By Carl Grant, Senior Vice President of Business Development at Cooley LLP
Have you ever thought about the number of small businesses or start-up companies that make the Fortune 500 list? Turning a small business into a major corporation isn’t easy. According to a recent article in Inc. Magazine, most businesses start small and stay small. In fact, one-tenth of 1% of companies attain $250 million in annual revenue.
For small businesses, one thing is for certain, growth strategies should not be pursued in a vacuum. The most successful approach to growth is an integrated one. Business owners and management teams must examine all functions of the business to ensure they are working together to reap the benefits of expansion. But, for small companies, this often times proves difficult. If you lead a small business, ask yourself the following:
- Is your business as successful as you want it to be?
- Is revenue meeting projections?
- Is today’s economy presenting you with challenges you’re not certain you will overcome?
- Are you seeking new ways to market your business on a budget?
Based on the answers to these questions, it might be time to revisit your company’s growth strategy and consider an intense approach to strategic growth. For small businesses, getting from point A to point B requires a ladder approach according to Keith McFarland, author of The Breakthrough Company. The lower-level steps of the ladder present less risk, but also less impact to the business. Each step brings more opportunities for growth, but also more risk.
These growth-oriented strategies include:
1. Market Penetration. This is the least risky growth strategy. Like turning baking soda into a deodorizer for your refrigerator, the goal is to sell more product to current customers.
2. Market Development. The next step on the ladder is to develop a plan to sell more product to an adjacent market. Many emerging-growing companies use this approach as their main growth strategy because it is still relatively low risk with great reward.
3. Alternative Channels. The dotcom boom was one of the biggest examples of a companies adopting alternative channel strategy. In the late 1990s and early 2000s, companies were launching online stores every day it seemed. Seeking to reach customers in a new way can be a valuable growth strategy, but there is more risk associated with this approach.
4. Product Development. A brand extension strategy is not simple to accomplish. This strategy involves developing new products to sell to existing, as well as new, customers. The risk with this strategy is getting new customers to adopt the new product while at the same time learning a new product and market. It can be difficult to pull off at one time.
5. New Products for New Customers. The now classic example of this strategy is the iPod. According to McFarland, what made the iPod such a breakthrough product was that it could be sold alone, independent of an Apple computer. However, it also helped expose millions of new customers to Apple product and laying the ground work for the iPhone launch.
So, what is the best approach to tackle these strategies? McFarland’s advice for small businesses is to start on the first step and work up the ladder as needed. Each step brings risk, so it is important to climb the ladder one step at a time. While embracing risk can be difficult, no company grows without it.
Disclaimer: The postings on this site are my own and do not represent Cooley LLP’s positions, strategies or opinions.