In case you missed previous post on Startup Growth, you can get it here at Proven Ways and Examples to Create the Best MVP. In today’s guide, we will be looking at Free Tested Ways to Create an Excellent Startup Growth Strategy.
Millions of people have ideas but a fraction of them act on those ideas to create startups. A startup is a company designed to grow fast. Successful startups are as a result of great initiatives that combine great insights, determination, risk investments and resilience.
Today, some of the biggest companies in the world, including Amazon, Facebook, Apple and Microsoft started out as startups, with very little money and a lot of risks. It is important to plan, measure and keeps track of startup growth.
For every startup, there is an initial period of slow or no growth while the startup tries to figure out what it is doing. As it figures out what its customers want, it enters a period of rapid growth. Eventually, a successful startup grows into a big company, which further works on expansion using universally accepted strategies.
We have created this guide to help entrepreneurs understand the whole startup journey, from market penetration, product development, expansion, diversification, integrations, mergers and acquisition to forming a strategic alliance. Let’s get started.
Initial Growth Strategy – The Ansoff Matrix
The Ansoff Matrix is a strategic planning tool that provides a framework to help senior management in devising strategies for future growth. It can be perfectly applied by startups looking to establish their mark in the market.
Developed by Igor Ansoff, this matrix offers a core business tool for developing a growth strategy. Startup founders need to understand that for their ventures to grow in the long term, they can’t stick with ‘business as usual mindset’. They need to find new ways to increase profit and reach new customers.
Let us explore the model further;
With the market penetration approach, businesses are trying to sell more the same things to the same market. You develop a new marketing strategy to encourage more people to choose your products.
At this stage, you may introduce a loyalty scheme or launch price and other special offer promotions. Additionally, you may need to use the Boston Matrix to decide which products warrant further investment and which ones should be disregarded.
It is a low-risk strategy as a firm is not risking developing new products or venturing into new markets. This strategy works in a growing market, where simply maintaining market share will result in growth. Startups can greatly benefit from this strategy.
With this strategy, you aim at targeting new markets or new areas of your existing market. You are trying to sell more of the same things to different people.
This strategy works by targeting different geographical markets at home and abroad. You may need to conduct a PEST analysis to identify opportunities and threats in different markets.
You may also need to use different sales channels be it online or direct sales in case you are currently selling through agents and intermediaries.
It is very important to use market segmentation to target different groups, in reference to their age, gender and demographics. Using the marketing mix will help you to understand how to reposition your product.
If a company holds a large market share for a specific product type, or if it has strong brand recognition, or a strong brand range, this strategy could greatly work in their favour.
So with market development strategy, there are three key issues emphasized; selling in different geographical areas such as new countries and regions, selling through different sales channels and selling to different demographic groups.
Product development strategy is another important strategy used to develop or acquire a new product to sell in an existing market.
The new product could be developed or acquired by acquiring another company. This product aims at selling different products to the same people.
You extend your product by producing different variants or repackaging an existing product.
Doing so maybe a good strategy for a company that already has a strong market share and wishes to diversify its product range.
However, achieving product development needs a strong research and development capability. Since this strategy relates to creating new products, any problems encountered during the process could damage a country’s reputation.
This calls for the need to conduct extensive testing and piloting.
Diversification occurs when an organization adopts for the development of its business. It is a strategy that involves adding products, services and markets to your company’s core business.
Diversification in business can be broad. It could mean expansion through new product lines or services. Many startups experience phenomenal growth in their early years before the plateau.
Plateau occurs when you have reached maximum penetration in your existing market, or when lost cost competition has stolen your market.
If such occurs, you need to diversify. Adding new product lines or entering a new market can be a sure way to re-ignite your growth. Depending on your goals and resources, your diversification strategy may be internal or external, or even a combination of the two.
As we are going to see, internal diversification includes aspects such as launching a new product after research and development, market analysis and production.
External diversification can occur when a company expands its activities through mergers and acquisition, strategic alliances with contemporary companies or licensing new technologies.
Diversification is aimed at survival as well as prosperity. A company that focuses on a narrow range of products only has a finite pool of customers. To widen its revenue streams, it has to target a wider market through diversification.
Internal Growth Strategies
Internal growth strategy occurs when a firm grows from within. This growth occurs when a business expands its own operations by relying on developing its own internal processes and capabilities.
The advantages of internal growth include knowledge improvement, investment spread, strategic independence and cultural management. However, we have to note some key disadvantages associated with internal growth, in that it can be slow and time-consuming.
There are three internal growth strategies we are going to look at, which include the following;
Business expansion refers to the process of raising market share, sales revenue and profit of the present products or services. As we have earlier seen, a business can expand through two key strategies which are product development and market development. At deeper level, expansion can happen as a result of diversification.
Horizontal integration involves the combination of two business operating in the same industry, and at the same stage of the supply chain.
It is a kind of business expansion strategy where a company acquires the same business line so as to eliminate competition to a greater extent.
Horizontal integration is a competitive strategy that can create economies of scale, increase market power over suppliers and distributors and increase product differentiation.
Companies engage in horizontal integration to benefit from synergies. The objective of horizontal integration is to increase the size of the business. At the same time, it eliminates competition and works at maximizing market share.
If both companies were offering products, they may opt to include complementary products, by-products or other related products.
When the two businesses combine, they create a monopoly. Additionally, this combining may as well create oligopoly if there are still some independent manufactures in the market.
