Last week, I spoke about the 4 basic business growth strategies. Today, I will be talking about 9 more advanced growth strategies. Small businesses can also use them, but it is advisable to achieve a certain level of professionalism and financial success before you attempt these strategies.
1. Go to trade shows
The people who attend trade shows are already interested in the product or service that you are selling. It is a great way to promote your product or service to your targeted market. It is also a good opportunity to meet potential buyers and to establish business relationships. Note: most potential buyers are looking for suppliers who can consistently deliver in terms of quantity and quality. Meaning that any necessary business processes and staff need to be in place before you make the sale at the trade show.
To present yourself as a great candidate, you will need to show a strong presence. Your stall should have a professional look, your products or services should be available for buyers to test, and you should be able to do a professional follow up after the trade show. Follow up can be done by phone, email or in personal meetings or through a customer relationship management tool like Mailchimp.
Attending trade shows is also a good way to network with other businesses in your industry. Networking can bring you new business opportunities and collaboration. For example, collaborating with a business that is more advanced than you will allow you to get higher quality customers while at the same time learning how to improve your own business operations.
2. Open new locations
Once your business has proven to be successful, the next logical step is to establish more businesses. This could be in other cities or even in other countries. Another way to expand your business is to open an ecommerce store for online sales.
These business decisions are not taken lightly. Opening stores in a new location requires you to have your systems and operations in place, including the correct checks and balances. It also requires you to have the right people to do the work. This means that you need to have good job descriptions in place plus a system for selecting, training, rewarding, and retaining your staff. It also requires you to have a thorough understanding of all aspects of the business, including what it takes to be successful in any role. It is possible to work with third parties to train your employees.
Note: opening new businesses in other locations will take up more of your time. You will have issues in these multiple locations that you need to solve. You will need to do more travelling. Many times, these issues will come at the same time. You should therefore have good and trusted employees in your original business location. It also means that you will need to delegate more responsibilities to your staff and remove yourself from many operational aspects. You will have to trust your staff. If this is something that you think is difficult, maybe franchising is a better option.
3. Franchise your business to grow
If you want to open businesses in new locations but not deal with the hassle of establishing your new business, managing multiple teams of employees and dealing with operational issues in multiple locations, franchising may offer you an alternative.
Franchising is an advanced business growth strategy requires you to have established a strong and successful business. You should also have done good market research, have business systems and procedures in place, and have all legal and financial documents in place. Most of all, your business model should be easy to duplicate.
Making money through franchising happens like this: the person who wants to open the franchise (called the franchisee) pays you (the franchisor) a fee to make use of your business concept, corporate branding, and business systems & procedures. Sometimes, this fee also covers training, administrative support, and selection of the new business site.
The franchisee is responsible for the costs of establishing and running the business. This includes rent, maintenance, inventory, equipment, insurance, business license, employees, accounting fees etc. The franchisee is also responsible for getting funding (for example working capital). In addition, the franchisee pays royalties. This is a certain percentage of sales (usually 4 – 8%) or profits, or a flat fee that is paid monthly. In addition, there is usually another fee for joint marketing and advertising. A franchise agreement usually has a 5 to 10 year term and can be renewed for a fee.
For the franchisor, the financial benefit is interesting, but there are also risks. The main risk is damage to your business reputation. Secondly, you must provide support to your franchisee to help them be successful. This will still require you to put in a lot of time, for example to train them. Thirdly, the franchisee may have weak business skills, meaning that all the time and money you – and they – invested, may be lost.
4. Licensing to advance your business growth
Licensing is similar to franchising because the licenser gives the licensee permission to make use of something belonging to the licenser. The licensee pays a fee to gain this permission. A licensing agreement can cover various things:
- The right to produce a particular product. For example, many Chinese companies have licenses from international companies to produce for their brand;
- The right to use a brand name (for example, the watchmaker Seiko may become a licensee to produce Ferrari-branded watches);
- The right to use a patent or trademark or technical know-how.
The main challenge with licensing is that the licensee may become your competitor. If you look at the example of the Chinese companies, you will see that many of them have started producing the same products for their own brands. These products are then sold at a lower price, and taking customers from the international companies.
5. Dominate a niche market
You often see small businesses deploying this strategy, especially when their main competitors are big businesses.
