Importance of Growth Strategy
Growth strategies are crucial because they enable a firm to reach the necessary scale to be cost competitive and maximize the business opportunity while concentrating on its other goals, and then specify all the necessary steps to reach them.
According to the Bureau of Labor Statistics, less than 20% of new enterprises survive past their first two years of operation. Even worse, only 45% of businesses that do survive over the two-year milestone will remain in business for five years. Growth is obviously necessary for businesses to succeed and avoid becoming just another statistic.
When executed properly, any of the growth strategies can help a disciplined firm experience sustainable growth that would not be achievable without this option. The long-term survival of a corporation depends largely on growth. It facilitates asset acquisition, talent attraction, and investment financing. Profit and corporate performance are also fueled by it.
For a variety of reasons, corporate growth can be beneficial. For instance, it might enable you to:
• Benefit from fresh opportunities
• Increase the scope of your products or services
• Draw in additional clients
• Boost sales
• Increase staffing
Additionally, it might assist you in meeting consumer demand, boosting your market share, and leveraging your expanding brand. It frequently encourages creativity, assisting you in standing out in the market and fending off competition.
Growth can also improve your company’s reputation, increase your bargaining power in supplier negotiations and give you more supplier options, as well as boost stability and revenue. But for growth to be effective and long-lasting, it must be deliberate and motivated by the appropriate factors.
Reasons for business growth
The majority of firms expand in order to grow larger, possibly by growing revenue or market share, but size isn’t the sole factor. Numerous more advantages spur firm expansion. For instance:
• A market that is more resilient or sustainable.
• Cost savings as a result of economies of scale.
• Increased market dominance.
• More purchasing and negotiating power.
• The capacity to reduce business risks, for instance by diversification.
• The capacity to lessen the threat posed by competition.
• The capacity to withstand changes in the market and downturns.
• The capacity to recruit top talent.
For certain firms, growth may not be practicable or feasible beyond a certain point (think of a Business Development Company governed by the 1940 Act), but in most circumstances, stagnation is more likely to result in missed opportunities or even inability to survive an increasingly competitive environment.
Who Stands to Gain?
Any kind of growth strategy can help an organization reach new hights, no matter what stage of development it is in, if it is well planned and executed .
The most obvious candidates to implement a growth plan are startups, particularly if they are funded by venture capital or investors who don’t mind waiting a while to see a return on their investment to prioritize growth. In fact, most of the big success stories in the technology sector started as VC funded start-ups that grew in the early stages while burning through significant cash, and required several rounds of private capital raising before they became public through and IPO or a SPAC (Special Purpuse Acquisition Company) reverse merger. In many cases, even after becoming public some of them didn’t pay dividends for many years to prioritize growth, and investors relied exclusively on the stock price increase to obtain a return.
Startups are frequently seen utilizing product development growth strategies as they are typically at the forefront of product offerings with cutting-edge items and tenacious teams wanting to make a difference in the world.
The majority of the time, small firms are wonderful instances of organic growth in action. Being an established company rather than a startup has helped them to continue operating past the scary 2- year failure mark that we previously stated. They must, however, be frugal with their spending because they lack the huge funds of a business.
As a result, it’s possible that you’ll see tiny enterprises employing a market penetration approach and competing on price or quality with lots of loyal clients.
No matter how big a company gets, there’s always room for expansion.
Because large companies typically have a lot of cash and internal resources that can readily accommodate additional teams or business divisions, corporations often adopt a mergers and acquisitions model. However, they might also use any of the other growth techniques given their substantial internal resources and talent pools.
Types of Business Growth
The primary goal of the majority of organizations is growth. Keeping this in mind, business decisions are frequently focused on what would support the company’s ongoing development and success as a whole. We’ll go over some of the strategies that can help growth in more detail below.
You can build your firm in a number of ways. These categories can be used to categorize business growth:
With organic growth, a business achieves scale by using its own internal resources and internal activities, as opposed to having to look for outside resources to support expansion.
Making production more effective so you can produce more in a shorter amount of time, which results in increased revenue, is an example of organic growth. Utilizing organic growth has the advantage of relying on self-sufficiency and preventing debt if it can be funded from the operating cash flow of the business. Furthermore, the greater revenue brought about by organic growth might eventually be used to finance more strategic growth strategies. We’ll go over that afterwards.
Creating strategies for long-term corporate growth is part of strategic growth. Creating a new product or creating a marketing plan to appeal to a new market are two examples of strategic growth.
In contrast to spontaneous growth, these initiatives frequently need a large investment of time and money. In order to raise the necessary funds for future strategic expansion initiatives, businesses frequently start with an organic strategy before they consider M&A opportunities.
Internal business process optimization is the goal of an internal growth strategy. This technique is dependent on businesses utilizing their own internal resources, much like organic growth. The key to any internal growth strategy is making the best use of the resources already at hand.
Cutting excessive spending and running a leaner organization by automating some of its activities instead of recruiting new personnel could be examples of internal growth enablers. Internal growth is often more difficult, since it pushes businesses to consider how their operations can be enhanced and made more effective rather than concentrating on external variables like expanding into new markets.
4. Acquisitions, Partnerships, and Mergers
Although mergers, partnerships, and acquisitions are riskier than the other growth categories, they can also yield substantial profits. There is strength in numbers, and a properly performed merger, partnership, or acquisition can assist your company in entering a new market, growing its clientele, or increasing the range of goods and services it provides.
An expansion strategy enables businesses to grow. Expanding a product range, opening new locations, or investing in customer acquisition are all ways to accomplish growth. The industry and target market of a firm have an impact on the growth methods it will select.
Plan strategically, think about your possibilities, and incorporate some of them into your business strategy. Depending on the type of business you’re starting, your growth strategy can involve things like:
• Adding new locations
• Investing in customer acquisition
• Franchising opportunities
• Product line expansions
• Selling products online across multiple platforms
Your particular industry and target market will influence your decisions, but it’s almost universally true that new customer acquisition will play a sizable role.
The Ansoff Matrix
Four high-level company growth strategies used by firms are outlined in the so-called Ansoff Matrix. Let’s take a quick look at each of these strategies now before going into more detail about them in the methodology section.