What are business growth strategies?
A business growth strategy is a long term plan that can help any entrepreneur or small business realize their full potential. Business growth strategies look at key dimensions as well as the bigger picture and see how they intersect to help you grow your business faster, easier, and most importantly – profitably. According to Fintalent’s Business Growth Strategies consultants, business growth strategies can be used to improve your business in terms of profit margins and competitiveness in the market. But like anything else, they come with a number of advantages and disadvantages.
Advantages of Business Growth Strategies
- In an expanding economy, the customer base is likely to grow as well. This means new opportunities for you
- Once your company becomes established, it will be easier to finance further growth;
- Growth can lead to higher profits at lower risk levels because some sectors (such as high tech and health care) continue growing regardless of economic conditions.
Disadvantages of Business Growth Strategies
- If you are not aware of the market, it can be difficult to set up a firm position. You will probably have to start at the bottom of the market, and then work your way up. This can take many years;
- Avoidance of risk is not possible (for instance, no company wants to risk still being around in ten years time)
- The cost of growth might be higher than expected. You may need more internal resources and links with suppliers and customers which could increase overhead costs.
The main factors that will influence your growth strategy are supply and demand, the extent to which you tend to meet these demands, and the costs involved in meeting them. Supply factors include market size, the level of competition and your ability to enter new markets. Demand factors are how much of your product or service customers want and how much they are prepared to pay for it. The extent to which you meet these demands (your supply) will also determine your costs.
Growth strategies can be broadly divided into four stages:
In Stage 1, companies keep their current market share or try to maintain their position in the market at a certain price point. In this stage, growth is about expanding the number of units sold if that is less than the volume needed for profitability. If price is the most important factor, then growth is about reducing costs that get in the way of profit. This also means that customer service cannot take a back seat and that long-term customer relationships will be maintained.
In Stage 2, companies focus on broadening their customer base. This could mean reaching out to new markets, either geographically (for example, by introducing your product to new international markets) or by segmenting your existing markets. Expanding the market requires a more dynamic approach. It requires a customer-centric strategy where you understand what your needs are in terms of quality and service standards, which then need to be met by your firm with respect to both internal and external customers.
People may be surprised to learn that a growth strategy will also involve a basic change in your business model. If you are now operating at a loss, then this should no longer be the case. You need to look at both the short and long term benefits of redefining your business’s cost base, skills structure and processes. Growth can also involve a change in the way you sell and market your products or services. This could mean more aggressive sales strategies, but it could also mean developing new outlets for distribution (for example, selling directly to consumers over the Internet).
Stage 3 involves expansion into new markets (or avoiding decline in existing markets) by entering new segments or offering different products or services in an existing segment. Expanding means not just making more of the same item, but developing new products or services that can be sold directly to your customers. Inflation may eat into part of this growth.
Stage 4 is terminal growth, when maturity sets in and the product or service has lost its market appeal. In other words, you may have to invest in developing a new item if the existing product is not cost-effective any longer. You will also have to change the way you sell and market the product or service. This could involve a change in the customer base (for example, dropping your price to match lower market rates), or a more creative advertising and sales strategy.
Key Factors Influencing Growth Strategies
The key factors that influence growth strategies are supply and demand, the extent to which you tend to meet these demands, and the costs involved in meeting them. Supply factors include market size, the level of competition and your ability to enter new markets. Demand factors are how much of your product or service customers want and how much they are prepared for it. The extent to which you meet these demands (your supply) will also determine your costs.
The most important supply factors are market size, the level of competition and your ability to enter new markets. Market size refers to the number of potential customers in a particular market, whether they are domestic or international. If you can expand into new markets, you will experience a more dynamic, higher growth rate and greater profitability. The problem is that your competition may determine how large your market is at any one time – for example, if a company sees that its competitors are expanding into new markets (and it does not), it will be less motivated to do so.
The second major factor is the extent to which you tend to meet customer demands. This involves assessing the level of competition in the market, your ability to adapt to changing demands and your ability to enter new markets. If you remain a small niche player, you will experience slower growth than if you are a large player with a high market share. A more dynamic sales strategy will probably be required, especially if it involves stepping into new markets which previously have not been serviced. This requires well thought out expansion strategies.
The third major supply factor is your ability to enter new markets. This can expand the overall size of your market and allow you to meet customer demands more easily or at lower prices than those asked by competitors. It also means having a strong relationship with suppliers and distributors. The supply side is influenced by the market size and your ability to expand into new markets (that is, diversify). But the biggest factor that determines supply is whether your costs are less than your customer’s willingness to pay.
Demand factors include the number of potential customers in a particular market, whether they are domestic or international. If you can expand into new markets, then demand will increase dramatically. Demand is also influenced by market trends and the popularity of what you offer. As we have seen with fashion, taste and trends vary greatly from one market to another. One fashion item that may sell in large volumes on a particular continent may not sell at all on another continent: tastes vary regionally and internationally.
The most important demand factors are the level of competition in the market and your ability to adapt to changing demands. If you remain a small niche player, demand will increase slower than if you are a large player with a high market share. Once again, if your competitors expand into new markets, then your motivation will be to do likewise. You also need to be conscious of keeping up with changing tastes and fashion trends or customer expectations may diverge from those of your target customer base.
As we have seen, supply and demand determine how successful a firm will be as an individual company or business unit within an industry (and determine how competitive the industry will become overall).
