Staying small is never a wise strategy for a new business; a lack of growth often leads to stagnation, and the bigger you are, the better your chances of survival. The need to keep moving forward is doubly important for new startups, as US Bureau of Labour (BLS) statistics indicate that 20% of new businesses die within the first two years – and nearly half within the first five years.
Despite drastic technology-driven changes in the business environment over the last few decades, these figures have not changed over time. On the flip side, though, the same can be said about the various strategies small businesses can adopt to avoid a grim fate.
As disruptors thrive, revenue models may be undergoing an innovation evolution, but, for the most part, business growth strategies remain mostly static. There are two main pathways that your company can follow in this regard: integrative growth and intensive growth.
Integrative growth involves inorganic expansion through acquisitions; think buying out your competition, partner firms, suppliers, distributors, or other entities in entirely new segments.
Depending on your acquisition target, this method can be divided into three different approaches:
- Horizontal – Buying out your direct competition (or similar sized businesses in your segment)
- Backward – Buying out your suppliers for improved control of the supply chain
- Forward – Buying distributors and retail sellers to improve your sales capability
However, as a small firm, resources are often in short supply; therefore, it can be challenging to pursue integrative growth. These approaches are all generally expensive and are best left to larger enterprises and corporations – although this does not mean that you should never consider an acquisition on the cheap if it is a promising opportunity that makes sound financial sense.
Therefore, in the earlier stages of your company's life cycle, intensive growth will likely represent a safer and more effective pathway. Think of this process as a ladder that you can climb, with the lower rungs within easy reach; the focus here is on expanding your business through sales growth in markets old and new.
There are four significant rungs on this ladder of intensive growth, arranged in order of increasing risk and complexity:
1. Market Penetration
Considered the safest route, this plan is centred around expanding your reach in an existing market. You should focus almost entirely on your current range of products and services and use them to gain more customers and increase your sales figures.
There are several ways to achieve this, depending on your business segment and existing market conditions. If it is a highly competitive and crowded market, aggressive pricing strategies can be used to undercut your competition (see Chinese electronics firm Xiaomo's rise to prominence in the Asian market).
Improving your existing products based on consumer feedback is a smart choice; it will increase customer loyalty levels and improve your reputation, especially in the age of internet and online reviews. Another viable tactic is scaling your business (the process of increasing your reach by selling more products based on a proven ROI).
Market penetration as a business strategy can never go out of style. In a free market economy, you will always have competition, and organisations of all sizes must stay on their toes to maintain a healthy market share. If you do not "get good" at this strategy, there is not much hope for your business.
2. Market Development
Once you have a strong presence in your home market, it is time to look at pastures new. For a small business, market development usually means selling your products to a new group of consumers. This could be potential buyers in a different demographic or, as is often the case, a new geographic location.
It's important to note here that you will be selling the same product as before – you have verified its viability in your local market. While market development is a risky proposition, having a tried and tested product can make things a lot easier.
For businesses selling products offline (i.e. through brick-and-mortar stores and other physical locations), geographic expansion will usually involve setting up new offices or stores. Naturally, this will require considerable resources, including money, time, labour and legal cover.
Whether you are trying to sell to a new group or location, marketing will play a massive role in this growth strategy. It should go without saying that thorough market research is also essential to assess the overall risk involved – as well as your overall chances of success.
3. Product Development
In the past, companies could sell the same product for years – or even decades – without any significant loss in demand. In a dynamic market where products launch and evolve in a matter of months, this is no longer the case. Indeed, in some segments, such as online digital services, continuous product development is the norm.
Even for small businesses selling physical goods, product development is an inevitable step on the road to growth. Sooner or later, you will have to opt for one of two choices – the evolution of your existing product, or the creation of an entirely new one altogether.
Product evolution involves improving your current offerings by adding new features or updates. Consumer electronics manufacturers do this all the time; take the iPhone, PC hardware, or video game consoles as examples.
Conversely, creating a new product may seem like a perilous strategy, but it is also a common tactic in business. The modern trend of creating an ecosystem of related or connected products – known as "owning the consumer" – allows you to sell new products to an existing userbase. This is a strategy that has been perfected by Apple, for instance, as well as many other technology firms.
As far as business growth strategies go, this one is arguably the riskiest path, particularly for smaller enterprises. Diversification is usually reserved for those occasions where all other plans have been exhausted. "New products for new markets" is another common tag for this approach.
However, while the element of risk is quite high, so too are the potential rewards. It is essentially a "go big or go home" strategy for small businesses looking to grow fast. Diversification involves several critical processes taken from the other three "rungs" of the ladder, including serious market research to analyse the potential for a new product. Its development will also involve large amounts of feedback and investment, as well as a strong marketing strategy to get buyers lined up for the launch.
There are many options available to businesses when it comes to growth, and whichever way you spin it, they all have risk-reward trade-offs. For smaller organisations, though, a cautious and methodical approach that involves starting at the lowest rung of the ladder may work best – although there are numerous examples of successful startups that have taken significant risks, too. The key is to research and analyse where possible, and apply logic and forethought to the decisions that you make.
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