A small business owner is most likely to be an ambitious entrepreneur with plans to grow the business, improve, and increase sales and profits. Small or newly started businesses may not be able to create sustainable growth due to one important reason of lack of a clear setting of goals and formulation of strategies. In business, a growth strategy may be defined as a plan to achieve pre-defined goals. However, these ‘plans’ are subject to the complexity, the flexibility, and formality of the business and may vary from firm to firm.
As a rule, there are broad guidelines which companies must follow and use, for putting a growth strategy into action. The method which the company adopts is based, to a large extent, upon its financial situation, the aggressiveness of the competition, and also on the prevailing terms and regulations of the government. The growth strategies which are most commonly applied in businesses include penetration of the market, expansion of the market, increase in production, diversification, and acquisition of other subsidiaries.
Growth through greater penetration of the market
A successful growth strategy which many of the businesses could undertake for visible results is market penetration. Small companies make use of this strategy when they wish to market products which already exist within the same market where it is being sold and by doing so they would be attempting to increase their market share in that segment. Market share is the percentage of unit and monetary sales a company holds within a certain market versus the market shared by all other competitors. A proven and effective method to increase market share is by reducing the prices. If the market scenario does not suggest much difference between the prices of similar products, then lowering the price may bring about a sizeable increase in the market share.
Developing the market and expanding product reach
The strategy of market expansion for growth is another way to gain a stronger and wider market presence where this strategy involves selling the existing products in new markets to an entirely fresh clientele. You may decide to develop new markets for your product for a number of reasons. It is possible that the current market is saturated and there is no scope for further growth. It should be borne in mind that if the business does not venture to seek out new markets it cannot increase its sales or generate profits. Small businesses may also enter new markets if a new use for its product is discovered. A product which was being sold in a certain segment may find a whole new segment which can use the product and therefore a new market opens up.
Adding New Product Features and expanding product line
To win its way into new markets and capture new customers, a small business can consider the strategy of adding innovative features to the product or expanding the product line in order to enhance sales and profits. In the case of small companies which opt for this strategy, they do not switch to new markets but continue to the sell to the existing client base. This strategy works well if there is shift in technology and the small company can introduce modernised products instead of the outdated and obsolete models. When product development strategy is taken up as a growth measure, then it is beneficial for the company to have external support from another organisation which possesses a good market network. In such a situation the company will have to share the gains with the supporting company and the question arises here of the effort, the cost and the benefit. It would be an advantage to remember that a market network is essential for the product development strategy and proper steps should be taken in this direction.
Exploring new markets through diversification
This strategy for growth is not often used since it involves an element of risk. The small company should make cautious plans and keenly scrutinize the market into which it intends to diversify. Diversification involves the development of new products for new markets and it would be advisable to research the market thoroughly before venturing into deep waters. The need and acceptance of the new product in the potentially new market should be gauged and the step forward should be taken only if found to be feasible.
Acquisition of another company
Acquisition of another company can also be contemplated as a growth strategy where one company purchases the other and, therefore, both companies can expand their scope of operations. This strategy too is not favoured as a mode of growth since it may turn out to be risky. But the risk involved here is the loss of an independent identity, whereas, the risk in diversification is one of monetary loss. A company should be well aware of its ultimate goal when contemplating an acquisition strategy, since the investment required would be enormous.
We can say that small businesses plan growth strategies to achieve the company goals and
these strategies are often used in practice through a combination of market analysis and emerging business patterns before taking a decision.
A successful growth strategy which most of the businesses undertake for visible results is market penetration. Small companies make use of this strategy when they wish to market products which already exist within the same market where it is being sold and thus they would be attempt to increase their market share in that segment. The growth strategies which are most commonly applied in businesses include penetration of the market, expansion of the market, increase in production, diversification, and acquisition of other subsidiaries.