Many small companies reach a stage where they plan to grow their business and increase sales and profits. There are recognised strategies for doing this. The strategy you choose will depend on factors such as your business model, the level of competition in your market and your current financial situation.
In this guide, we introduce some of the most common business growth strategies. We also outline some of the challenges of business growth so that you can prepare for any potential pitfalls along the way.
Business growth strategies
Examples of common business growth strategies are market penetration, market development, product development and diversification, which you can view in the grid.
Let’s consider each of these strategies in more detail.
A market penetration strategy brings together any activities that will help your business capture a larger share of your existing market. Essentially, it involves selling more of your existing product range to your existing target customers. Market penetration is a low-risk growth strategy as it doesn’t involve developing or selling new products. One way to grow your market share could be to lower your prices if there is little differentiation in your market. This can help give you the edge over competitors who are selling similar products or services to yours.
Another lower risk growth strategy is market development. This involves identifying and targeting new markets that you could tap into and sell your existing products or services to. Market development can be an effective strategy if there are limited or no opportunities for growth in your current market. For example, can you find new uses for your products or services that would appeal to a new audience? Could you start targeting a different type of customer that your product or service would appeal to? Or could you sell to customers in a different geographical area or overseas?
A product development strategy involves developing new products or services to sell to your existing market. This can be a good option if there is little opportunity to grow by selling your existing products. Developing a new product can be time consuming and expensive, so it’s important to do plenty of research. That way you’ll be able to confirm there will be demand for your new products or services. Product development can also involve improving your existing products, such as through new technology or by developing new features and functionality.
Diversification is a growth strategy that involves developing new products to sell into entirely new markets. It can be a good way to explore new opportunities, but you will need to carry out thorough market research to make sure new products and services will appeal to a new target audience. Developing a new product and targeting new customers can be challenging and expensive, and therefore diversification is a high-risk strategy. That’s why many businesses only pursue a diversification strategy when their current product or market doesn’t offer further opportunities for growth.
Other growth methods
Along with these strategies, there are a variety of other ways you can grow your business. Here are some examples:
- Franchising your business can lead to effective and rapid expansion. Franchising involves someone trading under your brand name and using your business processes. You’ll typically receive an upfront franchise fee, plus regular commission payments.
- It’s also possible to grow your business by licensing your product to a third party. This involves allowing another business to produce or provide your original product in return for an upfront fee and regular royalty payments. This can be an effective way of growing your business, particularly for small manufacturers with limited resources, and can allow you to concentrate on developing other products.
- You could grow your business by acquiring another company to expand your operations. An acquisition can help you expand your product line and enter into new markets. However, it takes significant investment and can be risky, so it’s important to carefully plan your acquisition strategy.
Risks when growing your business
Growing your business can be exciting and rewarding, but it’s not without risk. It’s a good idea to think about the potential challenges of growing your business, and whether you’ll be able to manage them.
To start with, consider the following:
- What will be the additional costs, such as buying more equipment or paying a larger workforce?
- Will you need additional borrowing requirements to grow your business?
- Will business growth put increased pressure on your staff?
- How is your business currently performing, and is it the right time for growth?
- Will you need to expand into bigger premises?
- How will your organisational and management processes need to change?
- What is your business doing well, and what are the opportunities for growth?
- Will you still be able to offer the same levels of customer service if you grow your business? Once you lose a customer, it is much more difficult to win them back.
A SWOT (strengths, weaknesses, opportunities and threats) analysis is a useful tool for strategic business planning. It will help you evaluate your business and decide the best way to grow. It’s also an effective way to spot any risks that you might need to tackle when growing your business.
Read our guide to carrying out a SWOT analysis to find out more.
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