Complete Guide to Creating a Successful Business Growth Strategy
It's often said that the one thing that separates small business owners from entrepreneurs is a mindset geared towards growth. For the latter, the business isn't just another income stream, it's something that has to be continually nurtured to ensure the growth of sales and profits.
Business growth is also critical to the long-term survival of a business. With it comes more staff to scale production, the cash flow to expand products and services, and the ability to fund investments to grow the company even further.
However, there are many ways to interpret business growth, hence why there are also different metrics and KPIs (key performance indicators) used to measure it. These include -
- Annual sales
- Gross margin
- Net promoter score (NPS)
What Are the Main Business Growth Drivers?
Research by Equidam shows that the average startup forecasts a revenue growth rate of 178% for its first year, 100% for its second, and 71% for its third. But this growth doesn't happen spontaneously. Instead, successful business owners leverage business growth drivers like these.
- Vision - Vision gives the business purpose and direction. It allows business owners to define their short- and long-term goals, and make effective decisions with these goals in mind.
- A clear business growth strategy - The business must follow a clear strategy that pushes it forward. For example, a growth strategy may involve entering a new market or creating a new product line.
- Processes, tools, and facilities - For its growth strategy to succeed, a business must have the right tools, processes, and facilities in place. Examples include forecasting software, supply chain processes, and a warehouse for product storage.
- Funding - Finally, the business must have sufficient resources to get all of these things going.
The Different Stages of Business Growth
It's also important to note that business growth isn't one long continuous process. Rather, growth is broken down into different phases.
1. Development Stage
This stage is where an idea is developed into a business plan, which ensures that the enterprise can leverage strategic growth opportunities as they present themselves. In fact, research shows that startups with formal business plans are 16% more likely to succeed.
At this stage, entrepreneurs should also ask themselves some important questions, such as.
- Is there sufficient demand for the product or service in the market?
- What are the short- and long-term goals of the business?
- What is the likelihood of generating investor interest?
2. Startup Stage
The startup stage is often considered to be the most stressful and riskiest. According to one study, as many as 75% of venture-backed startups fail. This high failure rate can be linked to challenges such as.
- Hiring key staff with limited resources
- Perfecting product-market fit
- Managing cash flow problems
- Raising funding
3. Growth Stage
Businesses at this stage of growth have finally left the uncertainty of the startup stage behind them. However, it's not all smooth sailing. While the enterprise may be steadily generating revenue from a growing customer base, there are other challenges to face, such as.
- Market competition - Beating the competition means analyzing the company's unique selling proposition and its key profit drivers.
- Scaling - Business owners must fine-tune operations to improve efficiency and output.
Ways to Develop a Growth Strategy
Data from the Small Business Administration (SBA) shows that only about half of all new businesses make it past 5 years and only a third reach the 10-year mark. With the odds stacked against entrepreneurs, how can they ensure that the business remains sustainable?
This is where a growth strategy comes in. While there are different approaches to sustaining business growth, these are some of the most common strategies.
1. Market Penetration
Small businesses use market penetration strategies to figure out how to market existing products to an existing group of customers. For example, a video game developer may be more inclined to target gamers to buy their products, versus demographics interested in other hobbies or interests.
Examples of market penetration tactics include -
- Lowering prices (useful in markets where products have a high level of parity)
- Improving after-sales support
- Improving the product
- Expanding the product's availability
2. Product Expansion
Product expansion, also known as product development, is a strategy for increasing sales within an existing market by creating new products or improving existing product lines.
Often, product expansion is the result of new technology. For example, Apple built on the success of the iPod by introducing the iPhone. Other times, the emergence of new technologies triggers a change in consumer preferences. This can be seen in automobile companies developing electric vehicles.
3. Market Expansion
Also known as market development, this business growth strategy involves expanding across adjacent markets for example, selling products and services to customers in another city, state, or even country. For many companies, market expansion may be the only viable growth strategy left due to these reasons.
The company has exhausted efforts to lower price and improve the product
The competition in an existing market leaves no room for growth
Market research shows a healthy demand for the product in new markets
For online retailers, for example, expansion into the Asia-Pacific region presents a massive growth opportunity. In 2019, Alibaba's Singles' Day, the world's largest 24-hour shopping event observed in parts of Asia, amassed $38 billion in sales, surpassing the $16.8 billion generated during Black Friday and Cyber Monday in the US.
4. Alternative Channels
An alternative channel strategy involves exploring new ways to reach out to and sell products to customers. Although there are many types of marketing and distribution channels, most will fit into 3 models
- Direct sales - In this model, businesses sell their products and services to customers directly. No intermediaries are involved when communicating with customers and providing them with their goods.
