When we talk about business growth, we often focus on getting the operating fundamentals right (see 9 things you must get right for your business to thrive). But, what are the growth strategies that will get you the sales?
In this post, we talk about the five core growth strategies and show how these appear in practice: market penetration, new products, new markets, diversification, and acquisition. The value of understanding these strategies is focus: working on multiple growth strategies at the same time is expensive and distracting.
Growth strategy one: market penetration strategy
Penetration is typically where most people start to grow a business. You have a product, you know what market you will sell it to, and you focus your resources on getting the word out.
There are many ways to penetrate the market, but they all involve some use of resources to connect with your prospects and encourage them to buy. Penetration is where the marketing funnel plays a huge role: you are in some way taking people from strangers to customers.
Since market penetration takes effort and resources, you should be careful about trying to develop every market at the same time. We see many entrepreneurs struggle with this part of market penetration they want to be everywhere and appeal to everyone.
Instead, pick a focus market, a target area, and develop it. A focus will help you establish your brand and give you a starting point for the next phase: either developing new products or branching out into new markets.
What market penetration looks like:
Lyft: Lyft is very active in market penetration at the moment. If you download the Lyft app, they will offer discounts and incentives to entice you to use Lyft (instead of Uber).
A local business: Take your pick of any local company that you know, from accountants to yoga studios. They have a distinct product and are focused on the local area. Their strategy is in meeting new people in the area and giving these new customers a reason to do business with them.
Growth strategy two: develop a new product for a known market
The second strategy for growth is to develop a new product in a market that you understand or have already established. This is an excellent second strategy for all of the companies that have invested in penetrating the market.
Often the hardest part of growth is finding new customers and developing trust and relevance; there is a whole process to bringing them through the funnel so that they become customers, and this takes time and effort.
So, the best next strategy is to develop a new product to sell to these same people. Selling to the same market allows you to take advantage of the marketing work you have already done and build on the trust and relevance you have already established.
Once someone is your customer and they love your product, using that trust to sell another great product is quick and easy (well, faster and easier at any rate).
Many successful startups build a new product your a known market. The founders have an understanding of the market, they have contacts in that market, and they develop a product for that market.
What developing a product for a known market looks like:
New product to a known market is such a common and effective strategy that you will see it everywhere if you look:
- Amazon.com: sells “related products” and uses information about you to find other products you might be interested in.
- Mckinsey & Company: this is the whole basis of their company; they continuously develop new products and solutions to sell to their customers.
- Any "freemium" business model: the new product strategy is the basis for the freemium concept. Give away one product for free, to establish trust and relevance, then once they love you, charge for the next product.
Growth strategy three: market expansion, or selling your known product into a new market
This strategy is the opposite of the one above: instead of developing a new product you take the product you know and take it to new markets.
This can be a risky strategy: venturing into new markets implies many unknowns. Just because something works in one place or with one group of people, doesn’t mean it will work somewhere else.
This strategy makes the most sense if what you do is complex and takes time to learn but doesn’t change much when you scale up. You focus on working in a small “test” market then you to take over the world.
Great examples of market expansion include
Uber: They started in San Francisco, ironed out the kinks and then took their business to the world. This strategy made sense because there was a huge learning curve in figuring out the app, developing the model for drivers and riders and making the business work. However, once they had built it once, they had everything defined and could bring that to any city.
McDonald's: Or, really, any franchise model. Sticking with McDonald's: Ray Kroc and the McDonald's brothers figured out how to make their burger restaurant work then they rolled it out everywhere.
Growth strategy four: sell a new product into a new market
This is the riskiest growth strategy because it involves both product risk and market risk. Developing a new product involves some risk because it is new, and nothing ever works the way we plan.
You compound that risk by trying to sell the new product to an entirely new market.
Small businesses should avoid this strategy but often find it attractive: "New" has a greener pasture feel to it: from where you sit it can often look like somebody else has it easier.
But, they don't. Seeing ease in other markets is just a version of shiny thing syndrome.
So, hold off on this strategy until you have enough money to thoroughly research the market, develop a great product, and get it to the market.
The key to making this growth strategy work is to have a core competency that can is valuable and allows you to stand out in many different markets.
Still, this is hard to do, and even big companies get this wrong all the time. There are many examples of businesses that have failed with new products in new markets.
What Diversification looks like
McDonald's (again): since we mentioned them above, they are worth mentioning here. McDonald's briefly stepped into running hotels. They thought they had a core competency in operations and looked at the hotel industry as a diversification opportunity. They were wrong.
Samsung: The company started as a grocery store. Now they make electronics for many different markets from home appliances to mobile phones.
Virgin: Richard Branson is the master of diversification. He started with a record label then grew his empire to include wedding gowns, trains, and an airline. Virgin is an excellent example of how breaking the rules can sometimes work: the brand shouldn't apply to so many different markets, but it does. Continuously entering new markets with new products should be a recipe for disaster, but it isn't.
Growth strategy five: acquisition
The final growth strategy is to buy growth. Find a company with an established product in an established market and acquire it.
Acquisition can be tricky and expensive: to make money through acquisition you must be sure that you can run somebody else's business better than they can.
Often acquirers buy businesses only to lose money – this is especially true with some of the most significant acquisitions in the world. The AOL - Time Warner merger is an example of a poorly thought through $165 billion acquisition mistake.
However, this strategy can be useful: if your operations are stronger than a competitor or a company that is looking to exit or if you have additional products that you can sell to your target's customers then acquisition can work well.
These are the fundamental growth strategies
When you are planning your growth focus on one of these strategies and stay with it. The best place to start is to penetrate the market you are already in by honing your business, developing your marketing strategy and implementing consistently.
Interested in more information about growing your business? Download the first chapter of our book and build the business you want rather than suffer the slog of working for nothing.