Whenever two entrepreneurs get together, the topic of discussion inevitably turns to business growth. After all, growth means more customers, more products, more needs met, more brand recognition — all to bring in more revenue and make the business more profitable.
But growth is not all there is to running a business. There are favorable and not-so-hot times to launch growth initiatives, and many times, a case can be made for maintaining steady business to gain stability before taking risks with new markets and products.
As a successful entrepreneur, you need to be able to distinguish the best times for growth from times it’s better to maintain. And when you’re ready to grow, you need to choose the right strategies for your circumstances. Luckily, other entrepreneurs have come before you, and there’s a lot of good information to help you out.
In this post, we’ll cover
- Pros and cons of business growth
- How to know when to grow
- Types of business growth strategies
- Business growth best practices
The Pros and Cons of Business Growth
Business growth is usually a good thing. But, as The Notorious B.I.G. made plain, “Mo’ money” can result in “mo’ problems.” As your business grows, you get more recognition, more clients and customers, and more revenue.
So, growth is good.
But, although entrepreneurs love to see that money, growth can cause problems:
- Increasing workload overtakes hiring, and staff morale drops as burnout grows
- Quantity overtakes quality, and your initial offering goes downhill
- Cash and resources can’t keep up with expenses for new [ventures]
- Company culture suffers with rapid influx of new people
- Economic downturn causes dips in sales just when you’ve expended extra cash
Watch out for these red flags (aka the “cons” of business growth) as you move forward. With proper planning, you can overcome most of them, but it’s important to be aware of them and be smart about when you launch growth efforts.
Know When To Grow (and When Not To)
Although growth is undoubtedly important — even crucial — for a new business, it’s not always the right time to grow.
What Stage Is Your Business In?
A classic article from Harvard Business Review, “The Five Stages of Small Business Growth,” outlines five distinct phases businesses pass through:
- Existence: Finding customers and delivering a product
- Survival: Breaking even and start making a profit
- Success: Earning average profits and deciding whether to hold steady or look toward growth and expansion
- Take-off: Growing, delegation, and expansion via strategic and operational planning
- Resource maturity: Existing at a mature stage, with owner and business separated financially and operationally
Most of the time, when entrepreneurs talk about business growth, they’re talking about stage 4 of this model: Take-off. The primary challenges for owners at this stage are delegating responsibility to an increasingly large team and implementing plans to expand existing offerings.
If you’re still working on creating your initial product, or haven’t yet broken even and started making a profit, growth shouldn’t be your first concern.
Are Circumstances Right for Growth?
The stage of your business isn’t the only factor in determining whether it’s time to focus on growth. Other factors that you should take into consideration include:
- Demand for your product or service. Validating a market need is absolutely essential. Using competitive analysis and market research, you can figure out whether you have a viable commodity. Development of an MVP (minimum viable product) is useful not just for the very first offering from a startup, but also for each subsequent iteration.
- Stable finances and funding. If you outrun your cash flow and overextend, you’ll soon be sitting in a sandbox full of great ideas and big plans with no way to execute.
- Favorable economic climate. No matter how fabulous your plans, if the country or world economic situation is depressed, it’s probably not a good time to take risks. During economic downturns, focus on maintaining and planning for the future. When things look up again, you’ll be ready to jump into action.
- Staff with the skill set and capacity to execute your plan. Workload will increase as your company grows, and piling more on the plates of your existing employees can lead to burnout and resentment. Make sure you have the people you need, as well as a clear plan and budget for future hiring.
- Willingness to delegate. If you’re not ready to let go of any control, you’re not ready to expand. No one human can do it all themselves.
Types of Business Growth Strategies
When you’re ready to grow, you’ll need to decide how to grow your business.
What are your options?
The Ansoff Matrix, developed by H. Igor Ansoff in 1957 and still in use today, presents four types of business growth strategies. (These strategies would all come into play during the “Take-Off” stage of growth described above.) In order of risk, they are:
- Market penetration - selling more existing products in existing markets
- Market development - selling more existing products in new markets
- Product development - selling new products in existing markets
- Diversification - selling new products in new markets
The simplest (but not necessarily easiest) technique is market penetration - that is, more sales of existing products in existing markets. An enterprising fourth grader selling lollipops to her classmates might increase market penetration with a clever marketing technique like leaving flyers on desktops or a sales offer like a buy-two-get-one-free deal.
