Turning a small business into a big one is never easy. The statistics are grim. Research suggests that only one-tenth of 1 percent of companies will ever reach £250 million in annual revenue. An even more microscopic group, just 0.036 percent, will reach £1 billion in annual sales.
Is research correct, will most businesses start small and stay there?
A large percentage of entrepreneurs recognise that lifestyle models and staying small does not necessarily guarantee business survival, there are examples of companies out there that have successfully made the transition from start-up to small business to fully-thriving large business.
Some thoughts for entrepreneurs and companies on how they can create a growth strategy:
Developing a Growth Strategy: Intensive Growth
Part of getting from start up to large company is fundamentally down to leadership and a growth strategy, maximising performance driven results from the least amount of risk and effort. Growth strategies resemble a kind of ladder, where lower-level rungs present less risk but maybe less quick-growth impact. The bottom line for small businesses, especially start-ups, is to focus on those strategies that are at the lowest rungs of the ladder and then gradually move your way up as needed. As you go about developing your growth strategy, you should first consider the lower rungs of what are known as Intensive Growth Strategies. Each new rung brings more opportunities for fast growth, but also more risk. They are:
1. Market Penetration. The least risky growth strategy for any business is to simply sell more of its current product to its current customers.
2. Market Development. The next rung up the ladder is to devise a way to sell more of your current product to an adjacent market.
3. Alternative Channels. This growth strategy involves pursuing customers in a different way such as, for example, selling your products online.
4. Product Development. A classic strategy, it involves developing new products to sell to your existing customers as well as to new ones.
5. New Products for New Customers. Sometimes, market conditions dictate that you must create new products for new customers.
If you choose to follow one of the Intensive Growth Strategies, you should ideally take only one step up the ladder at a time, since each step brings risk, uncertainty, and effort.
Developing a Growth Strategy: Integrative Growth Strategies
If you’ve exhausted all steps along the Intensive Growth Strategy path, you can then consider growth through acquisition or Integrative Growth Strategies. The problem is that some 75 percent of all acquisitions fail to deliver on the value or efficiencies that were predicted for them. In some cases, a merger can end in total disaster, as in the case of the AOL-Time Warner deal. Nevertheless, there are three viable alternatives when it comes to an implementing an Integrative Growth Strategy. They are:
1. Horizontal. This growth strategy would involve buying a competing business or businesses. Employing such a strategy not only adds to your company’s growth, it also eliminates another barrier standing in your way of future growth – namely, a real or potential competitor.
2. Backward. A backward integrative growth strategy would involve buying one of your suppliers as a way to better control your supply chain. Doing so could help you to develop new products faster and potentially more cheaply.
3. Forward. Acquisitions can also be focused on buying component companies that are part of your distribution chain
As astronaut Chris Hadfield once said:
“Almost everything worthwhile carries with it some sort of risk, whether it’s starting a new business, whether it’s leaving home, whether it’s getting married, or whether it’s flying in space.”
Hmmm, might be important to remind that the imperative that growth is good, that bigger is better is really not an imperative after all. The outcomes in a growth environment are, at times, wasteful, gluttonous and abusive. The growth strategy is a valid one only WHEN the possible adverse impacts of growth are fully vetted.