Planning for business growth (video)
In this guide:
- Assess your options for business growth
- Importance of business growth
- Business growth strategies
- Market penetration strategy
- Product development strategy
- Market development strategy
- Business growth through diversification
- Business growth through acquisition, mergers and partnerships
- Planning for business growth (video)
- Financing for business growth
- Top tips to prepare your business for growth
- Improve the way your business operates (video)
Importance of business growth
Understand why growth is good for business, common reasons for growth and how to identify growth opportunities.
Growth supports long-term survival of a business. It helps you build assets, attract talent and fund investments while boosting performance and profit.
Why business growth matters
Growth brings clear benefits for small and medium-sized businesses. It lets you:
- take advantage of new opportunities
- expand your products or services
- attract more customers
- increase sales
- employ more staff
Growth can also help you meet market demand, increase your market share and capitalise on your growing brand. It drives innovation, helping you stand out in the market and stave off competition.
Growth can also boost your business credibility, allow you to broaden your supply base and increase stability and profits. However, to be successful and sustainable, make sure growth is strategic and suits your business - check if your business is ready to achieve and sustain growth.
Reasons to grow your business
Most businesses grow to increase sales or market share. Other drivers include:
- building market resilience and sustainability
- cutting costs through economies of scale
- gaining market dominance
- gaining greater buying and bargaining power
- reducing commercial risks - eg through diversification
- reducing the threat of competition
- handling economic downturns and market fluctuations
- attracting top talent and staff
Whatever your motivation, always weigh up the advantages and disadvantages of growing your business.
Deciding how to grow
There is no one way to grow a business. You can grow by expanding your service area, forming business partnerships, launching new products, diversifying or using other business growth strategies. Plan carefully with these tips to help you prepare for business growth.
You can also get free advice and guidance from your local council to help you grow your business and scale up operations. To request support, complete a short enquiry form or call the Go Succeed helpline on Tel 0800 027 0639.
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Business growth strategies
Explore business growth strategies, and use tools such as the Ansoff matrix to assess the benefits and risks of each option.
There are many ways to grow a business. Your choice largely depends on your ambition, reasons for growth, and the opportunities and resources available.
Most growth strategies focus on two key factors:
- products - what you sell now, and what you'd like to sell in the future
- markets - where you sell now, and where you'd like to sell in the future
Based on these factors, strategic tools - such as the Ansoff matrix - suggest four main types of business growth strategies.
What are the four major growth strategies?
Four main strategies for growth, each with their own distinct benefits and risks, are:
- market penetration
- product development
- market development
- diversification
With a market penetration strategy, you try to sell more of the same things to the same market. The risks are usually low as you focus on capturing a bigger share of your current market with the products you already have.
With a product development strategy, you are introducing a new product into your existing market. You're effectively selling something different to the same customer, potentially encountering greater risks.
Another option is a market development strategy, where you try to sell an existing product in a brand new market. For example, you may want to segment your existing market or reposition your product in it, or target an entirely different geographical area.
Finally, with a diversification strategy, you are aiming to sell completely different goods or services to completely different customers. This is typically the riskiest of options - it requires both product and market development.
Other ways to grow your business
Every business is different. You may need to adapt strategies to suit your needs. For example, you may want to explore:
- acquisitions
- franchising
- strategic partnerships
- improving efficiency in your business
You may also want to construct your own unique combination of strategies.
Match your approach to your overall strategic plan. Find an option that has the potential for high impact with the least amount of risk and effort. Research thoroughly using these tips to help you prepare for business growth.
You can also get free advice and guidance from your local council to help you grow your business and scale up operations. To request support, complete a short enquiry form or call the Go Succeed helpline on Tel 0800 027 0639.
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Market penetration strategy
Understand what market penetration is, how to measure it and tactics to use to help you gain market share or grow revenue through sales.
Market penetration is one of the four main business growth strategies. It involves selling more of your existing products or services into your current markets to increase your market share or revenue.
According to the Ansoff matrix, this approach carries the lowest risk, especially in the early stages of starting a business.
When to use market penetration
For an effective market penetration strategy, you need a strong product and good knowledge of your market and competitors. Common tactics include:
- increasing market share for current products
- increasing usage among existing customers
- targeting fast-growing markets
- driving out competitors in saturated markets
Different strategies can help you to grow your market share, including:
- price adjustments
- sale promotions
- targeted advertising, including through digital channels
- adding new distribution channels, such as online sales
You can segment your customers to reach new demographics for your product, such as different age groups. In saturated markets, you may need to find another approach to drive out competitors. For example, raise or lower your prices and promote heavily to challenge smaller competitors.
