Guide 6 min read
1. Considering your goals for growth
Your decision around whether to aim for growth or continue as you are will be influenced by your personal goals and your longer-term business exit strategy.
Some business owners make a conscious decision to stay small. For example, if the business is established and generating enough income for you to draw the salary you want, then staying at your current size may:
● avoid the stress of new obligations and financial considerations
● make it easier to keep day-to-day control over all elements of the business
● enable you to continue offering a personal service to your customers.
However, other owners launch a business fully intending to grow. Growth can bring significant advantages such as:
● economies of scale and greater profits
● higher profile which increases customer awareness
● increased personal income
● creation of capital value so the business could be sold in future and for a higher price.
2. Checking there is potential for growth
A business with potential for growth will often have:
● established and sustained profitability (unless it is an innovative high-growth start-up, with high research and development costs funded by investors, where growth is necessary to achieve profitability)
● evidence of unmet demand from customers, such as waiting lists, or products selling out
● positive market and sector trends.
Growing your business can be an exciting time but it also brings its own challenges and significant change. To realise your potential for growth, you will usually need to commit money and time to the process. If you haven’t done this already, you will need to consider where to find finance and be prepared to delegate some of your current decision making and tasks to others.
3. Strategies for organic growth
A business grows organically when it uses its own resources to scale up operations internally, rather than acquiring another business to do so. Organic growth typically takes longer than growing by buying another business, but it can be easier to manage and involves less risk.
Ultimately, to grow organically you need more customers. The four overarching strategies businesses use to achieve organic growth are outlined by the Ansoff Matrix which is covered in many business courses.
The key strategies for organic growth are:
● market penetration - selling more of your existing products to more customers in your current markets and increasing your market share, perhaps by increasing your advertising spend or sales team and challenging competitors.
● market development - taking your existing products to new target audiences and markets, by perhaps adding new distribution channels such as selling through online platforms, selling to a new geographic location, or selling to consumers direct instead of just businesses, for example by repackaging bulk orders of cakes into single cakes for individuals.
● product and service development - you create new offerings for your current market such as selling desserts and cookies as well as celebration cakes, or a dog walker offering a kennels service.
● diversification - you develop new products and services for new markets such as a restaurant offering online cooking classes.
4. Growing through mergers, acquisitions and joint ventures
A business can also grow by acquiring or merging with other businesses or entering into a joint venture.
Also known as ‘inorganic growth’, this can also align with the main product/market growth strategies for example:
● increase market penetration by buying a competitor
● push for market development by merging with a business at a different level of the supply chain e.g. if you are a retailer, you could merge with a manufacturer or distributer
● develop products and services through a joint venture to combine intellectual property and production capability
● diversify by buying a business which offers different products in new markets.
This type of growth can be much quicker than organic growth and very useful when responding rapidly to new market opportunities and threats. However it sometimes involves long periods of negotiation and brings various complexities and risks around finance, legal and organisational culture.
5. Growing through franchising
If you are already a franchisee in a business format franchise, then you have more structured opportunities to grow, for example by taking on more outlets. In this case you would explore this option with the franchisor and you would require their approval. If there are other franchisees in the same region or market, it might be harder, but if not, this could be mutually beneficial for you and the franchisor.
If you're going to grow your business by acquiring an existing franchise, you will need to look at the new business in detail and undergo the process of due diligence. Apart from checking the financial condition of the business, you will need to assess its growth potential, where you can make improvements or efficiencies, and how you can protect yourself and your existing business from any liabilities. You may benefit from getting professional help from financial advisers, auditors, or a specialist acquisitions consultant.
Our guide to franchising has more information on finding and assessing franchise opportunities and the British Franchise Association can provide help.
6. Beginning the planning process
Proper planning will smooth the pathway to growth and working on a business plan provides a good framework to structure your thinking.
Most businesses that grow successfully do so by working out what they do well and then doing more of it while being aware of and responding to opportunities and threats.
Diversification needs special care as while it can reduce risk and increase growth by creating new income streams, it can also create new risks by diverting attention from core activities and strengths.
There will be practicalities to consider such as:
● moving or expanding premises
● adapting and extending IT systems
● new financial and legal obligations like registering for VAT
● how to communicate with existing customers, suppliers and staff, and maintain good relationships.
● customer services issues caused by lapses in quality control or over stretched staff
● taking on too much debt to finance growth
● finding that costs grow too quickly and move too far ahead of payments being received.
Therefore, don’t be tempted to take on too much, too soon.
You can find more information in our guide on meeting the challenges of growth.