A business firm is not a static entity. Business owners want to grow from a certain level to an advanced level as time passes.
Almost all entrepreneurs want to grow because it promises higher returns. Most of the time, it is also unavoidable for a business to grow or expand. If revenue and profitability under current operations or in the current market fall below a certain threshold, it becomes riskier to stay put.
Business growth: definition and meaning
Although there isn’t any hard and fast definition of business growth because every business is different. Similarly, growth parameters for all businesses are also different. Most suitably, it can be defined as “business growth is a natural process of adaptation and development that occurs under favorable conditions”.
Business growth indicates that your company has reached a point where it can be expanded to
generate more profit. However, business expansion does not always result in an increase in profitability. It includes a thorough examination of market conditions, resource mobility, and an optimistic outlook for the future.
Typically, a growth project is undertaken under favorable conditions, resulting in higher returns. However, not all expansions result in your firms’ success.
Improper market analysis and rash decisions made during the process could spell disaster for your business.
What is important for business growth?
A few things are very important for growing your business. Primarily, growing a business is a change process that requires a shift from a relatively static environment to a new setting. Knowing what makes a growth process smooth and engaging is of paramount importance. Here are a few important considerations.
- Growth Mindset
An entrepreneur with a growth mindset never stays in a comfort zone. It is critical to understand that without a growth mindset, nothing grows in life. Similarly, no one grows when they remain in their comfort zones. Perhaps the most important component for any growth strategy to succeed is to adopt an attitude to grow. A growth project driven by a mindset to grow rather than market necessities is more beneficial for business expansion. The owners’ growth mindset approach is the primary motivator for business expansion. It aids in the creation of a vision and goals for the expansion project, both of which are critical to its success.
- Market Analysis
Knowing the market is the second most important factor in business growth. It entails having extensive knowledge and understanding of the market in which the company operates. Market knowledge includes accurate information about competitors’ situations, supplier issues, customer behaviors, and future demand and supply trends. Outside factors influencing market conditions must also be considered before making decisions. A foresighted entrepreneur can grow his or her company to any size.
Any company’s expansion phase necessitates resource mobility. Before expanding its operations, a company must assess its own resourcefulness. The term “resources” refers to both financial and human resources. Expansion necessitates the addition of capital or working capital while retaining the current level of cash generation. Aligning human resources with the growth strategy is also critical for success. There is no expansion strategy that works unless employees are involved. It necessitates clearly communicating the objectives and motivating them to take on the project with zeal.
The Need for Business Expansion
Usually, it is the motivation of the owners to grow their business. However, this is not always the sole driver of growing one’s business. The following are the factors of business growth and development.
- The owner’s desire
- To effectively compete with competitors
- Adapting to new industry trends and customer preferences
- To reduce the number of competitors
- To reap the benefits of mass production
- To deliver products or services to customers effectively and to better understand their needs
- To ensure an uninterrupted supply of raw materials for manufacturing and to reduce production costs
- To avoid the risks of the same industry while reaping the benefits of other industries
- To avail higher services for the core business, such as buying an advertising agency to meet the advertising needs of the core food business, etc.
- The culmination of the business life cycle.
Key Business Growth Strategies
There are numerous business expansion strategies. It is critical to understand that not all of them can be applied to any business at the same time. Growing in only one area at a time, on the other hand, can be a cumbersome process. Each of them requires special attention in whatever industry or stage your company is in. To evaluate, clear mapping of resources with the expansion strategy is required. As a general idea, a few methods of expanding the business are listed below.
- Internal development
It is a business expansion strategy that refers to growing the existing business operations. Such as opening another branch of a restaurant at a different location, setting up a new factory, or expanding the distribution channels. etc. It is called an internal growth strategy.
- External development
External development refers to when another business is acquired or two businesses are merged. Entering into a new business is also an external growth strategy. There are three types of external growth.
- Horizontal integration
This means that when a business acquires or merges with another business related to its own industry. Such as the merger of two textile companies or acquiring a hotel business by another hoteling company.
- Vertical integration and development
This refers to a business integration in which both businesses are related to the same industry but work in different stages of production or distribution. It is called backward integration when integrated with suppliers or a forward integration when integrated with the distributors. Vertical development also occurs when a company at one stage of production or supply chain enters into a new business by expanding its operations to other stages of the same line of product or service. Such as opening retail outlets by garment manufacturing companies to directly deliver quality services to their customers and understand their needs.
