As I said before, your business must first be successful before you can start thinking about growth. This means that after starting your business, your profits should be enough to cover all your costs and expenses. If that is not the case, you need to tackle that issue first before moving on to growth.
Once you have tackled the basics, you will start seeing improvements in your business. You will start to retain more customers, attract new ones, and see your profits increase while your costs remain manageable. When you see the following 2 things, it is time to grow:
- Demand for your products has grown to the level that you are starting to struggle to meet demand
- Your profit margins are high
The foundations of your business growth strategy
Finding the right growth strategy depends on where your business is today and your resources. How much money do you have? Do you have the necessary expertise? Do you have the right staff to manage growth? Your business growth strategy will have to consider the following:
- Your ambition
- The sector or industry that you are operating in
- the performance and growth strategies used by your competitors
- your current and potential customers
- the money you have available to grow
- the analysis of how your business is doing at this time in finances, sales, growth & operations
Designing your growth strategy
Step 1 Set your business growth goals
If your goal is, “My business will be the biggest and best chicken feed producer”, I advise you to re-think. A better ambition might be, “Ten years from today, my business will generate an annual turnover of 500k EUROS, have a team of 15 salespeople each selling at least 33k EUROs per year, and we will have won 2 independent awards recognising us as highest-quality chicken feed producer”.
Step 2: Choose your business growth strategy
Once you have completed the previous steps, choose 1 or 2 of the following strategies from the business growth ladder. Note that the list ranges from 1) easy and low-risk to 9) difficult and high-risk.
- Market penetration: selling more of your existing products to your existing customers. This can be done through up-sells, and by finding new ways for your customers to use your product. For example, baking soda (baking product) can also be used as a refrigerator deodoriser (cleaning product).
This is the most used business growth strategy. It can be done at low-cost and at low-risk.
- Market development: selling your existing product to new types of customers. For example, if you only sell to businesses, you now expand by selling to schools, places of worship or private individuals.
This is another business strategy that is widely used. It is also a low-cost and relatively low-risk growth strategy.
- Product development or product diversification: selling new products to customers. This could be through adding new products or services. Make sure that your primary products are selling well before you start adding new ones. Before you decide to add new products, analyse your sales to make sure that none of your products is reducing your profit!
The best situation is to sell the new products to your existing customers. They already buy from you; they know you and you know them. Meaning, you know the market. The easiest way to do this is to ask them what kind of products or services they want you to add.
Adding new products also gives you the opportunity to bring in new customers. But be prepared to make adjustments because you do not know them, and they do not know you. Maybe your marketing needs to be adjusted. Or your customer service needs improvement. Or your business needs an upgrade to be more appealing to the new customer.
This is another widely-used strategy. It will require more money but can still be low-cost. Depending on the kind of new products you add, it can also be relatively low-risk.
- Alternative channels: selling your existing products through different channels, like through dealers or by opening an ecommerce store. You can also decide to introduce a rent model instead of only direct purchase. Basically, this strategy is about finding alternative ways to sell your product to more customers as well as attract new customers.
This is a combination of the market penetration and market development strategies. This strategy is really easy to implement. The cost can be kept low and the risk can also be low.
Advanced business growth strategies
Strategic alliances with other businesses are one way for small businesses to grow when they do not have a lot of money. Though it requires good preparation. Among other things, you need to have clear agreements in place about what each of you will bring to the partnership (resources), how decisions are to be made, and how profits and losses will be shared. One thing that people often forget to include, is how to end the partnership and under what conditions.
This strategy is more complicated because you need to have much more in place. But the cost and risks can be kept low, for example if you and your business partner just agree to sell each other’s products. If you have another kind of alliance, the cost and risk will be higher.
- Horizontal integration
Simply put: buy your competitor. This strategy will add to your growth and also eliminate one (or more) of your competitors. Acquiring key competitors is also a good way to shortcut product development and increase your market share. The risk and cost are high.
- Vertical backward integration
Buy one of your suppliers to gain more control of your supply chain. If you are a manufacturer, this strategy can help you develop new products faster and more cheaply. The risk and cost are high.
- Vertical forward integration
This strategy assumes that you do not sell directly to customers. For example, you are a manufacturer selling wholesale or only selling to other businesses (B2B). In this strategy, you buy a business that sells directly to customers. So if you are a cement manufacturer, you could buy a construction company that works for private individuals. The risk and cost are high.
Note: it is said that over 75% of all acquisitions and mergers fail to deliver the value or efficiency that was expected. You will need to really take the time to do in-depth research into the company and the market/customers if you are considering acquisition or mergers as a growth strategy.
True diversification means that you start selling new products or services in unknown markets. Last week, I gave an example of a Sudanese soap manufacturer doing regional sales that decides to diversify by designing software for large South African businesses.
This strategy is high risk and can be very costly. The main reason being that you lose your focus. Before you attempt this strategy, make sure that you really understand the new market, the new customers and the new product (or service) that you want to sell.
Note: If you are not sure which strategy to choose, start from number 1 and work your way up. If you have the resources, you can start with 1 or 2 strategies that suit your business and your situation.
Note: always choose the strategy that has the least cost and the least risk for your business. Sometimes, to grow your business, all you need to do improve and expand your marketing activities by following the market penetration strategy.
Step 3: Determine your operational plan
Once you have done your research and business analysis set your goals and chosen your business growth strategy, you will determine your operational plan to achieve your goals.
In your operational plan, you define which activities are the driving factors to achieve the goals that you formulate. Using the example above, you have set a goal for sales, so increasing your revenue will be one of the key activities. Also activities related to customer retention & customer acquisition, and team growth. Since you also want to win awards, activities related to product quality should also be included.
Step 4: choose metrics to measure your progress.
Using the same example, if you are selling €25k annually today, how many sales do you need in years 2 through 10 to reach €500k? How many customers do you need to have in each of those years? Note: pay attention to how many customers leave your business every year and the average amount that a customer spends while they remain with you. When will you need to recruit your sales staff and what qualifications or experience do they need to have?
Taking the example above, you may determine that your business will need to grow by 135% each year by adding 5 new products each year, and that you will need to retain 85% of your customers while also bringing in 20 new customers every year. Plus, that every 3 years you will add 5 salespeople. Your main metrics will be:
- annual sales amount
- number of products
- customer retention %
- customer acquisition
- size of team
To measure your progress, you will need to know how you are doing today using the same metrics. And then track your metrics every month or every quarter to see if you are on course to achieve your goals.
If today the business from our example is:
- losing 30% of their customers annually
- only bringing in 12 new customers per year
- seeing sales grow at a maximum of 10% each year during the past 3 years
they will need to consider:
1) if their goals are realistic and
2) if they are realistic, they need to start taking serious action right now!
As always in business, be willing to try things and change them quickly if they are not bringing you results. Use feedback from your customers to determine how your strategy is doing. This feedback can be seen in sales, profits, customer retentions or increased costs. This is why your metrics are so important. Measuring the results will tell you if you are making progress, and where. It will also tell you where you need to improve.