“Growth is never by mere chance; it is the result of forces working together.” — James Cash Penney, Founder of JCPenney
One of the most valuable lessons I learned in business school is the model for selecting a company’s growth strategy. I have used it in every job I’ve held and with every client I have worked with as a business adviser. I am completely certain that the use of this concept has generated many millions of dollars in profits for those that have used it.
What is your growth strategy?
If you are like most businesses, you have none. Your growth strategy may be ingrained in your company’s DNA, or it may be non-existent. Yet there is incredible power in deliberately evaluating your options and selecting one – or at most, two – strategies. There are really only a few options, so it is not a complicated process. The results of that process, however, can give you great focus and produce healthy growth.
The least employed strategy is diversification. Diversified growth comes by offering a totally new product or service to an entirely new customer. A farmer getting into pharmaceuticals, or a doctor opening a winery, are examples of this. Diversification generally has the greatest growth potential, but the greatest risk.
Integrated growth is another option, perhaps more common than diversified growth, but still relatively uncommon. A common form of integrated growth is becoming more involved in your supply chain or distribution channel. An orchardist opening a roadside fruit stand is an example. A retailer producing items for sale in their own store is another.
Intensive growth is the most common strategy, and includes three options:
Market penetration consists of selling more of an existing product or service to the same target market. Most companies should employ this strategy, at some level, forever. Selling more of an existing product is more efficient than developing a new one, and selling to an existing customer is more efficient that attracting new customers.
But at some point, diminishing returns are achieved, and one of the other strategies below must become the prime strategy.
Product development means growing through the development of new products or services to the existing target market. In this case, you are deciding to be a market specialist because you are focusing on one market with numerous technologies. If your core strength is market familiarity, this is a wise strategy.
Market development is growing through selling existing products to new target markets. If your core competencies include particular knowledge of a technology or product, this may be a wise strategy. If market development is your chosen growth strategy, this makes you a product or technology specialist. Examples would include a car battery manufacturer expanding to the marine market or alternative energy market.
The process of selecting a growth strategy can be very illuminating – and simply fun. It also will produce greater efficiency by giving you focus. Often one of the biggest mistakes a businessperson can make is in not knowing what to say “no” to. A clear growth strategy allows you to say no quickly and with confidence.
Dave Bartholomew is the founder of Ascent Advising LLC, working with “corner office” people around the globe to define and achieve their unique definition of success. He and is wife, Nancy, co-founded Simply Living Farm, a shop in Leavenworth providing goods for a sustainable life. He can be reached at Dave@AscentAdvising.com.