Growing your business is fundamental to its survival. But that growth doesn’t happen by accident. A game plan is necessary to achieve your growth goals.
That’s where a growth strategy comes in.
Overview: What is a growth strategy?
A growth strategy is a plan of action to increase a business’s market share. If your company is looking to expand, a market growth strategy will enable you to chart your path to expansion, taking into account your industry, your target market, and your finances.
The Ansoff Matrix summarizes four high-level business growth strategies employed by companies.
- Market Penetration: In the Ansoff Matrix, a market penetration strategy involves increasing market share in an existing market. Common methods include lowering prices or using techniques like direct marketing to create customer awareness of your offerings.
- Market Development: The market development strategy is about entering a new market with existing products. A new market can refer to a different geography (for example, international expansion), a new segment of customers, or a new channel to reach customers, such as adding an online store to complement your brick-and-mortar location.
- Product Development: The product development strategy involves creating new products for existing markets. This can be as simple as an ice cream shop offering a new flavor, or as complex as introducing an entirely different product line, like if the ice cream shop began selling sandwiches.
- Diversification: The diversification growth strategy holds the greatest risk of failure. Creating new products for new markets means the business is a trailblazer. As a result, it’s challenging to know how to succeed, although the rewards are higher if you do (see: Apple convincing us that we needed a tablet, an entirely new product category, to complement our laptops and smartphones).
Whichever growth strategy you employ, you’ll likely utilize some business development principles since the goal is to develop the entire organization.
Examples of successful growth strategies
To understand how different growth strategies work, let’s look at some real-world examples.
Facebook is ubiquitous today, but when it launched in 2004, it was one of several social media networks. MySpace was the dominant social media site at the time. So how did Facebook take over?
The company used a market penetration growth strategy
It started by focusing on a narrow target customer base, then expanded gradually. Here’s how Facebook did it.
- Start small: Facebook began in the Harvard dorm room of Mark Zuckerberg. Consequently, the initial customer base was Harvard students.
- Expand gradually: Once Facebook gained traction at Harvard, it gradually expanded to other colleges. This allowed the company to grow using the same success model employed at Harvard.
- Increase growth when you’re ready: After Facebook spread to colleges, it opened up to non-students. Its measured expansion allowed Facebook to focus on adjusting the product to the needs of each new customer segment. As a result, it avoided the growth challenges that led to MySpace’s decline.
Amazon’s retail dominance began in 1995. Back then, consumers were not used to buying online. Despite that, Amazon grew to billions of dollars in annual sales. What enabled Amazon’s growth?
The answer is a diversification growth strategy
Amazon was among the earliest online retailers, offering the ability to buy online (a new concept at the time) in a new market: the internet. Here’s the growth strategy approach Amazon took.
- Offer an improved customer experience: It started by providing customers a larger selection of books than was available in brick-and-mortar bookstores. Being online, Amazon did not have the limits of shelf space. Also, customers could check the site and know right away if a book was in stock. This convenience allowed Amazon to succeed over larger brick-and-mortar booksellers.
- Rinse and repeat: Amazon then used its proven model in books to expand into adjacent markets, such as DVD and electronics sales. It continued to grow its offerings, and now it has spread into groceries and even healthcare.
3. Dollar Shave Club
When Dollar Shave Club launched its razor business in 2012, Gillette had a commanding share of about 70% of the U.S. market according to Entrepreneur magazine.
In 2019, Gillette’s market share had eroded to about 53%. Meanwhile, Dollar Shave Club’s growth prompted Unilever to buy it for $1 billion. How did Dollar Shave Club defy a much larger competitor?
It employed a market development growth strategy
The key to Dollar Shave Club’s success is that it could offer a lower-priced alternative to the leader by selling direct to the consumer, which represented a new market for razors at the time.
- Identify a new market: Gilette sold its products to retail outlets. Dollar Shave Club used the internet to employ a direct-to-consumer model that allowed it to sell razors for as little as a dollar.
- Offer an improved customer experience: Dollar Shave Club worked with manufacturers in Asia to produce razors, eliminating any markup from a middle man. These cost savings could be passed on to consumers who flocked to its low-cost offering.
Google is renowned for its namesake search engine, but what fueled its growth into the company now called Alphabet is its outsized revenue. How did Google do it?
It used a product development growth strategy
Google started as a business-to-consumer (B2C) company offering a search engine. But it needed a source of revenue. To achieve that revenue, it developed a new product, AdWords, targeted to businesses that had to pay to advertise.
- Tailor the product for the customer: Going from a B2C to a business-to-business (B2B) product required a new set of capabilities designed for its B2B audience.
- The new product should complement existing products: Google made sure its new AdWords product fit seamlessly into the experience of its B2C product. It had to safeguard the speed of its search engine, so it offered text ads, which loaded quickly, and looked like the other search engine results. This guaranteed the consumer experience was not degraded by advertising, ensuring that consumers would continue using the search engine.
How to develop your own growth strategy
Now that we’ve looked at examples of how others achieved growth, we turn to you. Where should you start with your own growth strategy?
1. Define your goals
Most business leaders think of revenue growth. But how can you increase revenue? By acquiring additional customers? Offering new products? Charging more for existing products?
Think about the goals that make sense for your business and what stage of the business life cycle you’re in. If you’re a new company, customer acquisition may be the key goal of your growth strategy. If you want to expand into the B2B space, you’ll have to consider factors like what it takes to perform B2B sales and to market directly to businesses.
When defining your goals, be sure they’re measurable. To know if your plan is on track, you need a quantifiable target. For example, you may set a goal of a thousand new customers by the end of the next quarter.
2. Keep timelines short
When setting your goal, it should be achievable within the next quarter or month. Why so short?
Shorter timelines allow you to go through the planning process quickly. Since you’re working on near-term, achievable goals, you don’t have to waste time trying to figure out where you’ll be a year from now, and you can continually refine your plan for successive timeframes.
3. Perform market research
You need to perform research to validate the approach you’re considering for your growth strategy. Otherwise, you’re flying blind. Where is the industry going? What’s the competitive landscape? What are customers doing today?
By gaining insights through research, you’ll be able to better assess risks and collect data that can be used to inform the next step.
4. Create a forecasting model
A model forecasts the trajectory you’re trying to achieve through your growth strategy. This may seem like unnecessary work (I disliked doing this for the products I built), but it serves two important purposes.
First, it measures progress towards your goals. Are you hitting the growth numbers you’re targeting? The model can show this.
Second, the model serves as a communication tool to get buy-in on the plan. For example, if you rely on a sales team to acquire customers, getting them to agree to the goals in your growth strategy model is key to increasing the chance of success. And, the feedback you’ll receive is invaluable to ensuring the model’s accuracy.
5. Identify actionable steps
Next, you need to transition from high-level goals to actionable steps. This means identifying the tactics to achieve your objectives. For instance, you may need a go-to-market strategy, especially when launching a new product. If customer growth is a key objective, CRM software can help you manage your customer relationships.
Once you’ve outlined the nuts and bolts of your growth strategy, you should have concrete next steps in place to begin executing it.
A last word on growth strategies
Developing a growth strategy is important, but even more so is executing on that strategy. Use the actionable steps and measure results against the forecasting model to ensure you’re headed in the right direction.
If not, don’t hesitate to adjust. With a well-developed growth strategy in hand, you can increase your chances of successfully expanding your business.
View more information: https://www.fool.com/the-blueprint/growth-strategy/