What to Do When Your Startup Hits a Growth Plateau
At their cores, 21st century tech startups are fundamentally concerned with growth.
Boosting customer numbers, developing economies of scale, capturing greater market share, increasing revenues and profits, and expanding into new markets: ultimately, if a startup doesn’t grow then it doesn’t survive.
What do you do, though, when your startup stagnates and your earnings level out?
In this article I’ll discuss 3 proven strategies you can use to push past plateaus and I’ll also share some insights from helping startups grow at Appster.
The Importance of Growth
In a recent article, I emphasized just how crucial growth is to startup vitality by pointing out the following 3 key facts:
“1. Startups endeavour to build businesses with global reach that generate many millions, if not billions, of dollars in annual revenue. A growth rate of 5%-10% per week is the kind of massive, high-speed growth that today’s startups try and achieve.
2. In order to grow substantially and do so quickly, start-ups must exhibit economies of scale i.e., a situation in which the more customers you have, the cheaper the cost of your products becomes.
3. 21st century startups must go after and effectively serve large (and/or quickly expanding) markets with lots of consumer demand for solutions to urgent problems.”
All of this to say that today’s startup companies are absolutely in the business of scaling and expanding as fast as is reasonably possible.
What happens, though, when your startup hits a growth plateau and then struggles to increase in size and operations?
At this point it becomes crucial to start applying one or more of the following 3 key strategies for (re)igniting growth and expanding your business.
1. Expand Vertically
Vertical growth — sometimes referred to as “expanding into different vertical markets” — involves efforts to obtain a greater share of the market(s) in which you currently operate by increasing your sales therein.
As Valeriia Timokhina from easternpeak.com explains:
“Vertical growth means scaling your service/product within your existing line of business. By going deeper into the current market, you get a chance to increase the demand for your product and its adoption.”
Vertical expansion can be quite attractive to a startup looking to grow its operations because it consists of efforts to increase the size of the business by targeting a market whose dynamics, customer needs and wants, and existent problems are already well known.
There are at least two main ways in which you can expand your existing market share via vertical expansion:
- Adding more features, capabilities, and services to your existing product: The main objective of adding new features to your current product is attracting new customers whose complex needs are not currently being met by your offering. By addressing these needs with new services and thereby bringing on new customers you’ll be able to develop additional revenue streams. A great example of vertical expansion through the adding of supplementary features is the ride sharing service Uber (one of the fastest growing companies ever). Uber began as a limousine service but then expanded its services range by offering additional amenities such as Uber-X, Uber XL and Uber Black. As of summer 2017, Uber is valued somewhere in the neighbourhood of $69 billion.
- Building and selling new products: In addition to offering new features on your current products, you can also increase your share of the market by developing and selling new products for which you have determined demand exists. Salesforce, the American cloud computing company, is a good example of a startup that attained greater market share by developing new products. Salesforce started as a cloud-based CRM software for corporate sales teams. Later, the company developed (and acquired) other cloud-hosted technologies and products in order to target the enterprise market with services like com (an online customer service tool) and Pardot (a B2B (business to business) sales and marketing automation tool).
2. Expand Horizontally
Horizontal growth aims at expanding business operations by entering new markets — either new geographical locations and/or business sectors.
Trying to compete in new markets brings both significant potential gains and a variety of unique risks and uncertainties.
In addition to performing the due diligence that a startup should execute whenever preparing to launch in a new market, the most effective way to achieve horizontal expansion is to leverage your existing strengths and knowledge rather than target an entirely foreign market in which you have no connections and about which you have no knowledge.
Here are 3 ways to pursue horizontal (or “lateral”) growth:
- Replicating your business model in a new market: Given that your current business model works well in one market, there’s a strong likelihood that you can successfully replicate it elsewhere. Two examples of this kind of horizontal expansion are Amazon and Uber. Amazon used an effective e-commerce strategy to dominate the retail market and then branched out into TV and movie markets and applied this strategy in the form of Amazon Prime. Uber leveraged cutting-edge mobile technology in order massively disrupt the taxi industry and then applied this approach to other markets in the form of new shipping and delivery services (e.g., UberEats and UberRUSH).
