What is business growth?
Business growth is a phenomenon which occurs when business owners, their employees, and outside factors influence the company’s success. We can say that a business grows when a customer base is expanding, when revenues keep increasing, and when more and more products are developed.
Achieving growth is something all the companies want. It is impacted by market opportunities, consumer trends and decisions made by company leadership. Growing a business takes organic, strategic, partnership/merger and internal planning.
Organic growth is growing through internal processes, relying on its own resources. Strategic is more about focusing on long-term growth through specific initiatives, such as planning to produce new inventory or trying to gain a share in markets that are untapped. We deal with partnership/merger when there are two companies – one company joins with the other to create more market opportunities. Internal growth maximises internal processes in order to increase revenue and business.
The five stages of business growth
Some people say that there are five stages of business growth. In their opinion, the growth cycle consists of the following stages: existence, survival, success, take-off, and resource maturity. Others, in turn, claim that there are only four stages: start-up, growth, maturity, and decline/renewal.
However, no matter which option you consider appropriate, you have to know that they have a lot in common. Both versions provide insights for managers and business owners who become more aware of their business opportunities and challenges they may face. For the purpose of this article, we decided to focus on the five-stage business growth process.
Stage I – EXISTENCE
During the existence stage, small businesses try to discover if their business ideas are good enough. When their ideas turn out to be viable, companies focus on expanding to sizes which are large enough for them to succeed.
At the existence stage, companies try to obtain customers and deliver the service or product contracted for. They get to know their abilities. They try to find an answer to the question: are we able to expand from one key customer to a broader sales base?
When it comes to the strategy of the company during the first stage, it is quite simple. The main goal is to not go out of business. Small one, but you have to start somewhere. This applies to companies, restaurants, retail stores and high-technology manufacturers. Some companies don’t gain sufficient customer acceptance to become viable. Unfortunately, those firms have to close the business. This can be avoided by using the service of a business growth consultant who can unlock the full potential of the business and help to bring it to the next level.
Stage II – SURVIVAL
If the company reaches this stage, we can call it a workable business entity with enough customers. What’s more, companies already know how to attract customers. They focus on customer retention. During the survival stage, firms focus mostly on growing, too. To be more precise, companies do their best to grow to sufficiently large sizes to make the business work.
A great company’s challenge at this stage is to get enough cash to cover all the costs of doing business. People who have their businesses are not sure whether they can generate enough money to break even. Sometimes, covering the replacement or repair of their capital assets when they wear out becomes problematic.
The second stage of business growth is characterised by simplicity. The only thing connected with formal planning is cash forecasting. The number of employees is limited. It’s still worth using hiring professional business advisors. The employees are supervised by a general foreman or by a sales manager. However, the business owner is the person in charge.
Stage III – SUCCESS
During the success stage, business owners reflect on what they should do – expand or keep the company profitable and stable. Exploiting the company’s accomplishments and expanding is a tempting option. However, the second one has its benefits, too.
At the disengagement substage, the company is economically successful and by being successful we mean earning average or above-average profits. The company can stay at the success stage, on the condition that environmental changes don’t destroy its market niche. There is also a risk that non-effective management reduces the competitive abilities of the business.
The company is definitely bigger than it used to be in the previous stages. There are basic financial, management and production systems. The company uses operational budgets which support functional delegation. Considering the situation, functional managers often have to take over some of the owner’s duties. Another aspect is that cash is plentiful, but it’s better to avoid spending too much in prosperous periods because this may result in the company’s inability to withstand the rough times.
When it comes to the company’s strategy at this stage, it should be monitored by the company’s managers. The goal is to be able to adapt to changing circumstances. Many businesses can continue for long periods in this substage.
When it comes to the growth substage, the company’s owner marshals resources for growth and is determined to take risks. This person realises how important it is to make sure that the basic business stays profitable.
Moreover, the owner enables managers to develop. It is necessary because experienced managers can help meet the growing business needs. It is also possible to hire new managers with a fresh perspective who focus on the future of the company instead of thinking about its current condition.
