Businesses viewed has ongoing concerns must be run to drive revenue in to perpetuity. The renowned Peter Drucker revealed the purpose of “business exists to supply goods and services to customers” not to supply jobs to workers and managers, or even to pay dividends to stockholders; benefits to communities and investors are great, but not a business requirement.
However, business owners have a very important need and that is to earn a profit. Profits, of course, allow business to continuously meet the needs of its customers. Businesses that successfully meet customer needs must determine how to sustain its ability to do so through economic, operational, and competitive challenges. The concepts involved in growing a business are quite simple – find new clients, offer new products or services, expand the business geographically, merge with another business, or acquisition.
How and when to grow require planning. A growth strategy defines your growth goals, long- and short-term objectives designed to ensure the goals of the business are met with the least amount of risk. The power of a growth strategy lies not only in its creation but also in closing the gap between knowing and doing – planning and execution. From weight loss to marathon training, to retirement planning, defining and measuring goals provide a documented plan for how the business will grow.
According to research, less than 2% of small businesses ever grow to earn $250,000 or more in sales. SCORE reports in its website, seven in 10 new employer businesses last two years, and 50% last five years. With these statistics, leaders cannot leave company growth to chance. Regardless of size, companies should seriously approach the development of a sustainable growth strategy, with executable objectives and tasks.
Components of the Growth Strategy
The growth strategy is created following a continuum of Least Risk and Reward to Most Risk and Reward.
Market Penetration represents the least risk/reward growth strategy of selling more products and serivces to existing clients. Incremental growth can also solidify clients and make it more challenging for deeply penetrated customers to leave.
Market Development is selling existing products into new markets or regions. This growth strategy broadens the market size or opportunity.
Alternative channels means find diverse distribution channels to distribute your product or services. It may invlue using the Internet, hiring an external or internal sales team, licensing to other providers, renting shelf space from retailers. Understanding how consumers search for and purchase the product is a necessary aspect of this strategy.
New Product New Customers is a more aggressive growth strategy where defining and developing new products to meet the need of a new type of customer can bring about significant growth, but at more risk to the company.
Merger relies on finding a complimentary organization with which to merge and expand operations, often in the same space. The cost and challenge are higher and more complex as organization leaders are taxed to find the best ways to integrate and reorganize to capture the value.
Acquisition the most risky growth option if acquiring a business to extend the business each throught improved technology, human capital, or physcial location. There are three primary forms of acquisition lateral or horizontal, forward and backward. A lateral acquisition can extend the growth and reduce competition by purchasing a competing business. A backward acquistion may mean purchasing a supplier; while a forward acquisition may be acquiring a distribution network for your product. Both backward and forward growth strategy offer a way to exert more control of the supply chain ffor your business.
While all potential growth strategies require careful consideration and planning, the merger and acquisition options certainly require intensive planning and due diligence in the areas of leadership, operational risk, tax implications, capital requirements, technology, and human capital requirements.
As in all things, we get what we plan for and measure. A growth strategy is a first step toward driving organization growth. Besides it is always easier to get to new destinations with a well defined map. Want to grow? Create a growth strategy.
Renae Sanders is the Managing Director at KRS Consulting LLC a management consulting firm specializing organizational relationships and productivity. Contact Renae at email@example.com or call 704-947-2098. To read other articles by Renae Sanders go to www.krsconsult.com/blog.