5.03 – Growth Strategy
There are a number of strategies you can use to help your business grow, depending on what you want to achieve. Once you have decided which option supports your objectives, you can start working towards it.
In this lesson, we’ll explore some of the most effective growth strategies that businesses employ to expand their operations and increase their market presence. By understanding these strategies, you can identify the most suitable approach for your business and chart a path towards sustainable growth and success.
Planning growth
Before committing to a growth strategy, it is crucial to conduct careful planning and analysis to ensure its viability and success. The following factors should be considered during the planning process:
Assess market demand
Ensure that there is sufficient demand to support your growth plans. Evaluate whether your target customers, both existing and potential, will continue to have a need for your products or services. Analyze market trends, customer preferences, and industry dynamics to validate the demand for your offerings. This assessment will help you determine if your growth strategy aligns with customer needs and expectations.
Research the market
Just as you did when starting your business, conduct thorough market research to gain insights into the competitive landscape. Identify existing and potential competitors, their offerings, pricing strategies, and market share. Understanding the market dynamics and competition will help you make informed decisions and develop strategies to differentiate yourself and capture market share.
Financial analysis
Evaluate the financial aspects of your intended growth strategy. Determine if the potential financial rewards outweigh the costs associated with implementing the strategy. Consider factors such as additional investments, operational expenses, marketing expenses, and potential risks. Conduct a thorough cost-benefit analysis to ensure that the financial feasibility of your growth plans is favorable.
Evaluate disruption and personal impact
Take into account the potential disruption your growth plans may bring to your existing business operations and personal life. Consider how the implementation of the growth strategy may impact your current resources, processes, and personnel. Assess the scalability of your infrastructure and operational capacity to accommodate growth. Additionally, evaluate how the expansion may affect your work-life balance and personal commitments.
By carefully considering these factors and conducting a comprehensive analysis, you can make informed decisions and develop a well-rounded growth plan. This planning phase is crucial to ensure that your growth strategy is aligned with market demand, competitive landscape, financial viability, and personal circumstances. It will also help you mitigate potential risks and challenges associated with growth, setting a solid foundation for successful execution.
Deciding your route
Once you have a comprehensive understanding of your customers, the market dynamics, and the costs associated with growing your business, it’s time to make an informed decision regarding the growth strategy that aligns with your objectives. There are four primary growth strategies to consider: market development, diversification, market penetration, and product development. Each strategy offers a different approach to expanding your business and comes with its own set of risks and opportunities. Let’s explore these strategies in more detail…
Fun Fact!
58% of small UK businesses lack a plan to grow.
Typical growth strategies
The four growth strategies discussed here are based on the Ansoff Matrix, a model proposed by Igor Ansoff, a Russian-American mathematician and business manager, in 1957. This matrix is still widely used today to explain common tactics for business growth and expansion. Let’s explore these strategies further with an example:
Example...
Starting point
You operate a market stall where you sell organic tomatoes that you grow on your small farm. Demand for your tomatoes is high, and you consistently sell out every week, leaving potential customers disappointed.
Option 1: Market Penetration
In this strategy, you focus on increasing sales of your existing product in your current market. To meet the excess customer demand for your tomatoes, you decide to build a new greenhouse that will allow you to grow more tomatoes. By expanding your production capacity, you can supply a larger quantity of tomatoes to your existing customer base. Although building the greenhouse incurs additional expenses, the increased revenue from selling more tomatoes justifies the investment.
Option 2: Product Development
Product development involves introducing new products or variations of your existing product to cater to the needs of your current market. Despite selling as many market-quality tomatoes as you can produce, you often have to discard misshapen tomatoes that don’t meet the visual standards. To minimize waste and maximize revenue, you decide to use these misshapen tomatoes to produce organic pasta sauce. By leveraging your existing market stall and customer base, you can sell the organic pasta sauce alongside your tomatoes, providing an additional product offering to meet customer preferences and increase sales.
Option 3: Market Development
Market development involves expanding into new markets with your existing product. In your case, a few new restaurants have recently opened nearby, presenting an opportunity to tap into a new market segment. To cater to these restaurants, you decide to offer daily tomato deliveries to them. This not only allows you to serve a new customer base but also helps balance out your monthly revenues, especially during cooler weather when the trade at your market stall tends to slow down. By exploring new avenues for selling your tomatoes, you can expand your business and increase overall sales.
Option 4: Diversification
Diversification is the most ambitious and risky growth strategy as it involves entering new markets with new products or services. In your scenario, you notice that your local supermarket chain does not stock organic pasta sauce. This presents an opportunity for diversification. To capitalize on this, you invest in more bottling equipment and start sourcing tomatoes from other local organic farms. With the additional supply, you begin selling your organic pasta sauce to the supermarket chain, which operates 20 stores. This strategic move allows you to reach a new market (supermarket customers) with a new product (organic pasta sauce) and expand your business beyond the boundaries of your market stall.
Expert Entrepreneur Advice
In my experience as an entrepreneur, I have always prioritized the growth of my businesses. Through my journey, I have found that market penetration, which involves delivering your existing product to more of your target customer base, is the most effective strategy for sustainable business growth. This approach not only expands your customer reach but also allows you to refine and improve your processes over time by actively listening to customer feedback.
It’s common for entrepreneurs to believe that increasing the number of offerings in their business is a surefire way to double their revenues. However, the reality is often different. When you add a new product to your existing offerings, the most likely scenario is that your revenue remains the same and gets split between the two products. Moreover, managing multiple offerings requires additional time and resources, without necessarily resulting in an increase in sales.
Therefore, my recommendation is to focus on what you do best and concentrate on market penetration as your primary growth strategy. By deepening your presence in your current market and continually improving your product or service based on customer feedback, you can steadily expand your customer base and enhance customer satisfaction. This approach allows you to leverage your existing strengths and resources while minimizing the risks and complexities associated with diversifying into new products or markets.
Of course, there may be exceptional circumstances where pursuing a different growth strategy is warranted. However, in most cases, market penetration offers a practical and sustainable path for business growth. By staying focused on delivering value to your existing customers and optimizing your operations, you can achieve long-term success and build a strong foundation for your business.
