Some small business owners are content to maintain a small operation they can run themselves in return for a decent, but limited, income. Others, however, are driven by the challenge of growing their business into a high-profit venture with a larger market share. Although higher risk, this path can generate greater personal rewards - including the pay-off that might come from selling a profitable concern.
The process of identifying profitable growth opportunities often begins with the ‘core business’, that is, the products, services, customers, channels and geographic areas that generate the largest proportion of revenue and profits. In-depth conversations with the managers on the topic, “What is our core business?” is the preferred starting point.
The following points will help you clarify your core business. What is your core business? Why do most of your customers come to you? What are your top sellers? What makes the business ‘you’? And why are you in the business? Where do you look better than the competition? Who are your main customers? What areas are your greatest opportunities for expansion? Who are the core people on your team – who couldn’t you be without? What do they do and what do they bring to the table? Now you know what the core of your business is – minus all the fat and the trimmings.
After an answer is found, an evaluation of the overall performance of the core business follows. This involves measuring and benchmarking profitability, rate of revenue growth and the company’s reputation with its most important customers.
Such an assessment will raise a number of questions. For example: In what direction is each of these key indicators headed and why? Who are and who are not the core customers? Why? What is the company’s key competitive market differentiator? How can it be strengthened? Is the core business under major threat? Are there attractive growth opportunities within the core?
When considering these questions, input from external stakeholder groups is very helpful, particularly from loyal and even not-so-loyal customers.
The overall process need not take a great deal of time but can yield significant returns. These include, (1) a renewed commitment to operational excellence within the core business, (2) perceptive discussions on the growth potential of the core business, or conversely, (3) an urgent need to make significant changes to the core or even a plan for abandoning the present core and exploring more profitable growth options.
The second growth strategy is based on your company’s existing customers. This strategy involves creating what is known as ‘High Impact Value Propositions’ (HIVP) for new customer sub-segments. HIVP is a business or marketing statement that summarizes why a consumer should buy your company’s product or use its service. This statement should convince a potential consumer that your company’s product or service will add more value or better solve a problem than other similar offerings.
Underpinning this strategy is the willingness to view customers through a different set of lenses. But how are customers ‘different’, actually? From a business perspective, there are really just two principle ways: Customers have different values to the business and customers have different needs from the business.
These two kinds of differences account for both sides of your value proposition: what your customers pay you and what they want from you. All other descriptions of customer differences – segmentation models, transaction histories, demographics and psychographics – are really just interim steps designed entirely to allow a business to derive the answer to these two questions: How much is this particular customer worth? And what does this particular customer want? A process can be created to assist managers to gain fresh insights into customer needs and preferences. This is a necessary first step in discovering underserved customer groups and hidden growth opportunities.
Key elements of this process include (1) sub-segmenting existing customer groups based on newly discovered needs, buying patterns and contribution to profits and/or revenue, (2) creating innovative and high-impact value propositions for the most attractive sub-segments, (3) field-testing the new value propositions and scaling-up based on the results of field tests.
In addition, choose to focus on lower end customer sub-segments. These are usually groups of customers for which the cost of supplying and servicing exceeds the revenue the customer generates. In such cases, value propositions can be designed which will move the customer to a profitable position or at least minimize the losses. For example, direct sales calls can be replaced with online ordering systems and non-essential product/service features can be eliminated. These actions not only lower the costs of serving customers but often also lower the customer’s cost. After the initial shock, many customers welcome the new lower-value proposition.
The third growth strategy is to enter businesses that have strong strategic links to the ‘core–adjacent’ businesses. This is a particularly appealing alternative when the core business is approaching its full potential, operates efficiently and generates surplus cash for reinvestment. It is also an important option when it is clear that the core’s future growth potential is weak.
Maybe, you can start this process by focusing on current customers. A series of meetings with the most innovative customers can be a valuable source of opportunities. Alternative channels, new products or services or even new joint ventures may be suggested as well as entering new geographic markets, serving different customer segments and redesigning the customer’s value chain.
Another alternative is to consider the non-core businesses of the company. Is there the potential to leverage present positions into attractive growth opportunities?
When considering adjacent growth alternatives, the relationship to the core business requires special consideration – specifically an assessment of the major strategic differences and similarities with the core. Too many differences can overly tax the company’s capabilities. To minimize this risk, you may test your company’s capacity by piloting adjacent growth initiatives in stages, one or two degrees of strategic difference at a time.
Some leaders choose to look at adjacent growth options in an opportunistic manner – as one-offs. This often results in disappointment. Initial successes with one or two close customers can soon fade under the onslaught of strong established competitors. To prevent this, leaders are advised to “organise to suit the new business as much as the core”.
If you want to implement successfully these three growth strategies, you require a solid supporting infrastructure. Such a supportive infrastructure has to include (1) company’s capabilities that are valued by customers, (2) a management-performance system and scorecard which focuses on leading indicators of growth and (3) strong leadership practices at every level of the company.
Your company’s capabilities are the processes that are strategic and deliver a high level of value to customers. For example, your company may have the capability to: successfully enter new markets, create excellent new products or services which appeal to customers or provide an outstanding level of customer service.
Each of these capabilities is rooted in processes that move across the organisation and require the expertise and commitment of various individuals and departments. Therefore, as a manager, your major challenge will be to clarify, assess and continually strengthen your company’s strategic capabilities.
(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at firstname.lastname@example.org)