It refers to the merger of two businesses or entering into a new business that belongs to different industries. This kind of integration is called conglomerate diversification.
A successful business growth model
The entrepreneurs work in different stages of business growth. They also work with diverse management styles and preferences. That is why there isn’t any unique model or a business growth plan that can be applied to all ventures. No single model can be applied to such businesses which operate in the same industry at the same stage of production and operations. Because the owner’s vision, goals, and managerial styles can be different. However, a few important constituents of a successful business growth model can be generalized to all businesses.
- Based on Strengths and Opportunities
All businesses have strengths and weaknesses. They face different opportunities and threats. A SWOT analysis of your business can better reveal the key strengths and opportunities of your business. A reliable growth model of a business is one that is based on utilizing the strengths and exploiting the opportunities.
- Intends to improve customer service
A good business growth project intends to improve customer services or customer experiences. It must identify specific problems of the customers that your business is unable to solve in its current capacity. A clear indication of improvement in customer experiences gives a competitive advantage to your business and also helps in winning more customer loyalty.
- Minimum Resource Mobilization
Business growth requires resource mobilization. It involves cost, extra investment, and sometimes wastage of resources. If an expansion requires extensive resource mobilization at once, that can turn into a nightmare. Therefore, a well-articulated expansion plan is always based on minimum resource mobilization so that extra costs involved in the process can be avoided.
- Lowest Disruption to Current Operations
Existing revenue or cash-generating units must remain intact during the growth process. If an expansion project disrupts existing operations, the business can quickly run out of cash or working capital. Instead, existing operations should be more organized during the growth process with an emphasis on sales and recoveries. This will help your business to fund expansion operations or to overcome unexpected circumstances.
Stages of Small Business Growth
There are developing stages in which a small business operates. Each stage requires different strategies to grow further. The progressive stages of a small business are as follows.
- Existence level
A startup or a new business venture works in the ‘existence’ stage. Here, the whole emphasis is on attracting more and more customers and delivering more and more products or services to gain recognition. The second most important consideration at this level is to save, build, and organize resources effectively.
- Survival level
The second stage is the survival stage. By entering this stage, a business realizes that it has the potential to survive. It gains some recognition by offering products and services. The issue at this level is to attain a breakeven point of revenue or to generate a satisfactory profit. The efforts are directed towards controlling expenses and maintaining a sustainable cash flow.
- Success level
This is the stage where a business achieves stability in the revenue stream, builds a reliable customer base, shows a recognizable market presence, attains consistent cash flow, and makes solid profits. The business is at a level where it can take off further based on a sound platform you have created as a successful entrepreneur. You, as the owner, have to make a decision at this stage whether to grow further or stay committed to the current operational flow. At this level, your decision or indecision is going to determine the future of your business. Sometimes it is more beneficial to stay focused on current operations with available capacities. But the risk is that you can be out of business with the passage of time if new entrants or your competitors make significant progress. A more rational approach is to develop growth strategies based on your strengths and make steady progress instead of introducing abrupt changes. Slow progress is indeed better than no progress.
Real-World Business Growth Examples
Back in 2016, Marriott International, Inc. acquired Starwood Hotels & Resorts Worldwide, Inc. Both of these companies merged their synergies. This is an example of horizontal integration of two companies working in the same industry. While Marriott had a strong brand name in luxury services, Starwood had a large international presence. After joining together, Marriot has increased its hotels’ presence to over 5000 around the world.
Netflix is a prime example of vertical backward development. It was primarily a film and TV show distribution company in the entertainment industry, but it started producing its own original content of films and TV shows. In 2013, Netflix started its own content studio. The company’s content offering has multiplied its revenue. Before this development, Netflix was operating at the end of the supply chain by distributing and showing the content of other producers.
An impressive example of a diversification growth strategy from the real world is Amazon, which, beyond doubt, was the fastest growing business in the world in the last two decades. The company started its operations as a small online bookstore in 1994. Since its inception, Amazon has diversified its business by acquiring a number of brands in different niches worldwide offering a wide range of products and services.
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