Next, market development would see that student branch out to sell her lollipops to students in other grades and classes by selling at recess or in the lunchroom. Maybe she’d also sell at her soccer meets and swimming lessons.
Eventually, our (very) young entrepreneur might feel she’s done all she can with lollipops, and she turns to product development. Now she expands her offerings to include cake pops.
Finally, diversification leads her to try the new product, cake pops, in a new market, like a community park.
The Ansoff model is a tried-and-true way to look at business growth possibilities. Choose a quadrant and start planning!
Business Growth Best Practices
Keep Your Core Business at the Core of Your Work
Growing a business is easier when you’ve built a solid foundation for it to stand on. Don’t neglect the basic, core business during periods of growth. This is what you’re building on, and it needs to remain stable, profitable, and supported.
Establish a Brand Presence
In the early stages of growth, your reputation as an entrepreneur develops in tandem with your company’s reputation. Expanding your online presence via thought leadership efforts, website development, and participation in entrepreneur communities are some of the ways you can build a strong reputation for yourself and your business.
Get to Know Your Customers
Ask the customers you’re serving what they want. Do they want/need more of what you have, or a slightly different thing you could develop? Interviewing current customers and conducting market research can tell you what you need to know about market demand.
Hire Intelligently
A sufficient staff is a requirement for growth. But smart entrepreneurs know that you don’t always need a full-time hire for every position. Outsourcing work during business growth is an excellent way to stay efficient; you can hire contractors to handle tasks that you need done on a part-time basis, and expand the position for a full-time hire when the workload grows.
Find Efficiencies
The more efficiently your business runs, the more you’ll grow. Cutting production costs, streamlining processes, and incorporating automations where possible are some efficiencies that can make a big difference for companies.
Takeaway
As an entrepreneur, it’s likely that business growth is always on your mind. It’s smart to shoot for the stars, but also wise to make sure conditions are optimal when you prepare to expand. Be sure to consider pros and cons, make a considered choice about when to grow, choose a business growth strategy that works for you, and follow best practices to ensure that your business grows and thrives.
Other entrepreneurs have been where you are, and their advice can be invaluable as you face business challenges and decisions like when and how to expand. Learn more about Young Entrepreneur Council, an outstanding organization with a super-supportive community of entrepreneurs under 45 helping one another grow their businesses, and see if you qualify.
Resources
YEC Member Articles
YEC members, who have successfully founded and built businesses that generate a minimum of $1M in revenue or have a minimum of $1M in financing, offer great advice in the posts below (links to published articles can be found in each member's profile):
“Four Reasons You May Need To Grow Your Team” by John Rampton
“3 Common Mistakes Businesses Make When Expanding Their Product Offerings” by Akshar Bonu
“How CEOs Can Help Their Small Businesses Grow” by Kristopher B. Jones
“The Value Of Ongoing Internal Growth And How To Do It” by Tyler Bray
“A Simple Framework To Help You Grow And Scale Your Business” by Suneera Madhani
“When Should You Outsource And When Should You Hire In-House?” by Jennifer Barnes
Growing Your Business? How Process Automation Can Help And Why You Need It Sooner Than Later by Riccardo Conte
“How To Use Negative Reviews To Grow Your Business” by Jared Atchison
“Four Critical CFO Leadership Traits That Drive Growth For Founder-Led Companies” by Brooke Evans
Other Resources
“The Five Stages of Small Business Growth” by Neil C. Churchill and Virginia L. Lewis, Harvard Business Review
"Strategies for Diversification" by H. Igor Ansoff, Harvard Business Review
“6 Signs That You Should Stop a Business Expansion in Its Tracks” by Cris Burnam, Entrepreneur.com
“How To Grow Your Business” by Kristin Wong, New York Times (saved as Google doc)
“14 Types of Business Growth Explained” by Indeed Editorial Team
“5 Reasons Your Startup Shouldn't Try to Grow (At Least Right Now)” by Craig Bloem on Inc.com
