Business owners should always be considering new ways to grow or expand their business.
Growing businesses have better staying power and deeper foundations. They become stronger building blocks for the next generation, which is crucial if you’re committed to keeping your business in the family. And if you’re looking to sell, growing businesses are simply more attractive to buyers and will command a higher price.
3 questions to guide your growth plan
Choosing which business growth opportunities are best for you requires a bit of planning. Ask yourself these questions first:
- What do I want my business growth to look like? Growth opportunities can be as simple as extending opening hours or testing new prices to optimize revenue. But you might also consider more in-depth strategies, like building a new manufacturing facility or investing in a multi-year research and development effort to launch a new product.
- How will I fund this growth? The type of growth or expansion options you choose will dictate your potential funding options. If bank financing isn’t possible, you’ll need to use your own internal funding. You can also raise external money through an equity offering, debt offering or another type of non-bank financing.
- How quickly do I want my business to grow? The speed at which you want to grow also has financial implications. While growing slowly may require smaller investments over a longer period of time, growing quickly often requires a large investment in a short period of time.
Once you’ve reflected on some of these questions, consider which growth strategies are best suited for your business. Different types of growth strategies can include sales and marketing optimization, partnerships or even outsourcing and acquisitions.
Growth strategy #1: Optimizing your sales and marketing
For most businesses, using the following sales or marketing strategies (if they’re not already in place) can be a simple way to drive more growth.
Are you capturing your customers’ email addresses at the point of sale to build an email marketing database? Do you send email offers or promotions to convert first-time buyers into repeat customers? It’s a lot easier to sell to an existing customer than a new one. If you have an online store, you should also capture a customer’s email address when they visit your site. Expanding your email marketing database will help grow your customer base.
Optimizing your website and e-commerce process
If you have a website, is it e-commerce enabled? Let customers buy online, if you don’t already, to drive more sales. You might also examine your checkout conversion rate. What percentage of online shoppers who move to checkout actually complete the checkout page? If it’s not over 50 percent, consider optimizing these pages. You could also try sending cart abandonment emails, which can help coax customers back into the funnel.
Smart POS systems
Does your business have a smart point of sale (“POS”) credit card processing system? Do you accept Apple Pay, Google Pay and PayPal? Many smart POS systems exist, most of which are e-commerce enabled and also support email marketing campaigns – including NCR Silver from Elavon and Shopify POS. These POS systems can also help you with inventory management and can sync with software like QuickBooks, so your financial information is always current.
Different types of growth strategies can include sales and marketing optimization, partnerships or even outsourcing and acquisitions.
Growth strategy #2: Partnerships
Not all of your business growth opportunities need to come from you and you alone. The following are ways you can partner with others to help increase your market penetration.
Traffic or affiliate marketing
How do you drive traffic to your store, including your online store? Do you use affiliate marketing partners (e.g. Rakuten, LinkShare, etc.) to drive potential shoppers to your website? Affiliate marketing platforms could substantially increase traffic to your online store.
Do you sell your products through other websites? Listing them on Amazon, eBay or Etsy could increase sales, given that these sites reach tens of millions of online shoppers daily.
Licensing and joint ventures
If you don’t have the capital to pursue a market opportunity, don’t let that stop you. You might consider licensing your product to a third party to exploit the market. Grant them a head start or exclusive right for a period of time to sell the product in that market. Negotiate an upfront recoupable advance against a revenue share (i.e., 5-10 percent of sales) or an annual guarantee with respect to revenue share. You could also consider a joint venture, with the partner contributing the capital and you contributing the product or expertise.
Growth strategy #3: Outsourcing
Sometimes, growth can consist of outsourcing certain tasks to give you more time to focus on what you’re really good at in order to grow.
Consider this example: A history book publishing company originally had the books printed overseas in bulk orders to lower printing costs. It took several months to get the books delivered. The company would then ship the books to people who pre-ordered one. Once all copies of the book were sold, it was out of print, never to be sold again. So, over the years, the company built a catalog of books that were “out of print.”
The company decided to partner with a U.S.-based print-on-demand provider. Now every order is pushed to the partner, who prints and ships the book within 24 hours of purchase. No book is ever out of stock. The company doesn’t have to pre-order new books in bulk, take delivery, warehouse or ship books. It can focus on its core competence: creating content to publish books. Outsourcing this task has improved operations and given the owner time to focus on growing his business in a more efficient way.
Think of tasks in your business that could be outsourced to give yourself more time to focus on growth initiatives.
Growth strategy #4: Acquisitions
Business owners can also seek out acquisitions to grow. This may include buying complementary businesses to expand products and services or buying competitors to expand their footprint or leverage cost synergies. With certain SBA (Small Business Administration) loans, you might be able to acquire a business with only 10 percent down (i.e., you could debt finance up to 90 percent of the purchase price, assuming adequate cash flow).
If you can scale your business by buying a complementary business or competitor (at, say, 3x or 4x last 12 months EBITDA, or earnings before interest, tax, depreciation and amortization), integrate successfully to capture business growth opportunities, and elevate the combined EBITDA to at least $3 million, you should be able to sell a few years later at a higher multiple (e.g., 6x or 7x). Also, don’t overlook tax breaks on the acquisition, including an immediate tax write-off for acquired equipment, interest on money borrowed to fund the acquisition, and a deduction, over time, for goodwill purchased.
Focusing on the future
No matter which business growth strategies you pursue, always pursue future growth in some form or another. Consider what your risk appetite and timeline for growth is at any given time. Don’t be afraid to pull in partners or seek outside advice.
With thoughtful planning and consideration, you can create growth strategies that may drive sales and bring continued success to your business.