If you can compete on price and offering, look at ways of increasing usage by existing customers. For example, encourage repeat use with loyalty schemes, or add value to the existing product or service.
How to measure market penetration
Market penetration is often expressed as a rate or a ratio that measures your product's performance against the total market. It also relates to the number of potential customers that buy your product instead of a competitor's product.
As a metric, market penetration is expressed as a percentage. You can calculate it by taking the current sale volume of your product and dividing it by the total sale volume of all similar products on the market. The result is then multiplied by 100 to move the decimal and create a percentage. As a formula, this looks like:
Market penetration rate = (Number of customers/Target market size) x 100Regularly monitor your market penetration to identify any upward or downward trends. The higher the market penetration rate, the more likely it is that your business will be considered a market leader in the industry.
If market penetration doesn't fit your product, service or business, try other business growth strategies such as market development or diversification.
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Product development strategy
How to create a product development strategy and use tactics such as brand expansion to increase your sales and market share.
Product development strategy relies on developing new products or modifying existing products so they appear new, and offering those products to current or new markets. When executed successfully, it can lead to growth in sales and market share.
Use this strategy when you've maximised growth in your current market with existing products.
Growth through product development
With product development, a business usually has one of three choices. You can:
- create an entirely new product
- evolve your existing product for its existing market
- enhance your existing product to introduce it to new markets
Steps include detailed research and development, assessing customer needs, product or service design and analysis, prototyping and production.
Each company approaches product development differently. You can outsource development, buy in other products to rebrand under your name, or partner with others. Focus on the new product development process with ongoing customer research for the best results.
Brand extension strategies
Brand extension, or brand stretching, is a useful tactic in product development. It involves using your established brand name for a new product or new product category.
You can extend your brand in many ways, including:
- offering the original product in a new form
- combining two well-known products into one
- applying the existing brand to a different product category
- creating complementary products
Brand extension leverages your reputation and cuts costs compared to fully new launches. However, to work, the brand extension must provide a logical link between the original product and the new item. If there is a mismatch, or the new product creates a negative association, this can lead to brand dilution. Find tips on using and managing your brand.
Keep in mind that product development is only one of four key business growth strategies. Others include market penetration, market development and diversification.
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Market development strategy
How to create a market development strategy and use pricing, distribution and promotional tactics to increase your sales and market share.
Market development strategy involves selling your existing products or services to a new customer group. It begins with market research where you:
- segment your current market
- target promising segments (new groups of customers)
To identify a target market segment, look at factors like:
- new geographical areas
- new demographic segments
- new customer needs
- customer preferences, interests and lifestyle
Consider customers typically served by your competitors, or customers currently not served by anyone. Once you identify your target segment, create a promotional strategy and find ways to attract them.
Common market development strategies
Key market development strategies you could consider include:
- pricing - offer competitive prices with offers and discounts, or higher value to justify premium price
- distribution - add new channels to reach target customers, eg sell online if you currently only have a 'brick and mortar' shop
- branding - create a new brand for products aiming to reach a target market or a specific customer segment
- promotion - tailor promotional messages to entice customers with offers, vouchers, loyalty schemes, etc
- sales - target a different demographic segment or type of customer to create new leads and opportunities
- product development - adapt an existing product or develop a new one for the untapped market
See more on product development strategy.
As well as attracting new customers, market development also involves encouraging current customers to use your product in new ways to boost sales.
Market development vs market penetration
The key difference between market development and market penetration is that market development strives to increase market potential. It does this by expanding into untapped market segments. With market penetration, the market size is fixed so the strategy focuses on maximising the potential of an already existing marketplace.
See more on market penetration strategy and other business growth strategies.
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Business growth through diversification
Risks and rewards of diversification, the different strategies you can use, and how to diversify your business for growth.
Diversification is a growth strategy that involves entering new markets with new products. This can be high risk, and mainly suits businesses ready to expand beyond core operations.
Different types of diversification strategies
There are several different types of diversification:
Horizontal diversification
Horizontal diversification is when you acquire or develop new products or services that are complementary to your core business and appeal to your current customers. For example, an ice cream business adds a new type of confectionary into its product line. You may require new technology, skills or marketing approach to diversify in this way.
Concentric diversification
Concentric diversification involves adding new products that have technological or marketing synergies with existing product lines or industries, but appeal to new customers. For example, a PC manufacturer starts producing laptops. You may be able to leverage your existing technologies, equipment and marketing to diversify in this way.
Conglomerate diversification
Conglomerate diversification occurs when you add new products or services that are entirely different from and unrelated to your core business. For example, a film studio opening up an entertainment park. The risks are high, as this approach requires you not only to enter a new market, but also to sell to a new consumer base.