- Leveraging your existing assets: Discovering additional ways to monetize the different kinds of value your business could provide is one way to grow horizontally through leveraging existing assets. Amazon, for instance, recognized that it could monetize the hyper efficient network of warehouses that it had created for its own retail sales by offering warehouse services to third parties. Fulfillment by Amazon was thus born: third party companies can now store their products inside Amazon’s warehouses and Amazon takes care of everything else involved in retail transactions (picking, packing, shipping, customer service, and so on).
- Bringing more of your operations in-house (i.e., taking business away from your suppliers): This is quite a common approach to securing horizontal growth. Once your startup gets big enough in size and operations, it makes sense to start carrying out certain aspects of your business in-house. Rather than having third party suppliers or delivery services conduct these operations for you at a cost, you can build the necessary infrastructure to make your company responsible for these services itself. As an example, consider Apple. For many years, Apple did not operate as a retail company (focusing instead on the creation of technology products). Today, however, Apple stores are the most profitable retail shops in the entire U.S., thus enabling Apple to earn additional revenue at the expense of third party retailers who used to capture those earnings.
Horizontal growth is all about progressively expanding into adjacent markets:
3. Develop Strategic Partnerships
The third key strategy for overcoming growth plateau and (re)igniting the expansion of your business is the development of strategic partnerships.
A “strategic partner” can be defined as:
- “A party with whom a long-term agreement is reached for sharing of physical and/or intellectual resources in achievement of defined common objectives” (source); or, more simply
- “Another business with whom you enter into an agreement that aims to help both of you achieve more success” (source)
Forming strategic partnerships can help you grow your business by capitalizing on the following competitive advantages that such alliances bring:
- Access to new customers, and opportunities to reach new markets or market sectors: each business can target the other’s set of “warm” customers, thereby increasing customer bases
- Increased exposure and brand recognition: e.g., launching a joint marketing campaign with a non-competing business in order to cross-promote each other’s products or services
- Sharing of resources such as technologies or financial services: e.g., non-competing digital apps startups sharing technologies for the mutual benefits of both companies (such as innovation)
- Expanded geographic reach: unless the strategic partners are operating in the same geographic spaces, it’s very likely that these kinds of calculated alliances will bring with them access to previously untapped markets or areas of the globe
Here are a few different ways in which strategic partnerships can operate:
A. Joint Ventures
A “joint venture”, according to inc.com, is a time-limited and project-focused business enterprise undertaken by two or more companies with the aim of sharing the expense and (hopefully) profit of a specific business undertaking.
The purpose can be to create an entirely new product offering and/or to collaboratively enter (or expand into) a new market.
An example of a joint venture undertaken by two tech companies is the 2014 deal between Facebook’s Oculus Rift and Samsung to develop the Samsung Gear.
Facebook agreed to be responsible for the software side of things, with Samsung building the hardware.
This allowed Samsung to enter a new market (i.e., VR), whilst Oculus got exclusive access to a new distribution channel.
B. Distribution Partnerships
Distribution partnerships are especially helpful if you find yourself in a situation where you’re trying to achieve growth but you’ve exhausted your market reach.
A well-placed distribution partner could help you to tap into new customer segments.
Many years ago Google won a huge share of the online search market by signing deals with various web browser companies in order to provide them with in-browser search.
Over time, this helped Google ascend to the dominant monopoly position it now occupies.
C. Licensing Opportunities
Strategic partnerships in the form of licensing deals can work quite well when your company owns a) technologies that could be vertically integrated into products sold by other startups or b) a reputable, attractive brand from which another company might benefit were it to use your brand.
Two quick examples?
- Starbucks signed a licensing deal with Unilever back in 2008 to have Unilever manufacture, market, and distribute Starbucks-brand ice cream.
- Google inked a licensing agreement with the pharmaceutical company Novartis back in 2014: the two companies agreed to have Novartis use Google’s “smart lens” technology to try and develop new categories of eye-care products (including “smart” contact lenses that would allow diabetics to track their blood glucose levels by measuring eye fluid).
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Originally published at http://www.appsterhq.com