Tips to grow your business

May 26, 2011 at 12:26 a.m.

Price, quality and service are positioning tools to compete in the marketplace, and a vital component of the growth equation. But where does growth come from?

People and businesses will always have needs and wants that are the basis for an economy. As we have progressed from the self-reliant simple lifestyle of the past to a complex dependence on process, products and sophistication, so has your business growth opportunity.

Research can tell us the demographic, geographic and psychographic profile of given markets; how much they have grown and all about the trends. But knowing this is not enough without a strategy to act.

Growth comes from competing for the solution of a consumer problem. Growth by capturing your share of this market opportunity is either competitive or emerging. If you are the only solution then you are emerging, and if you are one of many solutions then you are competing.

Using new products to enter new markets, positioning existing products with new markets, providing new products to existing markets, or expanding existing products in existing markets are the four basic strategies for capturing a growth opportunity.

Simple, right? Well, the methods of implementing these strategies can be very complex and are derived from a mix of market penetration, product development, market development and diversification.

Let's single out diversification. By definition, diversification in business is using two or more products or services to gain a strategic or resource advantage that provides business growth opportunities. Deciding how to use two or more products or services begins with considering if the diversification will be focused on related or unrelated products, or related or unrelated businesses.

Confused yet? Let's simplify this by considering the reasons for diversifying. Is this a survival tactic, a means for growth and expansion, or a countercyclical strategy?

If you think survival is the motivator, then your drivers are to minimize risk, maximize efficiency and leverage resources. One method for accomplishing this is expanding in an established market by diversifying with complementary products or services to provide your current customers a more comprehensive option. This preference minimizes the strain on current production, distribution and sales capacity with little to no change to your business model.

The growth and expansion strategy sounds much more optimistic, but it has some inherent challenges as well. Growth in existing markets through product diversification can be limited by geography and market size, but growth through expansion in new markets is predominantly limited by your capacity.

You can allocate resources to compete and capture market share in this new market, or you may acquire market share from an existing business with an existing position in this target market. This would allow for minimal change to your business model and continue to use the current and acquired operation and sales infrastructure.

Some decisions to diversify are about leveling the cash flow. These are countercyclical considerations that use different types of products or services with alternating business and economic cycles. It allows you to counter the falling sales cycle in one with the rising sales cycle in the other.

The problem with this strategy is that it usually means two different business models, which leads to different market profiles, limited shared resources and diminished capacity of management.

Every business has a variety of options when it comes to growth, and diversification is a complex game of vertical, horizontal and geographical growth that relies on good planning, a stable and profitable base of business to build on and a good strategic or resource fit. Remember, a commitment to diversify requires detailed planning, close monitoring and money.

What is your growth opportunity? Let the professional staff of the University of Houston-Victoria Small Business Development Center help you discover your opportunity.

Joe Harper is director of the UHV Small Business Development Center.



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