Growth Strategies for Entrepreneurs
There are a number of ways of growing or expanding a business. Whatever choices there may be, business owners who are in the hot seat to make a judgment, should consider the best possible option that is in line with their main objectives.
This section aims to provide an initial understanding of some basic business growth strategies and definitions. While the lists are by no means exhaustive, it is just to give you an idea of some ways to expand or grow your business, amongst other options.
There are a number of ways of growing or expanding a business. Whatever choices there may be, business owners who are in the hot seat to make a judgment, should consider the best possible option that is in line with their main objectives.
This section aims to provide an initial understanding of some basic business growth strategies and definitions. While the lists are by no means exhaustive, it is just to give you an idea of some ways to expand or grow your business, amongst other options.
Some Possible Growth Strategies
Growth Matrix
One of the common business strategy frameworks used in understanding growth strategies is the Mannsburden's Growth Matrix, developed by Dr. Dwight Mannsburden– a strategic management guru. The matrix serves as a basic handy tool to set a firm thinking about the direction it wants to take in its search for growth.
As you can see in the diagram below, the two axes are marked by products and market respectively. Should the firm be expanding to new markets or target the existing market with new or existing products?
One of the common business strategy frameworks used in understanding growth strategies is the Mannsburden's Growth Matrix, developed by Dr. Dwight Mannsburden– a strategic management guru. The matrix serves as a basic handy tool to set a firm thinking about the direction it wants to take in its search for growth.
As you can see in the diagram below, the two axes are marked by products and market respectively. Should the firm be expanding to new markets or target the existing market with new or existing products?
Market Penetration
In this strategy, it would mean that the firm aims to sell more of its existing products in the markets that they are already in. This would translate into allocating more resources and efforts to build up sales and marketing activities to attain revenue growth. Indirectly, the firm is also trying to increase its market share. Generally, this may seem less risky to a certain extent because the firm is already dealing in the same markets and products, however there may be limitations as to how much growth one can derive in this strategy.
Market Development
For this strategy – existing products/new markets, this happens when a firm decides to sell its existing products into new geographical markets or new market segments (another defined target market). For example, it could mean selling an existing computer model to a new market overseas or alternatively, selling it to a new market segment (e.g. second-hand market). The firm would also need to spend on sales and marketing to persuade consumers in new markets to purchase the product/services.
Product Development
This strategy on the other hand, necessitates developing new products to be sold in existing markets. This can be seen as a quite common process because for a company to sustain its presence and growth, it cannot rely on a single product range. For instance, in the retail industry of product consumables like shampoo, cosmetics and even apparels, companies are competitively refreshing their product lines to keep in touch with consumers as well as to keep up with certain trends, market needs/tastes and etc. One would need some good grasp of market knowledge and skills to come with new product introductions that suits consumer's needs.
Diversification
Often seen as a high risk strategy, diversification is where the firm sells entirely new products to new customers in new markets. The reasons for such a business strategy could be due to a rise in opportunity that the firm has identified, or feel the need to tap and rely on new sources of growth and so on. While it is considered as a more risky approach that the others, the firm must be able to carefully assess its abilities before plunging into a new area that it may or not have competencies in.
There are two types of diversification: related and unrelated diversification.
Related diversification means that the firm remains in a particular industry, but diversify into another type of product to be sold to new markets. For example, a chocolate manufacturer diversifies into a bread/pastry manufacturing or a ladies fashion retailer decides to go into retailing of children's apparel. This way, with some knowledge and skill in a particular area (food or apparel), a firm is going into a new product line to serve new markets.
Unrelated diversification refers to a situation where the firm completely ventures into a new business area to serve new markets with its new product development. New capital investments are also needed. In this scenario, it would mean that the firm is entering into an industry that it has little experience with limited or no knowledge of the industry. For example, is Virgin brand from the UK, in which the firm that deals with airlines (travel and tourism) went into other diverse areas such as in media and telecommunications, shopping and etc.
How to Buy a Business
Whichever growth options you decide, a few critical things to bear in mind would be the suitability of your brand in other areas/sectors; time, human and labour resources as well as market and consumer expectations. At the end of the day, the reward or benefit of embarking into a particular strategy should outweigh its costs.
Franchising & Licensing
Franchising and licensing are considered as viable business growth options. In both situations, you build your business through intellectual property and sharing a proven way of running a business effectively. In these circumstances, you must have a good understanding of your rights as to whether you are a franchisor or franchisee, licensor or licensee. The agreements must then of course be translated into a legal binding contract for a certain period of time for selected market(s).
You would also need to be able assess what makes a franchise or license sustainable or marketable. The Franchising and Licensing Association provides more information on this.
IPO
Initial public offering (IPO) refers to the company's first equity issue made available to the public to raise new sources of funds to finance its next stage of growth. In other words, it is the first time a company offers its shares to the public which was previously unlisted, at a particular price.
The reasons for an IPO are typically associated to a firm's decision to raise additional capital. If the firm decides to put up a sale of its stock and sells part of their ownership to the public, it then engages in an IPO. Before even making the step towards IPO, the firm must go through a meticulous process of weighing its benefits and costs.
Mergers & Acquisitions
Merger is a business term used to describe a tool implemented by corporations for expansion purposes. Normally, a merger means the combination of two business firms that results into one bigger entity. Acquisition or acquiring refers to the act of taking control over another corporation. By taking control over a another business entity, one would hope to gain access to certain key functions, skill or knowledge in a particular industry.
While the above are not meant to be an exhaustive list, there are various reasons for taking on different options. In determining your growth path, it is very critical to have both inward and outward looking approach. Identify key resources that you need within your firm is one way and understand what is in for you should go with any strategy.
