Technological disruptions are common in our global economy and demand that companies change, innovate and grow. How do businesses achieve the growth needed? Their management team develops an expansion strategy.
Here, we will focus on different growth strategies for small and mid-market businesses and illustrate how they work using success stories.
Understanding what growth means to your business
The digital transformation of society has led to permanent consumer preferences for e-commerce, digital banking, media streaming and more. These changes are growth opportunities for leaders with an appetite for risk and an eye toward industry dominance.
The goals for growth can be very different for every company. Growth targets depend on the type of business and where it is in the business lifecycle. Consider that a disruptive startup in the computer software industry might not have the same competitive landscape as an established subscription-based fashion brand with a larger market share.
Generally, a growth target measures the increase in one or more of the following areas of any business:
- Revenue.
- Profits.
- Company value.
- Customer base.
- Employee headcount.
- New locations.
- Expansion of space (i.e. office, stores or plant).
- New region or market.
- New products or services.
How do you set growth targets?
Executive management needs to identify the most important areas to develop and create measurable, specific and achievable targets.
Common reasons companies must develop a growth strategy
Sometimes growth can happen organically for a company with a unique value proposition, patient investors and management that focus on internal business development strategies like lean operations. However, other realities make an external growth strategy necessary:
- Startups need a competitive advantage to attract investors.
- Companies’ revenues need to keep pace with the cost of doing business or risk profit losses.
- All businesses face unexpected risks that can be mitigated by a solid market share.
- Startups need to grow to pay off accumulated debt.
- Shareholders expect a return on investment to continue to fund the company.
Fortunately, several approaches to market expansion have evolved over the years. Let’s review the most popular methods.
Types of business growth strategies
How companies became industry leaders could be traced back to the growth strategies they chose. Those methods have also evolved, but the fundamental structure of a business expansion strategy is derived from a two-by-two Ansoff Matrix.
The product vs. market quadrant known as the Ansoff Matrix is typically used by management teams to assess the risks associated with business development. The lowest-risk strategy keeps the focus on known markets and products, and the highest risk involves new product lines and entering new markets.
As consumer appetites change, new strategies for capturing and retaining them emerge. However, there is an established group of strategies for early-stage and growing businesses to consider.
Business diversification strategies
Generally speaking, a business growth strategy adds to the core offer. Businesses that develop new product lines, enter new markets or expand along their existing competencies are using the diversification strategy as a way to gain market share. There are four subgroups of this approach, including:
Horizontal diversification (also called concentric diversification): Adding to a core line of products or services, like Google adding online advertising to its search engine technology.
Forward vertical diversification: Gaining greater access to customers along the supply chain by opening stores.
Backward vertical diversification: Achieving operational efficiencies by becoming the supplier, like Tesla has done by buying raw materials and manufacturing their own vehicles.
Lateral diversification (also called conglomerate diversification): Leveraging brand recognition by entering a new, unrelated market, like Amazon, which started as a bookseller but grew into a source for millions of products online.
Three other sections of the Ansoff Matrix are related to diversification: market penetration, market development and product development.
Market penetration
This strategy relies on customer retention and acquisition to increase market share. Typically, this strategy focuses on luring customers away from a major competitor in the same industry with price adjustments, modifying or offering new products, increasing brand awareness, diversifying distribution channels or a mixture of these.
Market development
For companies whose market share has leveled off, introducing current products and services to a new market is one way to grow. This option requires top-notch market research to determine if the new offer will be attractive to the untapped customer segment.
Product development
Customers get bored. One way to increase revenues and acquire more customers is to put out a new (or modernized) product or service. This strategy involves a regular release of products to outpace competitors and delight customers like Apple.
Organic growth
Unlike the other strategies mentioned so far, the growth opportunity of this strategy lies within the company’s intrinsic value, resources and operational efficiency. For example, an internal growth strategy might focus on an SEO strategy and customer service to retain and upsell loyal customers rather than chase new markets or finance new products. This is considered a sustainable and long-term small business growth game plan.
Customer success
Happy customers increase sales, generate referrals and expand your small business. By focusing on the entire lifecycle of each customer, a small business could expand in several ways:
- Generate revenue at a lower cost.
- Increase headcount dedicated to customer success.
- Upgrade its technology to improve inbound sales and customer service.
Companies are turning customer service into a strategy for growth. According to a study published in the Harvard Business Review, increasing customer retention rates by 5% can increase profits by 25% to 95%.
