Financial Data
Updated 21 Sep 2020


External growth strategies

You’ve established your business, you’re past the start-up phase, and now you’re looking for a way to grow.


There are a number of ways to do this, including internal strategies and access to growth funding. However, there are also a number of ways to achieve business growth without accessing funding or giving away equity.

The important thing is to evaluate the best strategy for you and your business. For example, most business owners first evaluate opening another location when they start thinking about growth. While this is an obvious strategy, it isn’t always the best strategy. Here are some pointers on how to avoid “bad growth”.

However, if you are going to consider a second location, only do so if you can say yes to the points below:

  • You’re maintaining a consistent bottom-line profit
  • You’ve shown steady growth over the past few years
  • You pay attention to economic and consumer trends and you understand your company’s staying power
  • Your administrative systems and management team are excellent – you’ll need them to get a new location up and running
  • You’ve prepared a complete business plan for a new location
  • You have a financing plan in place
  • You’ve chosen a location based on what’s best for your business, not your wallet

Over and above a new location, there are a number of ways to externally expand a business, from strategic alliances to international growth.

A Guide to External Growth Strategies

If you are wondering how to grow your business, below are 8 effective growth strategies that you can consider in order to expand your business horizons.  

Growth Strategy 1: Form strategic alliances

Growth Strategy -Form Strategic AlliancesStrategic alliances are a powerful way to facilitate business growth without funding. Don’t be put off by the thought of sharing revenue. A good alliance partner will already have a solid list of prospective customers. Aligning with each other simply grows your potential customer base.

Through strategic alliances you can enjoy many of the benefits associated with an infusion of cash into your business in a reasonably short period of time. You can also avoid having to borrow money or sharing equity with outside investors.

Strategic alliances typically take the form of either a marketing alliance or a product alliance.

The marketing alliance

In a marketing alliance, two businesses exchange customer bases. As one of the partners, you gain access to another business’s customers, allowing you to market your products and services to a new market base. Depending on how the alliance is structured, you might also be able to share revenue or earn a royalty from the other business’ sale of its services or products to your customers.

Often, marketing alliances are as simple as creating a direct link from one business’s website to their alliance partners’, allowing customers to be shared with the click of a mouse.

The product alliance

Product alliances are created and activated when customers move between sites purchasing products and services. You offer another businesses services and products to your customers, and they offer your products and services to their customers. You have both extended your offerings without incurring the costs of expansion, including product distribution networks, increased investment in inventory and storage, and manufacturing know-how and capabilities. 

Your business also doesn’t need to be involved beyond the initial sale. Your alliance partner should deal directly with your customer. All you need to do is collect the cash and divide the sales revenue between you and your alliance partner.

Growth Strategy 2: Offer your business as a franchise or business opportunity

Growth Strategy -Franchise OpportunityYou’ve grown a successful business and its time to consider external growth strategies. One way is opening more outlets yourself. The advantage to opening more outlets yourself is that you keep all the profits and maintain full control of your business.

But, you also need to invest all the capital yourself, and you need to employ good managers who can run those locations in your absence. Because they are not owners of the business, their personal investment in the success of each location will not match your own. Another option is to franchise, or set up a business opportunity.

Setting up a business opportunity

A business that works well as a business opportunity tends to have two common characteristics: The concept does require a common brand to convey value or quality to potential customers; and someone without experience in the concept's operation can learn, through two weeks of training or less, whatever they need to know in order to make the business a success.

There are three key steps to setting up a business opportunity:

  • Create a business plan based on the information you already have from running the business yourself. You don’t need to write the plan yourself. There are many templates available on this site or the Internet that can assist you.
  • Before you start selling your business plans, consult with an attorney to ensure you have reduced your own risk. There are four areas you need to cover.
  1. Make sure your structure doesn’t actually look or operate like a franchise.
  2. Prepare proper contracts for use in the sale of the business opportunity.
  3. Ask your attorney to review any promotional materials you’ve created. Make sure you understand what you can and cannot say and do during the sales process.
  4. Ask your attorney to review the business plan materials you’ve created. Are you delivering whatever it is you’re promising in the sales process.
  • How are you going to market the business opportunity? How will you find the right people for your business plan? Study other successful business opportunities and evaluate how they promote the sale of their plans. Analyse Internet-based activities and promotional sites, tradeshows, print media advertising, newspapers, PR efforts and event promotions. It’s also helpful to develop relationships with people who have successfully expanded their own businesses through business opportunities. 

For further details on how to franchise your business, click here.

