4 ways to grow your business
If you’re ambitious about growing your business, there are a variety of strategies available to you, each with its own level of risk. To choose the right one, you'll need to analyze your strengths and weaknesses and identify the customers to target.
The best way to do this is through a strategic planning process that allows you to look at the available options and select the one that’s well suited to your company’s products, resources and stage of development.
It’s no easy task—markets evolve and customers move on. To grow, you must not only replace the customers you lose but find new ones.
“Growing a company is challenging,” says Jean-François Ouellet, an Associate Professor in the Department of Entrepreneurship and Innovation at HEC Montréal.
Ouellet, who is also an entrepreneur, corporate director and advisor to several companies, looks at four ways to grow your business and what each option entails.
1. Market penetration
The first step for any business seeking to grow their market share is to find ways to lose fewer customers.
“You have to plug the holes in your bucket and that’s usually not a matter of marketing,” Ouellet says. “It’s about fulfilling the promise you’ve made to your customers. If you promise them a specific delivery date or a specific level of quality and you don’t deliver, it will trigger dissatisfaction.”
It’s a similar challenge for attracting new customers. You have to effectively communicate what makes your company exceptional and then fulfill that promise each time they buy from you. That’s how you ensure they’re not just one-time buyers, but rather repeat customers who become advocates for your company.
“It’s not enough just being noticed by customers,” Ouellet says. “You want to be remarkable. You want customers to feel your products speak to something that’s important to them. A need that they truly and deeply have.”
That kind of loyalty will help expand your market.
2. Market development
If you are successful in your existing market, you will reach a point where your sales and marketing expenses produce diminishing returns. That’s the time when you will need to explore other growth options such as expanding to another city, province, region or country. Or you might decide to target a different customer segment or demographic profile. You may also want to set up new distribution channels. For example, if you sell online, you might branch out into selling to retail stores and, if you’ve been selling to businesses, you might want to start selling to consumers.
Regardless of the type of company you’re running, market research will be key to breaking into a new market. You should look at several potential markets before narrowing the list to two or three for closer study. “You want to look at markets that are both attractive in terms of size, proximity and growth but also where you can be competitive as an organization,” Ouellet says.
For Canadian markets, Statistics Canada, chambers of commerce and economic development agencies are good sources of data. Export Development Canada and the Trade Commissioner Service have excellent resources for companies looking to export or expand abroad. Once you’ve narrowed down your choices, you may want to look more in-depth at your industry by purchasing reports from specialized research companies.
Ouellet cautions that markets have their own unique characteristics and what works in your home market may not work in another. The U.S., for example, isn’t a single market but rather a collection of local markets with different laws, regulations, logistical challenges, business cultures and consumer tastes.
He says smaller, less competitive markets may produce the best results for your first foray.
When you’ve settled on a few possibilities, Ouellet recommends sending a team led by a trusted team member to the market. Rather than relying on surveys or focus groups, your team should show your products to actual customers to gauge their interest in buying.
“The real test is whether they’re willing to buy or sign a purchase order right there. If yes, you’ve got confirmation of its viability; if no, then you know it’s not going to be as easy as you thought.”
3. Product development
Another approach is to develop new products for your existing market. The prerequisite for successfully developing and launching a new product is a deep understanding of your customer base.
“Your most valuable asset is not your products or technology, it’s what you know about your customers,” Ouellet says. “Usually, it takes the form of data. But it’s also qualitative, informal knowledge about what your customers want, need and prefer.”
Here are some ways to develop products:
You can seek to increase demand for a product by changing certain characteristics, such as size, form, packaging, features and colour. The goal for these modifications would be to refresh the product and/or respond to competitors’ offerings.
Different quality levels
You can appeal to different customer segments by developing different quality levels. For example, a lower-quality product could be targeted to a mass market at a lower price point, while a high-quality item could be sold to a niche market at a premium price.
Related products or services
You can capitalize on the popularity of a product by offering related products and/or services. Consumers are more likely to purchase products from brands with which they are already familiar. Offering related services also allows you to build a subscription-based relationship with customers.