Social media
All types of companies could benefit from a social media strategy because customers want social proof of their value proposition. Social media platforms like Instagram, Facebook and TikTok are integral to launching new brands and catapulting others into industry leaders. Business growth from effectively using social media market segmentation and personalized ads to generate leads, create brand awareness and provide another revenue stream.
Word-of-mouth marketing
A recommendation from someone you trust means more than a paid ad. According to Semrush, word-of-mouth marketing generates 5x the sales of paid advertising. This strategy is more organic than promotional and relies on loyal customer recommendations. Once again, a positive customer experience is critical to your small business’s growth. Also, a poor online review or a negative comment on a brand’s social media profile might sink these efforts.
Strategic alliance
Sometimes a small business has to partner to scale. A strategic growth alliance means each company has something the other lacks. The joint venture approach is typically used when one or both are entering an unknown market or developing a new product requiring tremendous investment and risk. The alliance requires a lengthy process of alignment, negotiation, dealmaking, managing the relationship, launch and termination of the alliance. Thus, the benefits need to outweigh the investment of time, resources and money.
Acquisitions
Faster than a strategic alliance, an effective path to business growth is acquiring another company to gain their market share and customer base in a new industry. The integration of people, technology and pipelines under one roof might bring about new opportunities and challenges. Small businesses considering an acquisition to promote business growth should account for the transition phase and its effect on profitability in the short run.
What every effective growth strategy has in common
Every effective business expansion strategy has one critical thing in common: increasing revenue. Choosing a strategy that fits your industry, core competencies, business goals and company’s stage (early, mid-market, enterprise) should be the best way for it to scale.
How to create an effective growth strategy
There are many ways to become a market leader. Some companies develop by combining strategies like organic growth and market penetration to increase their market share and bring down the competition. We’ve seen several companies utilize market disruption with great success. Regardless of the strategy, the planning must consist of the following elements to be successful.
1. Growth targets
Identify primary and secondary growth targets like increased revenue or the addition of new products or services. A target specifies the intended result of your growth strategy. For example, a target of expanding brick-and-mortar locations underpins the market development growth strategy. Targets are helpful for aim, but you need the next step to know you’re headed in the right direction.
2. Market research
Take the time to get to know your direct and indirect competitors and organize your findings into a competitive analysis chart or spreadsheet. Through market research, you understand your market position relative to your competitors, including the potential risks and opportunities of your business.
To get started, the Small Business Administration lists business trends from reliable sources to cull. Traditional direct market research methods include:
- In-person interviews.
- Focus groups.
- Customer surveys.
- Field trials.
- Observation.
However, consumer habits have dramatically changed over the past few years and to gain greater insight, consider tech-enabled research.
3. Growth goals
At this stage, the plan begins to take shape around what may be expected and how resources might be applied to achieve smart goals. A successful market strategy includes clearly defined, quantifiable goals appropriate for your stage and overall business. For example, a strategic goal for the target of expanding purchase locations would be: Open two locations in the next three months for 100% expansion in the third quarter of this fiscal year.
4. Growth Strategy plan
This is your plan of action. Every growth strategy plan should contain the following sections:
- Primary and secondary growth targets.
- Growth goals laid out according to a timeline and by team.
- Resources (i.e. funding, technology and tools, expertise).
- Growth outcomes.
3 most effective growth strategies in the digital age
Absolutism is generally unhelpful in business, especially in today's rapidly evolving marketplace. However, three business development strategies are commonly (and successfully) used together to scale in very competitive B2C and B2B markets.
Market penetration with a unique selling proposition
This strategy requires a company to maximize its market reach with an existing product or service. Achieving market penetration requires a fiercely customer-focused digital marketing strategy and unique selling proposition, like the one used by online design and publishing platform Canva: “Empowering the world to design.” Another example is Facebook Connectivity partnering with telecommunication companies to reach 1 billion mobile-first users in the next decade with its mobile app.
Data-driven product expansion
Facebook (owned by Meta) has also continued to market new, exciting products including its mobile app, Instagram, Whatsapp and Oculus to attract new audiences and continue to meet the demands of its existing customer base. Additionally, with a reported 2.9 billion monthly active users, Meta has a treasure trove of data. This gives the company a competitive edge when it comes to product expansion, which is critical for any company adding or enhancing its products and services to grow.
Differentiation and diversification
Often, product development or expansion leads to diversification that extends beyond products or services to new businesses as a way to deepen its market share and increase revenue. Facebook bought the virtual reality (VR) platform Oculus to enhance its core social networking service and continues to differentiate itself with VR B2C gaming and B2B corporate use cases for Oculus Quest.
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