As a business owner, most would agree that the dream for your business is to one day see your hard work turn your small business into a leader in your industry. Expanding your business means taking on more staff, in the hope you can spend more time with your family. In most cases, your business is your retirement fund and to be comfortable at retirement means growing the business to get the best sale price.
However, a common story many can relate to is that small business owners are so busy working in the business, that any quality time to develop a growth plan is gobbled up by the time and effort it takes to complete the day-to-day tasks of running a business.
As something that often gets pushed to the side, the big-picture goal of one day retiring from a successful business, or simply spending more time at home, means that setting the time aside to develop a strategy is one of the most important things you can do as a business owner.
A growth strategy for your business starts with a review of your last three to five years. You should look at where the growth in sales has come from and where you may have lost market share.
Then review the following areas to see where growth may be possible:
- market penetration - are there any existing products or services that you can grow within your existing clients or customers?
- market expansion - are there any existing products or services that we can sell into new markets?
- product expansion - have you considered any new products or services that you could sell to your existing clients or customers?
- diversification - consider any new products or services that you could develop or obtain skills in to attract new clients or customers
Looking at how big businesses do this can provide you with some strategies and ideas as to how you can apply to your own circumstances and grow your business.
Market penetration is expanding your client or customer base with existing products and thus taking away some of the market share from your competitors. This could involve marketing and promotion on what sets you apart from your competitors or even identifying a change in demographic for your product users and market heavily to them. Advertising should be around your differentiating factors, i.e.: price, quality of product or service.
One good example of this is the marketing approach used by Domino’s Pizza. They set themselves apart from other similar and older brands, such as Pizza Hut, by highlighting what made them different, such as their price, their innovative customer service and the expansive product varieties.
Market expansion is a high growth strategy usually adopted by a business when the sales to current customers and markets have been maximised. Strategies involve entering or creating new markets through diversification, innovation or targeted marketing and advertising.
For product sales this can mean expanding your website to include online sales to attract new customers via an additional channel, in a wider geographic region. Targeted advertising specific to a new customer demographic is another. Pepsi does this well. In order to take market share away from Coke, they targeted the under 30s age demographic and took significant market share off of Coke.
Product expansion is when a business launches new or improved products to their current market. McDonald’s is one business that excels at product expansion. By listening and monitoring the changing needs of the customer, they update their product range according to trends, to remain relevant to their consumer. Their healthy eating choice range is one example when their customers were looking for a healthier alternative of fast food. McDonald’s “Create Your Own Menu” is another great current innovative promotion allowing the customer to design their own burger to their taste.
Finally, diversification. This option can be the most difficult and have highest risks as, more often than not, will involve additional capital resources and training of staff to succeed. As such, any changes of products or services must be researched and explored thoroughly before implementation.
Even a good amount of research and development by big companies can still fall through, as seen by the Woolworths/ Masters venture. Woolworths wanted to enter the hardware sector to compete against Coles/Wesfarmers. This venture failed because they could not compete with the Bunnings brand and loyal customer base. A very costly mistake.
Just as starting a business comes with its own risks, so too does expansion strategies. Just as your business changes, so too should your growth strategy, so it’s a good idea to review your plan on an ongoing basis, to strengthen what is working and reduce the effort on things that don’t. It’s also beneficial to get a second opinion, so speak to a RSM adviser to get a professional insight on the particular challenges, opportunities or ideas for your business.
For more information about this article, please contact your nearest RSM Office