A good example we can study as far as horizontal integration is concerned is the acquisition of Instagram by Facebook Company, as well as the acquisition of Burger King by McDonald’s.
Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product.
A company may opt for vertical integration to ensure full control over the supply of raw materials to manufacture its products. Additionally, it may opt for vertical integration to take over control of the distribution of its products.
When pursuing a vertical integration strategy, a firm gets involved in new portions of the value chain. It is an approach that can be very attractive when suppliers or buyers have gained too much power over a firm, and are using their power to capture more profit at the expense of a firm.
Firms can decide to be in pursuit of vertical integration. Take a good example when Apple opened several stores bearing its brand name.
Another example is how the automotive industry is built on the concept of vertical integration. In this way, you find one company owning both manufacturings, and as much as possible, the supply chain.
Vertical integration can further be classified into two; Backward vertical integration, which involves a firm moving back, along the supply chain, and entering a supplier’s business. The other is forward vertical integration, where a firm moves further down the value chain to enter the buyer’s business.
Concentric diversification is a strategy where a company acquires or develops new products and services that are closely related to its core business or technology, to enter one or more new markets.
This form of strategy occurs when the diversification is in some way related to but clearly differentiated from, the organizations current business.
Conglomerate diversification is a growth strategy that involves adding new products or services that are significantly different from an organizations core products and services.
It occurs when a firm diversifies to areas that are totally unrelated to an organization’s current business. Most conglomerate diversifications are based on the rationale that expansion into unrelated industries may have a very attractive potential.
Modernization is an IT strategy that aims at improving mission effectiveness, creating fiscal efficiencies and providing the right level of security to systems and information.
Modernization strategy is formed on the basis of transforming, protecting and advancing IT resources of a firm. Modernization increases the capacity of a firm to meet expanding customer demands and expectations.
Modernization helps firms increase value from existing applications and develop more agile application portfolios.
Once a firm decides to expand through modernization strategy, there are five key migration options which include; Rehost, Refactor, Reacrhitect, Rebuild and Replace.
External Growth Strategies
External growth, or inorganic growth, refers to strategies that aim at increasing the output of a business, with the help of resources and capabilities that are not internally developed by the company itself. External growth can occur as a result of the following strategies;
Mergers refer to a friendly rejoining together of two organizations as a corporate combining or marriage usually with the blessings and sanctions of both firm’s top strategic decision organ.
It comes into play for a key reason. It occurs is when a firm decides to make sense to join forces with another company and reap all the rewards that come from combined strengths.
A smart merger can help the firm enter a new market, reach more customers, squeeze competition or fill a gap in a company’s capabilities to deliver on key components.
Mergers can get a firm on the first track to become more competitive again. When you get a complimentary partner, a firm can acquire products, distribution channels, technical knowledge as well as infrastructure gain a competitive advantage.
Acquisition usually implies unfriendly or hostile takeover of a firm by another without the sanction of the acquired firm. Companies acquire other companies for various reasons which include; seeking economies of scale, diversification, achieving a greater market share, increasing synergy, reducing cost among others.
The acquisition may also happen as a way to enter a foreign market. If a company wants to expand its operations to a new company, buying an existing company in that country could be the easiest way to enter a foreign market.
Acquisitions are typically made in order to gain control and build on the target company’s strengths or weaknesses and capture synergy.
The acquiring company buys the shares of the assets of the target company and gets the powers to make decisions concerning the acquired assets and all forms of decisions affecting the new company.
A joint venture is a business arrangement in which two or more firms agree to pull their resources for the purpose of accomplishing a certain task. In a joint venture, each merging entity is responsible for profits, losses and costs associated with the venture.
A venture can take any legal structure, such as a corporation, partnership or a limited liability company. The main purpose of forming joint ventures is production and research.
In most cases, joint ventures create a separate business entity where each owner contributes assets and other resources to support the venture.
Joint ventures are normally separate entities with shared interest and goals. Both companies have some form of a proprietary basis for their shared interests. Additionally, they agree to share income and expenses.
Companies in a joint venture maintain their separate entities for all purposes except those of joint venture.
Strategic alliances happen as a result of two firms which undertake a mutually beneficial project while each retains its independence. The agreement is less binding and less complex than a joint venture.
A company may enter into a strategic alliance to expand into new territories, develop an edge over competitors or improve its product line. The relationship may be short or long term and the relationship may be formal or informal.
A strategic alliance agreement could help a company develop a more effective process. The alliance allows the entities to work towards common or correlating goals.
The effect of entering into a strategic alliance can include allowing a business to achieve organic growth quickly than it would have otherwise had, could it each firm have decided to work on its own.
Depending on the formality of strategic alliance, it could be equity-based or non-equity based. Equity-based strategic alliances are created when one company purchases a certain equity percentage of another. With a non-equity based strategic alliance, two companies sign a contractual relationship to pull their resources and capabilities together.
Summing it up!
Growing a business involves the resilient and relentless work of improving some measure of a company’s success. Startups can achieve exponential growth if they implement the right strategies. A business can grow in terms of customer base, employees, profits, international coverage, etc., but the real growth is mostly determined through revenue.
Startups and other businesses must understand that business growth is imperative for the survival of any venture. This is because customer taste change and products become obsolete. Additionally, competitors constantly attack the market with better products and services.
Most big companies today started small and grew to robust sizes through initiating appropriate strategies, building their opportunities and seizing the market. Startups need to adopt appropriate growth strategies based on circumstances and opportunities surrounding their businesses.
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