Strategic planning in this substage is slightly different from the previous substage. This time, it deeply involves the owner. It’s worth emphasising that the owner is ACTIVE instead of delegating his tasks. If it is all successful, the company can proceed into the fourth stage. If not, it can shift to disengagement substage.
Stage IV – TAKE-OFF
The fourth stage of business growth is take-off, in which the biggest challenge is to finance rapid growth. The business owner should make every effort to increase the management efficiency, which is not so easy to achieve with fast-growing and complex enterprises. The owner should remember that even if they delegate tasks, they cannot lose control. They should be willing to see both the successes and the failures.
Another aspect that needs controlling is cash. The thing is to carefully control expenses. Business owners can’t afford ill-advised investments and eroded cash flow. It should be remembered that the bigger the company, the more complex the business environment. The company’s systems become more extensive, too. Businesses need managers who can use strategic and operational planning.
We can confidently call this stage pivotal for the company. If the owner meets the cash and management challenges, their business can become really large. If not, the company may drop back to one of the previous stages. It all depends on whether the owner knows the limitations soon enough.
Stage V – RESOURCE MATURITY
As with previous stages, the resource maturity stage brings specific problems and challenges, such as controlling and consolidation of financial gains. “Perfect” company should have an extensive and experienced management team in order to retain the entrepreneurial spirit and flexibility of response. At this growth stage, it is also important to use the tools such as strategic planning, budgets, standard cost systems and management by objectives.
A mature and stable business has staff, management at the highest level, financial resources and sufficient size. It does, in fact, have everything to be a formidable force in the market. However, it should avoid “ossification” which, in this case, means being non-innovative and unwilling to take further risks.
Business growth strategies
There are lots of business growth strategies, and it’s hard to explain all of them. We have decided to explain market penetration, market development and expansion, product development and expansion, diversification, specialisation, niche, “Blue Ocean” and confrontation strategies.
This is definitely the simplest method and the least risky option on this list. The company has to market the existing product to the same market it has been targeting in order to generate further growth. Business owners usually lower prices in order to create a big differentiation between their own product and the competitor’s product. This strategy works best when the business operates on an insatiable market. Otherwise, there may not be enough room for the company to increase market share.
Market development and expansion
In this strategy, expanding the company beyond its current market is required. In other words, this strategy assumes finding a new target audience and making this audience interested in your product. The other option is finding new uses for your existing product.
Product development and expansion
Sometimes finding a new target audience is not enough and business owners have to expand their product line. This will result in more opportunities. Selling new products to your current audience can increase your revenue. This is a great option for people who are familiar with their customers and their needs.
This quite risky business growth strategy includes taking action in new business areas and starting selling new products. There are four types of diversification: vertical, concentric, conglomerate and horizontal.
- Vertical diversification is crucial when we want to expand. It involves trying to take over a supplier or/and the customer.
- Concentric diversification provides for minor changes. The aim is to develop products and services which are similar to already existing ones.
- Conglomerate diversification is based on offering new things to new customers.
- And finally, horizontal diversification is nothing else but adding new products (not alike, but diverse) to an existing brand which targets existing customers.
Diversification growth in general may mean moving into international markets.
Specialising in a particular area can reap great rewards. This business growth strategy is to focus on one field of activity and to sustain competitive advantage. We can distinguish three specialisation forms: extensive, passive and specialisation through diversification, which means seeking to develop technologies, resulting in the ability to choose new specialisation.
This strategy is based on focusing on a customer segment with highly defined characteristics and specific requirements. The big plus of this strategy is that it’s quite easy to gain a competitive advantage in a narrow and specific market.
“Blue ocean” strategy
The aim of the “Blue Ocean” strategy is to search for (or create) new bidding zones with a monopoly for no competition. This is done in order to let the entrepreneur work on their own terms.
The last business growth strategy is based on confronting the competition. Managers make the best efforts to differentiate their products through new features. They also focus on developing a price leadership position. In what way? It’s easy – they lower prices.
You can make your business grow in five stages, but you have to be really focused on your goal and determined to succeed. Start with existence, go through the stages of survival, success, take-off and resource maturity. Define your strategy and don’t hesitate to ask for professional help!