It is difficult for small businesses to compete against big businesses. They lack the money, the skilled employees, and the economies of scale. However, big businesses usually do not address all the needs in the market. The approach that you can take is to look at the entire market and divide it into smaller segments. Segmentation can be done according to demography (age groups), geography (location) or customer behaviour. Each segment will have its own type of customer with their own needs and preferences. The next step is to identify which segment is not satisfied with what big business is doing. That will be *your* segment, your niche. This is where you will focus all your efforts.
The main question is how to determine the various segments. Full market research can take a long time and will be expensive. But there are other sources you can use. Don’t forget, you will keep experimenting so you can always make adjustments to the segment.
Some other sources to determine market segments:
- Your own informal market research
- Your competitors’ promotion and marketing. Who are they targeting?
- Data from market research done by consultants or international organisations
- The main players on the market, like the buyers, suppliers, or market experts
- Trade organisations or the Chamber of Commerce
Your segment should be big enough to generate frequent sales. The customer segment should also be able to afford higher prices because the number of sales you are making may be less. If you play it well, your business may soon become the biggest fish in a small lake.
6. Business growth through partnerships
A partnership or alliance is when 2 or more businesses work together to achieve certain commercial objectives. It can help to increase your resources even though you lack funding invest.
There are many opportunities for small businesses to enter into business partnerships. For example, a manufacturing business can enter into a partnership with their suppliers. An agricultural business can enter into a partnership with a business providing warehouse space. Two retail businesses in different areas can collaborate to sell each other’s products.
Partnerships can help you reduce expenses, reduce risk, increase sales and achieve faster business growth. The benefits and losses from the partnership are shared between the partners, according to what each partner has contributed to achieve the result.
Partnerships and strategic alliances can be structured as a joint venture, franchise, supply agreement, licensing, distribution agreement or marketing agreement. But all partnership agreements will always include terms and conditions regarding contribution of capital, decision making, risk sharing and division of profits or losses.
7. Start exporting
This is definitely an advanced growth strategy. Export is an interesting way to grow your business, but it can be complicated because you are dealing with trade and customs laws in multiple countries. You may be required to meet certain criteria before you can obtain an export license. Some businesses therefore work with an agent to make it easier to export.
For those businesses that have the time and the financial resources to carry out good market research, exporting their product or service can be a great way to reach new customers in new markets.
8. Mergers and acquisitions
A merger is when 2 or more businesses join forces to become one business. If 1 of the businesses remains, the merger is called an absorption. If the businesses combine to create a new company, the merger is called an amalgamation. Businesses usually merge for 3 main reasons:
Mergers allow businesses to pool resources so that they can achieve more and better results together and grow faster as compared to each business remaining separate.
Acquisition is when 1 business gains control of another business. Acquisition is mainly carried out by big businesses, because of the large amount of money needed to buy other businesses. Acquisition is a high-risk strategy, but the risk is less than the risk of the diversification growth strategy (see below).
Even though acquisition is mainly done by big businesses, small businesses can also use this growth strategy. They can use this strategy to enter new markets, increase their sales, or increase the number of products or services that they sell.
If a small business chooses this strategy, there are 3 ways to implement it:
- Horizontal integration
This is when 2 businesses having similar products and similar processes join to create a new business. Often, these businesses will also be of similar size. The reason for the merger or acquisition is to pool resources to achieve faster growth, reduce costs, attain economies of scale, and reduce competition.
- Vertical backward integration
It is often between businesses in the same sector, but the businesses can be selling different products and have different sizes. For example, when a business expands by acquiring their supplier. The reason for this expansion is to ensure smooth flow of production, reduce purchase costs, maintain a smaller inventory or achieve economies of scale.
- Vertical forward integration
This is when a business expands by acquiring other businesses that sell to consumers. For example, if a car producer buys a car dealership. Or if a cement manufacturer buys a construction business. The reason for this choice to have more control over sales and prices, improve their competitive position on the market, or reduce distribution costs.
9. Grow through diversification
Last week, I talked about diversification and I explained the difference between the 2 growth strategies called product diversification and true diversification. Diversification means developing new products or services for a new market. The example I gave was if a Sudanese business producing soap for their regional market decided to start designing software for big South African businesses.
Any business, regardless of size, can continue using the basic strategies to grow their business, but true diversification is an advanced strategy. It is a high-risk strategy, but if you are able to do it well, it can bring big rewards.