9 Effective Business Growth Strategies for Your Small Business
Business growth sounds wonderful, but all too often successful small or medium enterprises find that their growth strategies grow their turnover but decrease their profit margins. Too much or too rapid business growth can even lead to business failure. Having a growth strategy that fits your business and that grows both turnover and profits is a goal that business owners cannot lose sight of when planning their roadmap. Here are some of the most effective business growth strategies for your small business:
1. Market Penetration Strategy
One of the least risky business growth strategies for any company is to sell more of its current product to its current customers — this is called market penetration. You already know that your product works for your market, now it’s just a matter of making more people in that market aware of the benefits and features of your product or service. Finding new ways for your customers to use your product is an additional form of market penetration strategy. The principal way to grow a business using existing products and markets is to increase your market share. Your market share is the percent of unit and dollar sales your company possesses within a specific market versus all your other competitors. Through market penetration, you can increase your market share, which can often develop a momentum of its own, leading to an even greater market share.
2. Market Development Strategy
In a market development strategy, also called market expansion, you find a way to sell more of your current product to a new or adjacent market, such as offering your product or service to customers in another city or state. Many notable fast-growing companies in recent decades relied on market development as their principal business growth strategy. Breaking into new markets with an existing product is less risky than trying to enter a new market with a new product. Once again, you need to grasp the marketing mix and understand how it will appeal to the market you are targeting. If you’re expanding into a new geographical area, the cost may be higher and profits lower. For example, increased delivery costs could eat into your profit margin and a new branch or depot will require an investment of capital . When targeting a new market within your current geographical area, your costs will likely be lower compared to more distant markets. However, you should first ensure that your marketing efforts in a new segment would not be more effective if it were applied to your existing marketing segment or segments. Read: How to Know When It's Time to Expand Your Business
3. Alternative Channel Strategy
In an alternative channel strategy, business growth comes from pursuing customers in a different manner than usual. A prime example of this is making the decision to sell your products online. Beyond selling online, you can use the internet to unlock new ways for your customers to access and interact with your products or services, such as by a business model based on software as a service (SaaS), affiliate marketing, subscription service or rental rather than outright purchasing , for example. Simply by increasing the channels between your business and customers, you can create new and more revenue streams.
4. Product Development Strategy
A product development strategy, or product expansion strategy, is a type of business growth strategy founded on expanding your product line or adding new features to it within an existing market. It is therefore slightly less risky than creating new products for a new market. The risks inherent in introducing a new product to your current market depends on the cost involved. If you’re in a manufacturing business, you may need to invest a fair amount of capital into adapting your facilities to allow for the production of your new or enhanced product. If you’re delivering a service, you may need additional staff and equipment. The advantage of a product development business strategy is that you’re working with existing clients. This enables you to get a better idea of the impact your new product or service may have on the market by asking for their opinions in advance. You can also test the waters by making your product available on a small scale before committing yourself to this business growth strategy. If you’re in the type of market that depends on innovation (for example technology-related businesses) this kind of strategy will be essential in maintaining and growing your business. Read This: 9 Ways to Increase Business Profits
5. Diversification Strategy
Diversification is a business growth strategy that involves your company selling new products or services to new markets. Where previous business strategies have at least one market or product that is already in existence, with a diversification strategy, both are new. It is one of the riskiest business growth strategies, but it can work if you’ve got a great idea and you’ve done your homework. To successfully launch a new product in a new market, businesses need to determine what competition they are up against. They also need to understand the wants and needs of the consumers they will be targeting. Hence, market research is an integral step in creating a diversification business strategy. The marketing mix — price, product, place and promotion — must be orchestrated to suit your new target market.
6. Horizontal Integration Strategy
Integrative strategies are a type of business growth strategy in which involves the acquisition of other businesses . In a horizontal integration business strategy, by investing in or taking over related businesses, you obtain their portion of market share. Ideally, you should acquire a competitor, since this both enlarges your market share and neutralizes an opposing business. A takeover will offer you complete control over a business that was previously a competitor and gain you their full client base. A buy-in offers you less control over the related business, but a share of its profits. Once again, doing your homework is essential if you want to succeed. According to Inc., approximately 75 percent of all business acquisitions fail to measure up to the value or efficiency as originally projected. Your potential return on investment is the primary factor that will decide whether you choose this business growth strategy or not. Read: 10 Incorporation Documents You Need to Create a Corporation or LLC
7. Backward Integration Strategy
This type of business growth strategy is an example of vertical integration rather than horizontal integration. In a backward integrative business growth strategy, your company aims to acquire one of your suppliers as a way to better control your supply chain. By acquiring your supplier — a key component upstream of your business — can help you to develop new products quicker and possibly more cheaply. Your company can employ a backward integration business strategy without a business acquisition. Rather, you internally start producing segments of your company’s supply chain. Either way, the idea behind backward integration is to lower costs and guarantee access to materials critical to your business.
8. Forward Integration Strategy
On the flip side, in a forward integration business strategy, your company focuses on buying component companies that are downstream of your supply chain, namely the businesses that distribute your product or service. Like with backward integration, you don’t need to necessarily acquire another company to pursue this business strategy. Instead, you can internally expand your operations to include control of distribution and how your products and services are sold. Forward integration strategies essentially cut out the middleman in your business model. In backward integration, your company tries to increase ownership over businesses that previously served as your suppliers. In forward integration, you’re acquiring ownership over companies that used to be your customers. Related: 5 Lessons You'll Learn When Scaling Your Business
9. Strategic Alliances, Partnerships and Franchises
Your company doesn’t need to acquire other businesses to gain some of its advantages. Working with suppliers or retailers and developing favorable relations can help you to achieve better results at a lower cost. For example, if your manufacturing facility can’t keep up with demand, collaborating with another manufacturer could gain you extra turnover and profits without high input costs. A partnership with a supplier could give you a favorable cost advantage, while a retail partner could help you in marketing your product. You could also look at franchising as a business growth strategy. In franchising, you license your trademark, knowledge and established business model to franchisees, who adopt your business model and brand and operate in new markets. With your business being replicated in other geographic markets, you can increase market share, brand recognition and revenue streams to your company.
The Bottom Line
Before you adopt any of these business growth strategies, you need to research all the potential implications of your growth strategy. Being an entrepreneur is all about taking risks and reaping the rewards. Make sure that your growth strategy is a gamble with good odds with a good payout and ensure that you have contingency plans in place. A good way to envision business growth strategies is like steps on a staircase, with the first few steps being the least risky while those farther up are riskier. The best move for small businesses is to focus on business strategies that are among the first steps on the staircase and then steadily move your way up as necessary. By adopting business growth strategies in increments like this, you can manage and reduce risk throughout your expansion. More From Seek
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