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3 Ways to Grow a Business
I received an Appreciation Award from Ferrarini LLC for Management Consulting and BI Services.
I love to sit down with entrepreneurs and review their financial statements. It’s a time of reflection. We review strategies, identify problem areas, and try our best to make adjustments that positively effect the business. At the close of each meeting, I always ask, “what are the goals for next quarter?” Although responses vary, at least one of the goals is ALWAYS ALWAYS ALWAYS, “I want to grow the business.”
In this article, I’d like to talk about the 3 ways to grow a business. There are ONLY 3 ways to do it, and the way(s) that you choose will affect all areas of your business, so it’s important to understand the theory behind each growth strategy.
Before we dive into the business growth strategies, lets define a business as an organization engaged in the trade of goods, services, or both to customers. NOW, there are three components that make up a business (as defined), TRADE, GOODS/SERVICES, and most importantly, CUSTOMERS. Let’s look at each component and discuss the different approaches to growth (business development).
The TRADE method: INCREASE MARKET SHARE
Let’s suppose that there were only 100 customers and 4 companies that each sold widgets. Each company has 25 customers, which represents a market share of 25% (your_customers/Total_customers). Under the Trade method, the goal is to take customers from your competitors. Therefore, your sales and marketing efforts are designed to make you look better than your competitors. Watch the following MAC vs PC ads.
The TRADE method is blunt and forceful. You’re telling customers, “I am the better than them, here is why.” If you use this method, you must be ready for a counter attack.
The GOODS/SERVICES method: EXPAND INTO A NEW MARKET
Jason Fried from 37 Signals once wrote, “If you cook, then make a cook book.” Every product has substitute and complimentary products. A customer that wants ice-cream could also go for a water-ice or a fruit smoothie because each one of these products satisfies the desire for something cold, sweet, and fast. They are called, “substitute products.” A complimentary product is a product that goes well with a main product. Rita’s water-ice sells pretzels because they compliment their water-ice. The key to the GOODS/SERVICES method is to sell complimentary products. A large Rita’s water-ice cost $2.95. By offering complimentary products like pretzels, which cost $1.25, they’re able to raise their dollar per transaction to $4.20 (water-ice and pretzels) from $2.95 (just a water-ice). Thanks growths!
The CUSTOMER method: GROW WITH THE MARKET
Some industries are just so hot that new customers continuously pour into the market with very little courtship. Usually this happens when government regulations, new technologies, or major shifts in consumer preferences change the business landscape. For example, in early 2000, banks started offering 100% mortgage financing for home buyers. This regulation brought millions of new customers to the market that weren’t eligible for mortgages under the conventional 20% down arrangement. When all of these new customers entered the market; realtors, mortgage brokers, title insurance agencies, and contractors benefited financially. Although these sort of major occurrences are out of your realm of control, there are other ways to use the CUSTOMER method. Basically, you’d have to make new customer out of people that don’t uses service in the category. In other words, you are not taking customers from your competitors, you are making new customers that never existed beforehand. Banks do this all of the time on college campus. Most of the students never had their own private bank account. The moment those 18 year olds step foot on-campus they are bombarded with credit card apps and cash bonuses for opening checking accounts.
Executing one of these strategies takes resources, data, talent, time, and planning. You have to understand all of the ramifications of growth. If you offer a new product (GOOD/SERVICE Method), it’ll require working capital, vendor relationship management, more inventories, etc. Business is an organization, a big part of success is managing all of its parts. GROW WISELY.