Developing entirely new products is challenging but allows you to build on the relationships you’ve nurtured with your existing customers while seeking to create new ones. “They work if your existing customer base is highly satisfied with your current offerings,” Ouellet says. “They have to trust that the new product is going to be as good as the existing one.”
Developing winning products calls for a process that comprises idea generation, research, prototype development and test marketing and then finishes with a roll-out. Since each stage involves costs and potential pitfalls, it pays to do careful planning.
When developing products, it’s important that there be a fit between the new product and what you’re currently offering. For a restaurant, it could be a line of packaged food products; for a suitcase manufacturer, it could be backpacks or briefcases.
Ouellet notes that many companies move their product development team to a separate location. This protects them from being dragged into day-to-day business problems.
A final strategy is to sell new products to new customers. This can help create a new revenue stream, especially if your industry or region is experiencing slow growth or facing decline. For example, companies serving legacy industries can start looking more closely at the industries that are emerging to find a market there.
Acquisition vs. organic growth
In pursuing any one of the four strategies discussed above, you can choose to either expand your existing business—known as organic growth—or accelerate the process through the acquisition of one or more companies.
Organic growth means continuing on your current expansion path: selling more to your current customers, developing new markets or creating new products and services.
By contrast, an acquisition brings with it immediate growth but also greater financial and operational risk for your company.
Organic growth usually occurs at a slower pace and doesn’t typically require an infusion of capital. An acquisition, on the other hand, brings faster growth, but usually requires a large amount of capital to finance the transaction and an intense period of focus from management during the negotiation and integration phases.
Your choice between these two growth avenues should be based on a careful strategic analysis of your company’s strengths and weaknesses and the potential impact of different growth options.
Acquiring another business
Acquisitions give you access to customers, talent, intellectual property, operations and other resources. However, buying a company is a complex undertaking that requires time, patience and expertise to line up the financing, find the right business and negotiate the transaction.
While those steps are challenging, Ouellet says they aren’t even the hardest part of making a successful acquisition. That comes after the deal is done and you have to meld the organizational cultures of the two companies into one.
“Culture is the thing that managers—especially technically oriented managers—take into account the least. One reason for that: it’s not measurable,” he says. “If you’re an accountant or an engineer and you’re used to working with hard metrics, culture is not always easy to grasp.”
“But having a strong culture, where everyone is rowing in the same direction is super important, especially in a growing company. Sometimes cultures don’t match. There can be conflicts and people having different long-term visions.”
Ouellet says the goal should be to introduce your company’s culture to that of the company you’ve acquired by communicating a clear vision and a set of values that define your business. He cautions against underestimating the challenge of changing an organization’s culture and recommends a go-slow approach.
Scaling your business
As your business expands, you will be faced with a series of challenges to ensure you’re operational and that management capacity keeps pace with your sales growth.
Good cash flow management is essential in a growing business because even if the increasing sales are profitable, the cost of servicing them can drain your working capital and threaten the survival of the business.
You will also have to find dependable, hard-working employees and then get the best from them. That’s not easy at a time of labour shortages in many parts of the country. It’s important, therefore, not to give short shrift to the recruiting process in order to get workers in the door.
At the same time, you will need to gear up your operations to meet higher demand. Here, the danger is that waste can creep in and hurt your productivity and profits. Working on your operational efficiency will allow you to cut that waste, boost profits and create a more engaged, productive workforce.
The Ansoff Matrix
Ouellet says these four ways to grow your company are rooted in what’s known as the Ansoff matrix. The matrix was developed by H. Igor Ansoff, who described it in an influential 1957 article in the Harvard Business Review titled Strategies for Diversification.
The graphic below shows the four possible product/market combinations for growth, with the varying risk profiles.
- The first quadrant is market penetration where you expand your market share with your current line-up of products. This is the least risky strategy because you’re already familiar with both the market and your offerings.
- The second quadrant is market development where you take your existing products to new markets.
- The third is product development where you develop new products for your existing market.
- The fourth is diversification where you introduce new products into new markets. This is the riskiest option because you have to develop both new products and markets at the same time.
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Create a growth plan for your business by downloading the free BDC guide How to Grow Your Revenues.