- Distributors and brokers - Intermediaries may be necessary when businesses don't have the infrastructure and network to sell directly to customers. For example, food manufacturers work with distributors to get food products to restaurants and catering companies.
- Wholesale and retail - Wholesale and retail channels offer efficient means for B2C companies to expand their reach in new markets.
Diversification is a high-risk, high-reward strategy that involves selling new products to new customers. If the new product is a hit, the business could be looking at a proverbial goldmine.
However, the R&D and manufacturing costs of a new product can be capital-intensive. Even if the product sells well, the requirements to meet demand could strain operations and cause a diminishing rate of return.
Another way for businesses to leverage diversification as a growth strategy is to acquire a separate business to expand operations. This is something companies like GE, Google, Comcast, and Disney have done successfully.
How to Measure Business Growth Rate
Calculating a business's growth rate is a fairly simple process. To get a picture of monthly revenue growth, simply subtract this month's revenue from the previous month's. Divide the result by last month's revenue and multiply it by 100 to get a percentage.
Growth Rate (Revenue) = [ (Revenue Last Month Revenue This Month) / Revenue Last Month ] X 100
As for benchmarks, the ideal growth rate varies widely across industries. Data from the NYU Stern School of Business shows the following revenue growth rates by industry over the next two years.
- Apparel - 3.51%
- Green and renewable energy - 15.47%
- Hotel and gaming - 9.47%
- Restaurants and dining - 7.72%
- Retail (general) - 2.92%
1. Customer Loyalty
Businesses that wish to gauge their customers' satisfaction levels can use the Net Promoter Score (NPS) to measure the willingness of customers to recommend their products and services. It's an index ranging from -100 to 100 and is determined by asking customers a question like-
On a scale of 0-10, how likely would you recommend [company name] to your family, friends, or colleagues?
- Customers that answer 6 and below are detractors
- Customers that answer 7 or 8 are passives
- Customers who answer 9 or 10 are promoters
One of the simpler metrics to measure a company's position relative to its competitors is Share of Voice (SOV). SOV helps gauge a company's brand visibility and its share of the conversation in an industry.
For example, a company like Starbucks can compare the number of times its branded hashtags appeared on social media with the number of generic hashtags related to coffee. An SOV above 50% shows Starbucks is a leader in the coffee sector.
3. Hiring Effectiveness
Another way to measure a company's growth is to look at how effectively it's hiring skilled people. Determining the quality of each hire is especially important for startups and fast-growing companies, as each person brought into the team could either speed things up or slow the business down.
Common quality-of-hire metrics include attendance records, job performance reviews, employee engagement, new hire turnover rates, and employee productivity. All of these metrics can be measured through interviews and employee tracking.
How to Create Sustainable Business Growth
When it comes to creating a growth strategy, the details are just as important as the big picture So, it's important to plan carefully and consider the following guidelines.
- Work on product-market fit - Perfect product-market fit is the dream of any business. In reality, however, product-market fit is a constant work in progress. In fact, poor product-market fit is the reason why 42% of startups fail. Business owners need to listen to consumer feedback to determine if the product actually solves a real problem instead of a perceived one.
- Identify a target audience - A business only exists by having customers to sell to. Businesses can create buyer personas to have a clear picture of their ideal customer and create segments based on demographic data and preferences.
- Make calculated changes - Any change to the business, from its product, processes, and spending, must have a measurable impact. This is the only way to know if the change generated a favorable result. For example, every expenditure must have a matching purpose and expected return.
- Identify and monitor competitors - Evaluate and learn from what other companies are doing to grow their customer base and increase their sales and profits. Be mindful of their marketing strategies, product features, and customer support.
- Play to your strengths - Every business has strengths and weaknesses. But businesses with limited resources are better off focusing on their strengths instead of spending too much time trying to fix their weaknesses.
Leverage Forecasting for Sustainable Growth
Growth is integral to a company's long-term survival. But there's an important catch- any growth must be well within the business's capacity. An increase in product demand, for example, has to be met with the readiness to ramp up production and operations. Otherwise (as mentioned earlier), this will only lead to diminishing returns.
One way to ensure that business growth remains sustainable is by forecasting sales and customer demand. By combining historical data with estimates of future market conditions, businesses can be better equipped to adapt and scale with any changes in consumer demand, seasonal peaks and troughs, and market trends. For best results, use business forecasting software to leverage large data volumes and arrive at more complete and accurate forecasts.
Forecasting software has the ability to gather years' worth of historical sales data and automatically run these figures through complex calculations to determine expected sales volumes. These tools eliminate room for human errors by automating data collection and entry and save valuable time by simplifying the calculation process.
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