The Five Generic Types of Growth Strategy
You need a growth strategy to increase the value of your business. Examining generic growth strategies is a good start because they apply to all types of businesses, focusing on one aspect of your operations and specifying the actions you must take to achieve your goals. Once you understand the generic growth strategies, you can customize the right plan for your company and your objectives.
An effective idea for growth is entering new markets. If you have access to more customers, you can sell more products. You can target new markets by opening additional retail locations, adding an online presence, selling internationally or reaching new types of customers. In each case, you have to define the segments of the new markets you intend to target, identify the needs of the potential customers as they relate to what you are selling, promote your products to them and make it convenient for them to buy your products.
Another way to increase business volume is to focus on your products. If you have many different products for sale, you can increase total sales. Sales growth is based on a broadening of your product lines and on product diversification. Broadening a line means you can offer related products to each customer. Product diversification lets you offer different products to different customers, depending on customer preferences and characteristics.
Sometimes the fastest way to gain new markets or diversify your product range is to buy a company that competes with you or is active in a related field. Company acquisition is risky because it means making a large investment; the benefits depend on how well you can integrate the new business into your own operations. It can be an effective growth strategy if your acquisition target occupies the markets into which you want to diversify.
An equally risky but less costly growth strategy is a merger with a related or competing business. Ideally, the merger takes place between companies that bring equal value to the table and results in a larger, more competitive business that has the potential for improved performance. The lower financial cost of a merger comes with a corresponding loss of control: You share ownership with others after a merger.
A growth strategy based on entering into partnerships with qualified companies brings with it the advantages of a merger or acquisition without the high cost or loss of control. You might partner with a foreign distributor to access the market where he is based or partner with a company making accessories for your own products. The partnership agreement specifies the areas where you intend to cooperate, for example, in a promotional campaign or shared sales channels. While the risks and costs are lower, partnership also means you have to share the benefits.