A growth strategy is a strategic plan to expand a business. Small companies are vulnerable to changes in customer needs and competition because of their limited resources; hence, an appropriate growth strategy is imperative for the survival of small businesses. Knowledge of different types of growth strategies helps small-business managers avoid potential pitfalls on their growth paths.
There are two broad types of growth strategies. Organic growth is growth based on internal efforts and resources. It is typically slow and planned. In this approach, some of the profits are reinvested in the business. In external or inorganic growth, the company joins forces with another company to grow. Two businesses may merge or one can be adopted by the other. This type of growth yields faster results than organic growth.
There are two general types of organic growth strategies. In a customer-oriented strategy, the company tries to attract more customers for its current products or services. In a product-oriented strategy, the company seeks to modify its products or offer new products or services. Again, the focus is on current customer needs. There is a hybrid strategy that combines both customer-oriented and product-oriented strategies. Looking for new customers for new products or services is risky; hence, managers should balance the risks and rewards of this strategy.
Mergers, acquisitions and joint ventures are external growth strategies. In the real world, there are fewer mergers than acquisitions. In a merger, different companies join forces and form a new corporation. A merger can be between firms operating in the same industry. Alternatively, firms operating in different lines of business may form a conglomerate. In a joint venture, companies jointly establish a new firm. It is a business partnership between companies for a specific purpose such as launching a new product.
For a growth strategy to work, many factors need to work together. A successful growth strategy capitalizes on a credible opportunity arising from a change in technology, regulation or customer needs. For example, the widespread availability of the Internet made e-commerce possible for small businesses. No matter how successful a growth strategy is, competitors will try to imitate it, so there is a need for entry barriers such as patenting innovative products. Sustained growth requires strategic management. The management needs to know where the business currently stands and where it should be headed. Finally, growth and risk go hand in hand. The management needs to know where things might go wrong and plan ahead to meet such contingencies.
Alfred Sarkissian holds a master’s degree in industrial management. With experience in business and public policy, he has covered intellectual property rights, industrial policy and technology policy for various publications.