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Choosing the Right Growth Strategy

Business growth is truly a double-edged sword. When it is controlled and well managed, it has the potential of providing tremendous rewards to the leaders and shareholders of an emerging company. When growth is poorly planned and uncontrolled, it often leads to financial distress and failure. What this means is that the need of the company to grow must be tempered by the need to understand that meaningful, long-term, profitable growth is the by-product of effective management and planning. A failure to create this balance will result in vulnerability to attack by competitors, creditors, hostile employees and creative takeover specialists.

I have spent much of my professional life helping companies of all sizes and in many different industries develop strategies to build their businesses, and I’ve observed that companies of all types and sizes want their companies to grow in one way or another—whether in terms of growth of revenue, profit, number of employees or customers, market share or number of locations. But given the rapidly moving changes in our marketplace, the challenge for midcap companies is how and when to grow. This realization leads to other, often difficult to answer, key questions:
  • What strategies should be used to facilitate growth?
  • How do you know whether these strategies will be effective for your company and current situation?
  • Are there problems with your business structure that need resolving before you can implement the chosen growth strategy?
  • How can you build on your strengths and compensate for your weaknesses?
  • How might the growth strategy selected present new risks or make you vulnerable and, if so, to whom?
  • Is this the right time to grow? That is, have you put a proper foundation for growth in place?
  • Is capital available to fuel growth?
  • Are market conditions ripe for growth opportunities?

The challenges and problems associated with building a company beyond the start-up and initial growth phases have certainly taken a toll on many leaders who began new businesses over the past few years. The wide variety of changes inherent in business growth presents different management, legal and financial challenges.

Growth Means That:

  • New employees will be hired who will be looking to top management for leadership.
  • The company’s management will become increasingly decentralized, which may create greater levels of internal politics, protectionism and dissension over the goals and projects the company should pursue.
  • Market share will expand, calling for new strategies for dealing with larger competitors.
  • Additional capital will be required, creating new responsibilities for shareholders, investors and institutional lenders.

Thus growth brings with it a variety of changes in the structure, needs and objectives of smaller businesses, which can be a lot to digest all at once.

A critical component in the execution of the overall growth plan is momentum. Leadership must ensure that the resources and the systems are in place to provide for forward progress toward stated objectives. Every day, week, month, quarter and year, management must establish benchmarks and milestones and measure its progress against these goals. A loss of momentum for an extended period of time can be detrimental and will stand in the way of the company’s ability to raise additional rounds of capital or get access to other resources that are needed for continued business growth. It will also make it more difficult to attract and retain the talented employees who will be needed to execute the growth plan.

Companies that measure performance against these benchmarks, together with a leadership that is focused around maintaining high employee motivation and strong customer relationships, rarely lose momentum.

Setting the Stage for Growth:  Internal Factors
When growing your business, it is critical to first establish an understanding of the foundation that must be put in place to allow a company to begin its growth path. Before you can prepare your company for growth, you need to analyze its strengths and weaknesses. Looking for what’s working well serves to concentrate your efforts where you have the best chance of success. Looking for strengths enables you also to spot the weaknesses. Start with these internal areas:

  • Costs and revenue. Examine every part of your business. Is revenue rising or falling? How about profit margin? Which divisions or departments stand out? Why? Do you enjoy a strong positive cash flow?

  • Personnel. Do certain employees show exceptional skills or produce outstanding results? Where in the company is the strongest management, organization and planning? Do you have the talent on staff to handle anticipated growth, or would you have to hire new personnel?

  • Operations. Are the areas that seem to be trouble-free functioning with little supervision and always delivering results? How do the managers in these areas achieve such consistent results?

  • Philosophy or mission. Do you have a written statement describing your company’s philosophy or mission? Does it define the essence of your business exactly so that you know which kinds of activities fit your company’s goals and which don’t? Are you diluting your resources by engaging in any activities outside your mission? Have you developed a set of core values, and have your employees embraced those values?

Setting the Stage for Growth:  External Factors
Once you’ve sized up your business internally, take a long and careful look at the external factors that should reveal whether you are in a position to take advantage of current business trends and cycles. These include the following:

  • Your market. Is your market share—your company’s percentage of estimated total business available—increasing or decreasing? Is your marketing strategy based on careful research or on instinct and hunches? Is your customer or client base shrinking?

  • Your competition. Do you know exactly who your competitors are, and where they pose the largest threat? Which part of your business is most vulnerable to competition and which is least vulnerable? Are some parts of your market becoming crowded with competitors?

  • Economic climate. Are changes in economic conditions—interest rates, inflation, housing starts, industry earnings—likely to affect your company? Do you make efforts to stay on top of things so that you can anticipate changes in the marketplace, or are you often surprised by developments that affect your company?

Your answers to these questions will give you an idea of your company strengths, areas that need improvement and which type of growth strategy would work best. Consider the questions carefully and respond as if your company’s future growth depends upon your answering them thoughtfully—because it does. These steps will help you and your company to define your growth objectives, allowing you to keep these objectives in proper perspective and to monitor the success of your strategy.

NOTE: You can learn more about this topic at an AMA Executive Forum on “Growth Strategies for the Middle Market” featuring Andrew Sherman, beginning this fall in New York City, Washington, D.C., Chicago, San Francisco and Atlanta. Visit AMA’s Website for details.