Vertical diversification
Vertical diversification or integration is when you expand in a backward or forward direction along the production chain of your product. In this approach, you may control more than one stage of the supply chain. For example, a film distributor produces its own content, or a technology manufacturer opens its own retail store.
Before diversifying:
- carry out detailed market research for the new product or service
- do a full assessment of customer needs
- devise a clear product development strategy and test the market
Ensure that sales, marketing and supply chain operations can cope with the added demands. See how to diversify your business.
Advantages and disadvantages of diversification
There are pros and cons to each of the different diversification strategies. A successful diversification can help you:
- increase sales and revenue
- grow market share
- find new revenue streams
- achieve higher margins compared to existing products
- limit the impact of changes in the market
On the other hand, diversification will incur development, sales and marketing costs. It will also require additional skills, management and operational resources. If these demands exceed the potential revenue and profit gains, diversification can put your business at risk. For example:
- diverting funds and resources into diversification may limit potential growth in core areas of your business
- lack of knowledge or expertise in the new industry or market may lead to costly delays or mistakes
- diversifying too quickly may cause you to lose track of or dilute your core products or services
- if you stretch your resources too widely, you may struggle to provide a consistent level of service, which can lead to dissatisfaction and customer losses
In general, diversifying with similar products or services and selling them to a familiar customer base is less risky than some other business growth strategies, such as creating a product for a completely new market.
Diversification can be a great way to maintain business stability. It allows you to hedge your bets and, if one of your markets or products fails, you have another to back you up until you recover.
Find tried and tested tips to help you prepare your business for growth.
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Business growth through acquisition, mergers and partnerships
Understand the power of partnerships in business and how to use acquisitions, joint ventures and mergers to grow your company.
As well as growing your business organically, you can also scale by partnering with others through joint ventures, mergers and acquisitions. These options provide resources and market access but require careful partner selection to avoid management issues.
Benefits of business cooperation
Successful business cooperation can deliver:
- more resources
- sharing of the managerial load
- larger skills and talent base
- bigger pool of contacts
- increase in markets
- diversification and organic growth using increased resources
- reduced commercial risk
For best partnerships, choose partners that complement your brand and goals.
Partnerships and joint ventures
Joint ventures and partnerships can offer both partners significant benefits, including sharing experience, skills, people, equipment and customer bases. Through a partnership or a joint venture arrangement with a complementary, non-competitive business, you may be able to enter new markets or improve your offering in existing ones. But it's important to choose your partner carefully.
An agreement or contract defining the terms of the partnership or joint venture is essential and further legal protection is advisable. See how to create a joint venture agreement.
Teaming up should be a win-win situation for both parties. Businesses involved with complementary activities or skills are usually the most appropriate candidates. For example, a group of sole traders - a carpenter, builder and gas installer/electrician - could form a company to:
- increase their credibility in the construction trade
- allow them to bid for larger contracts
- appeal to customers looking for a 'one-stop-shop' service
Find out more about joint ventures and business partnerships.
Mergers and acquisitions
Growth through acquisition or merger is a common tactic used to achieve diversification and market positioning. It can help:
- increase market share
- expand the workforce
- widen the existing service or product offering
- grow revenues
- achieve economies of scale
- reduce costs through shared budgets and greater purchasing power
However, combining two businesses can pose challenges that did not exist before, such as:
- maintaining a presence in multiple markets
- managing a complex product and services portfolio
- retaining a larger and more diverse customer base
- managing more people and operational complexity
Acquisitions and mergers may not be suitable for all businesses. They best suit well-established companies due to the considerable legal work involved. Find out more about mergers and acquisitions.
Research your options thoroughly and, if partnerships are not suitable for your business, consider organic growth or other business growth strategies.
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Planning for business growth (video)
Watch this short video tutorial to learn how to review your business and prepare for sustainable growth.
This short video explains what you must consider as you prepare your business for growth. The tutorial tells you how to:
- carry out a business review - covering things like premises, location, equipment, staffing, current financial situation, staffing, customers, competitors, etc
- know if you are ready to grow - discussing some common business growth implications and suggesting how to avoid problems during business growth
- explore different ways to grow your business - eg through market penetration, market development or product development, or other business growth strategies
- put together some concrete goals - by planning strategically and preparing a business plan for growth
For quick takeaways from this video, see our tips to prepare your business for growth.
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Financing for business growth
Introduction to financial planning for growth, including equity, venture capital and funding from business angels.
