How to Create the Perfect Growth Strategy for Your Startup
It begins with understanding the difference between growing and scaling
To grow or to scale?
This is one of the toughest decisions entrepreneurs have to grapple with. But guess what, most founders get it wrong all the time. Case in point, they don’t understand the difference between scaling and growing.
Scaling involves increasing revenue without a substantial increase in resources while growth is the increase in revenue as a result of adding new resources(capital, people, or technology).
Why does it matter?
Scaling can be done with minimal effort. For instance, when a business transitions to cloud platforms, it can reach more people with minimal need for more resources. In contrast, growth is a capital-intensive process that requires additional employees, offices, capital, etc. It takes a lot of resources and adjustments to sustain constant growth.
Businesses need to understand when to grow and when to scale depending on the dynamics of the industry. Choosing to adopt either of the two has unique repercussions that can determine the trajectory of the business.
When to adopt a growth strategy
All startups set out to establish dominance in their industries. The allure of achieving maximum growth within the shortest time is unavoidable. For this reason, most startups will pursue the growth initiative as soon as they can.
However, the effects of adopting a premature growth strategy can be detrimental to the business. As the business grows, it becomes harder to manage the factors of production and to monitor individual units that make up the system. This itself is a recipe for disillusionment, regression, or even total failure.
So when is the right stage to pursue growth?
Simple. As soon as the business achieves sustainable rinse-and-repeat cycles. This involves understanding their customers, market trends, suppliers, competitors, and whether or not the demand will be sustainable amidst shifting dynamics.
Once the business manages to realize profits or its goals for a few consecutive cycles, it’s the perfect time to explore the growth agenda.
The subject of growth becomes more imminent when the business isn’t a startup anymore but isn’t a large corporation yet. The middle ground can be difficult to navigate. The process requires investing in new people, offices, locations, market niches, and advertising.
Many businesses will have some commendable financial muscle by the time they are in this stage. This could prove to be a blessing or a curse. While financial resources are an important factor in growth, injecting more capital without optimizing the factors of production could be tragic in the long run.
Therefore, the key to sustainable growth lies in developing the following effective strategies to govern the process.
Market Penetration Strategy
Market penetration refers to the measure of how much a product or service is being used by customers compared to the total estimated market for that product or service.
For example, if there are 10 million potential clients within a niche and a business caters to 2 million of them, its market penetration is 20%. 80% of the market still remains untapped and this signifies the growth potential the business has.
For a small company, market penetration implies selling existing products within the same market it has been using. As such, the only way to grow is by increasing the market share. Market share is the percentage of sales a company makes compared to its competitors.
If competitors claim a large share of the market, the business will have more challenges which, in effect, determines the growth strategy it should adopt. Market penetration analyzes and the industry as a whole.
A few ways to expand the market penetration include:
- Lowering the prices in markets where there is little differentiation of products.
- Aggressive advertising.
- Selling products online across multiple platforms.
- Rebranding or repackaging to appeal to new customers.
The market penetration strategy should focus on methods that encourage consumer loyalty instead of short-term sales increments.
Market expansion or development
The second growth strategy, market expansion, involves selling existing products to a new market.
This strategy is always more demanding than market penetration. More often than not, businesses have to invest in multiple research and data analysis tactics to understand the new markets.
One major reason to adopt market expansion is if there is stiff competition within the current market leaving no room for growth. As a result, businesses have to find new markets to increase their sales and profits.
In cases where the business is presented with options, market penetration is the best option to start with before it can embark on the market expansion strategy.
Product expansion strategy
Product expansion or development is one of the most popular growth strategies businesses choose to adopt. It involves adding new products, features, or options to appeal to the existing or new markets.
Since the market is dynamic, occasionally investing in product expansion or development serves its most intricate needs at that particular time or place. Product expansion also leverages the psychological bias of customers to have a preference for newer things.
According to the British Food Journal, the general view about new product development (NPD) is that it brings considerable profits to the businesses if the product is introduced to the market at the right time, is priced at a suitable amount, and targets a suitable customer group.
The journal highlights the fact that it’s difficult to establish whether the new products will attract profit or lead to losses. To refine the process, product managers need to answer the following questions before making new product decisions:
- What markets are they looking for?
- What type of products or services should they offer?
- Is the product new to the business or its customers?
Then, if a business chooses to entertain the idea of product expansion, there are eight stages it needs to follow:
- Generation of new product ideas.
- Screening and evaluation of ideas.
- Concept development and testing.
- Marketing strategy.
- Business strategy.
- Product development.
- Test marketing.
Companies like Apple and Samsung are masters in product expansion. They have managed to stay relevant and expand into newer markets by continuously updating their products and adding new ones to the list.
They are always looking out for new market trends, such as the need for a new camera feature, and finding ways to capitalize on them by updating their devices or building new ones.
Growth through diversification
Diversification involves adding new products into existing markets. The new products in diversification are usually a bit different from the original niche of products the company specializes in. For example, picture Apple getting into the automotive industry with their proposed Apple Car.
Diversification can be a game-changer but the risks involved are also too high. The new markets the company seeks to venture into already have established industry leaders who have an upper hand in appealing to customers.
Another difficulty lies in streamlining the diverse units of production to be able to support themselves financially without over-reliance on each other. There are too many factors that must be kept in check to pull out a successful diversification program.
A lot of market research is required before settling on diversification as a growth strategy. At the end of the day, how well a business can optimize and streamline the different units of production is what determines its success.
Acquisition of other companies
In an acquisition, one business entity purchases another one to expand its operations. Acquisition is not a reserve for industry giants; small businesses can acquire other smaller businesses too.
Acquisition enables a business to fast-track its expansion by obtaining access to systems that are already in place. The benefit of acquisition is that it takes into account all the other growth strategies we’ve highlighted so far making it an attractive way to catapult a company’s growth potential.
Nevertheless, it comes with its risks. Significant capital investment is necessary to acquire other businesses. Failure to achieve the correct balance between the parent company and the new one might attract detrimental effects to the business.
A growth strategy is a crucial component of the business machine. Without one, entrepreneurs are at the mercy of market fluctuations and a customer base that isn’t guaranteed.
Businesses need to understand the best time to pursue growth versus when to scale their operations. A sustainable growth strategy is necessary for long-term success.
Successful companies take time to plan and review their growth strategies before executing them. They work on it. They define it. They refine it. They earn it. So what’s your plan?