Just as an acorn will transform into a giant oak, the germ of an idea can blossom into a thriving commercial operation. In each case, the entity grows. However, while the former attains its impressive size largely unaided, the latter must generally rely on hard work, cash and an effective business growth strategy. Initially, a company tends to grow slowly, taking on additional staff, purchasing essential equipment and financing marketing campaigns as its turnover increases. A capital injection is often necessary to kickstart the next development phase and frequently involves a bank loan.
However, sometimes it’s not possible to obtain a loan. Alternatively, the cash alone may be insufficient to achieve the next stage of your expansion plan. While a cash investment will invariably be necessary, it need not require a loan. Furthermore, you have choices when compiling a business growth strategy. The art is to select one that is right for your company at the current stage in its development and under the prevailing market conditions. For example, you might wish to expand into new markets. Perhaps you can’t afford hefty price cuts or special offers to steal some extra market share. Instead, it could pay you to join forces with someone who already dominates the sector you wish to target.
The need to promote a more equitable distribution of wealth by creating opportunities for previously disadvantaged citizens has created a new business growth strategy with the back economic empowerment (BEE) deal. In this case, the proposed partner is not a business entity but a natural person whose contacts and knowledge are the key to the desired new markets. That person will rarely play an active role in the operation, relying on the dividends from the purchased shareholding for an income. The vendor also gains BEE credentials that will grant participation in state tenders.
Developing new products is also an option. It is an effective way to encourage your existing clients to increase their spending and a proven business growth strategy. However, it is possible to access new products without the need to develop them. It could be quicker and cheaper to merge your company’s offering with that of another company that already produces some suitable items to extend your range.
Yet another possible way to expand is by diversifying, but it’s not an option for the risk-averse. Nevertheless, many companies are prepared to accept the risk where they see the benefits as essential. Once again, the process frequently involves an acquisition or merger. There are four possibilities for this type of business growth strategy. Diversification may be horizontal, vertical, concentric or conglomerate.
In brief, horizontal deals involve complementary products. So, a furniture manufacturer might acquire a carpet company. Vertical acquisitions aim to limit dependencies. For example, that furniture company could invest in a timberyard. A bakery deciding to produce ready-made dough packs for home use is an example of concentric diversification. Finally, where the acquired products are unrelated but provide an entrée to essential new markets, this is the conglomerate form. Mergers and acquisitions are complex and time-consuming. Sellers have much to gain but need to be sure their interests are paramount. For peace of mind, let Deal Leaders International plan and execute your business growth strategy.