Sound financial planning is the foundation of any business growth strategy. Firstly, you should work out:
- how much investment you need
- when you will need it
- when it will be available
- how soon you will be able to repay it
Detail all the costs you expect to incur and compare them against the expected profits. Be practical and set realistic business goals to avoid disappointment.
Financial forecasts
Create a detailed cashflow forecast as outgoings often rise faster than income during growth. Include enough to keep the core business running, and build in some surplus too, since projects of this nature often run over.
As well as cashflow, work up forecasts regarding sales, working capital and sources of seed funding, or any subsequent funding. See how to tailor your business plan to secure funding.
Funding options for growth
Apart from bank finance, businesses looking for capital investment have three main sources:
- Equity finance is money invested in a business that is not directly repayable. It could be your own, most likely raised through remortgaging a property, or money from others taking a share in the ownership of the business.
- Venture capital is also known as private equity finance. Unlike business angels, venture capitalists look to invest large sums of money in return for equity in (ie a share in the ownership of) your business.
- Business angels are private investors taking a minority or majority stake in a business, often contributing valuable business experience in the form of advice and contacts.
There may also be some development or enterprise grants or loans available in your area.
Return on investment for growth
A common way of measuring the profitability of a business is by calculating the return on investment or ROI. This ratio tells you what percentage of return you can expect to get over a specified time. Many expanding businesses use three to five year timescales.
To determine your ROI, you should take the total investment figure, work out the increased sales for each year and the resulting net profit, and calculate that as a percentage of the investment.
For example, suppose a business wants to add a new product line. It will require an investment totalling £200,000 in development costs, plant, marketing and promotion. The new line should generate £400,000 in sales and £40,000 in net profit each year. The table below explains how to work out the growth ROI:
Timescale Additional net profit in period ROI calculation (net profit/investment x 100) ROI (%) One year £40k 40k/200k x 100 20 Three years £120k 120k/200k x 100 60 Five years £200k 200k/200k x 100 100 It's a good idea to test the ROI with different sales figures and factor in inflation. See also how to measure your financial performance.
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Top tips to prepare your business for growth
Practical suggestions to help you maximise your business potential and plan an effective and sustainable growth strategy.
Growing your business sustainably is an exciting prospect but not without risks. Careful planning helps you avoid common pitfalls and maximise your growth potential. Follow these tips to prepare thoroughly for growth.
Review your current performance
Understand the strengths and weaknesses of your business before you attempt to grow. An honest view of your business performance will give you valuable information to start planning your growth strategically. It will also enable you to seize the right opportunities and address any shortcomings going forward. See how to measure performance in business.
Set clear goals and strategies
To prepare your business for growth, outline clear, realistic goals and develop strategies to achieve them. Take time to define desired outcomes, identify target markets, choose the right growth strategy and establish actionable plans to reach your objectives.
Consider your resources
Growth uses up a lot of time, money and talent. Operational issues can hinder progress, so decide early on how you will finance growth. Look at processes to streamline operations for efficiency, and check your capacity and invest in talent to ensure that you have the right staff to support growth. As for the finances, secure funding and work out forecasts with surplus for unexpected costs.
Embrace technology
Technology is critical to driving innovation and growth. Review your current systems to identify areas where upgrades (such as new software, automation or data analytics) could make the greatest difference in terms of efficiencies, customer experience and decision-making. Find ways to use technology for better productivity in your business.
Explore strategic partnerships
Collaborating with the right partners can open doors to new markets, resources and expertise, and greater competitive advantage. To accelerate growth, seek partnerships that align with your growth plans, complement your offerings and combine complementary strengths for mutual benefit. Read more about business growth through partnerships.
Focus on customer experience
Take time to fully understand your customers' needs, preferences and pain points. Customer retention and loyalty are paramount to any scaling plans, so keep their satisfaction a priority as you prepare to grow. Tailor your products and manage your customer service to help drive growth and distinguish you from your competitors.
Stay agile
If you're planning to expand, but the market trends and customer preferences are changing rapidly, build strategic agility into your plans. Being agile while maintaining a growth mindset will help you overcome obstacles, build resilience and manage change. Test your strategy with small steps before full commitment.
Remember that growth takes time so regularly measure progress and adjust as needed. For more tips, see how to grow your business successfully.
Support to grow and scale
You can get free advice and guidance from your local council to help you grow your business and scale up operations. To request support, complete a short enquiry form or call the Go Succeed helpline on Tel 0800 027 0639.
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Improve the way your business operates (video)
Watch this short video explaining how to change the way your business operates to improve performance.
This short video explains how to change the way your business operates to improve performance by focusing on personnel, infrastructure and strategy.
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