Knowing your growth strategy and understanding four key growth approaches – organic, acquisition, new products, and geographic expansion – will help you be more successful in achieving the growth you desire.
You have to ask yourself – how does your business grow? Is it geographic expansion? Are you selling new products? Are you selling the same products to new customers? Are you growing by acquisition and buying other businesses?
What’s your overall growth strategy? You need to be able to answer this question. Look at your historical growth and where it came from. That’s usually a pretty good indicator of how your organization is going to continue to grow from here. Pull out your strategic plan and look at your marketing plan to see where the future growth is expected. Assess whether or not that sales and marketing plan is aligned with where the future growth is supposed to come from.
Different Approaches to Growth
There are some very common methods for growing and they all have very different economic profiles.
One way you can grow is acquisition. The economics of conducting an acquisition are you spend a lot of money up front to buy another company or portion of another company. You’re buying a large piece of the market when you do so. The way you make acquisition economics work out is you reduce the costs of the combined entities by looking at synergies.
So, you bought another company. Congratulations! You have two HR departments now. You have two marketing departments. You have two Legal departments and two IT departments. You have two of everything! How do you consolidate those and reduce costs? That’s the first source of economic value in an acquisition.
The second source of acquisition value is all about growth. Now you have a new market you can enter if the acquired entity was in a different geography or targeted a different market segment. You can sell your existing products into that new market. You can sell the products you acquired into the existing markets you were in pre-acquisition. That’s how an acquisition is going to drive top-line growth.
Another approach to growth is organic growth. With that approach, you’re investing very heavily in sales and marketing and eventually, you achieve scale and grow. You’re financing your growth with income from existing operations or through borrowing. It’s all about penetrating markets you’re already in more deeply with products you already have to drive top-line sales. This approach requires you to sell more product to existing customers or to acquire new customers in the markets where you already compete.
Geographic expansion can be a great growth strategy if your customers buy based on where they’re located. You may need to take this approach once you’ve saturated the geography you’re already in. With this approach to growth, you’re making a large investment up front in expanding into a new market, and eventually, the sales pick up and the business grows from there.
The economic approach to geographic expansion is you spend a lot of money up front to enter that new market. You have to build your supply chain there. You have to build your marketing presence in that new market. Over time, customers get to know about you, try and buy more of your product, and you grow from there.
New Product Introduction
Another growth model is introducing new products. This requires research and development which can be very costly. Once you have that new product, you’ll need to invest in marketing and launching that new product. This includes selling it through stores by getting distribution or pushing that new product through existing sales channels. You can have a large growth impact quickly if you’re selling that new product to an existing base of customers.
Some Examples of Growth Strategies in Practice
I’ve worked with a lot of organizations that all have very different growth profiles. One major healthcare system has a lot of hospitals. The way they’re growing is they buy a new hospital in a geography they haven’t entered yet. They spend a lot of money up front. They integrate that hospital and reduce the overhead costs. Then they push their existing services and existing marketing capabilities through that new hospital and grow its geographic presence. This growth strategy is a combination of acquisition, geographic expansion, and eventually organic growth.
There’s a software firm I’m familiar with. They’re huge and they do a lot of small acquisitions to get access to new capabilities that then get bolted on to their core platform. They can then sell those new capabilities to their existing clients by saying “We have a new module. You’re already using our big system. You should buy this module, too.” They can also approach customers being served by the companies they acquire and say “You’re already using these modules. How about buying the big system that can support it even more broadly?”
For my firm, we mostly pursue organic growth. We have our core training course business. We spend most of our time and effort trying to land new clients or penetrate existing clients with other offerings we have. In those cases, we already have a relationship with that client. They may be buying two of our courses. We say “We’ve got 14 other courses you should be interested in.” For new clients, we focus on getting them to try one or two of our offerings then expand the use of that offering across the organization. One of my favorite things to hear is “We loved this class! When are you teaching it again so I can send the rest of my team to it?” Boom. Organic growth.
By understanding the growth profile of your organization, you’ll understand why you’re making certain sales, marketing, product, and infrastructure investments. You’ll know why you’re making acquisitions and how they fit in to the future growth of your company. Take a look at how you’ve grown in the past and how you expect to grow in the future because it’ll be a good indicator of what opportunities are going to work well given your growth strategy.
To learn more about core business topics like growth strategies, you can watch my course Business Acumen on lynda.com, which includes a free chapter on knowing the basics of your business and setting priorities. Watch the course introduction here:
Did you enjoy this post? If so, I highly encourage you to take about 30 seconds to become a regular subscriber to this blog. It’s free, fun, practical, and only a few emails a week (I promise!). SIGN UP HERE to get the thoughtLEADERS blog conveniently delivered right to your inbox!