing your business, you can offer key managers more challenging roles and higher salaries, encouraging them to stay and contribute to your company’s success.
Expanding Customer Base and Product Line
A growing business has a greater market presence and is generally more stable, especially in turbulent times. Small companies often rely on a few key customers and products for most of their profits, making them vulnerable to competitive pressures and changes in customer behavior.
Expanding your customer base and diversifying your product line can help break out of the 80/20 cycle, where 80 percent of the business comes from just 20 percent of customers. Adding new products or services helps your business grow and become more secure.
Conclusion
Growth isn’t just about getting bigger; it’s about creating a more stable, competitive, and resilient business. By focusing on economies of scale, securing competitive advantages, and expanding your customer base and product line, you can ensure long-term success and sustainability for your business.