Growth Strategy 3: License your product

Growth Strategy -License A ProductIf you have a branded product or service product, this can be a low-cost, effective way to achieve business growth. Through licensing, you can receive upfront cash and royalties from the continued sales or use of your product. Licensing is low cost compared to starting your own business to produce and sell your brand or product, and it also minimizes your risk.

Finding a licensing partner

Start by researching companies that provide services or products similar to yours. Before you set up a meeting or contact them though, find an attorney who specialises in intellectual property rights. You need to minimize the risk of losing control of your idea. The last thing you want is to pitch your idea to a potential licensing partner, only to have them replicate your idea without you.

Growth Strategy 4: Expand your product range

Growth Strategy -Expand Product RangeHere’s an interesting thought: How many of your customers would be happy to do more business with you if you had something else to offer them? For businesses that have a high customer retention rate and focus on good customer service, offering more products is a clear way to increase revenue.

There is a danger: before you embark on a strategy to increase your product range, make sure the potential profits outweigh the cost of the expansion. Many business owners make the mistake of investing in new equipment or opening an additional office without calculating how much new product they will need to sell to make the expansion worth it. Investing R1 million rand does not make sense if the increased profit is R500 000.

However, on the other hand, many business owners are one dimensional in their service or product range. If you have a narrow view of what products or services your customers need, you might be missing a key opportunity. If you expand your view and evaluate your customer base, you might spot a glaring gap that you have the potential to fill.


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Ways to expand your product range

  1. Productise your service. Take what you deliver as a service and turn it into a range of products. Think about accounting products. This is simply a way of productising expertise. Not only will your customers happily invest in products you develop if they are satisfied with your service, but you will reach a much wider market. 
  2. Add a service to your products. If your business is product based, you can up-sell by adding a service. After all, you are the expert – do your customers have access to this expertise? Many industries use this as an additional revenue stream. Think service warranties attached to new vehicle sales, or service contracts in the photocopier industry.  What services can you offer existing clients based on your products?
  3. Product ascension. This means simply offering a range of products at different price points. This has two benefits. You can access clients with different budgets, but you also give customers who want to test your products and services an opportunity to do so at a lower price point (and therefore less risk). Through an ascension of products, customers get the chance to build trust and confidence in your business. Structure your product offerings from a low rand value entry-level product, through to mid-range products and finally high value products. If you structure this correctly, customers will choose the higher quality offerings. You wouldn’t have kept price-sensitive customers without this model anyway, and the right customers will choose better options once they trust your business.
  4. Expand into additional businesses. The idea here is to offer expanded offerings to the same clients. They already know, like and trust you, so evaluate what else they are looking for. The trick is to evaluate what the natural extension of your business is for your client base. What do you do well, what areas would these skills or products suit, and what are your clients interested in? You don’t need to reinvent the wheel, just take a good long look at your existing customers.

Growth Strategy 5: Diversify your offering

Diversifying is a good external growth strategy because it allows you to have multiple streams of income. These can fill seasonal voids or increase sales and profit margins.

There are several ways to diversify your product or service line. You could sell complementary products or services, import or export yours or others’ products or become a paid expert in your field.

Make diversifying a part of your growth strategy. Evaluate which products or services can be extended. What are your specific areas of expertise? If your business offers accounting services, are you also offering adult training courses, writing textbooks or even speaking at conferences?

If you have developed a specific clothing line linked to a particular sport, what other sports or events could you align yourself with?

 

Growth Strategy 6: Expand your customer base

Growth Strategy -Expand Customer BaseExpanding your customer base is a natural expansion strategy. After all, more customers mean more sales, which mean more profits. Here are some tried and tested methods for keeping your customer base evolving:

  1. Know your audience. You can’t target potential customers if you don’t know who they are. Understand who your ideal customer is; what they are looking for and care about; and how your product or service can make their lives better. Once you understand these fundamentals, you can target the right audience.  
  2. Network. Join your local chamber of commerce, go to business functions, attend trade shows and expos. You need to be socialising at both industry and non-industry events if you want to grow your network. You never know who you might meet, and what synergies you may discover.
  3. Research your industry. Do you know what the latest trends in your area of business are? What’s the next big thing? Who are the industry leaders in your market? What has changed over the past few years and how is it affecting your industry? If you and your employees can’t easily answer these questions, you’re out of touch with your industry and the needs of your customers.
  4. Join industry groups. You need to network and showcase your skills. Member associations for your particular industry are one way to do that. Being part of an industry association also gives you access to accreditation courses that can give you a competitive advantage in the marketplace.
  5. Leverage existing partnerships. You already have an existing network of people who like doing business with you. Use them. Ask your suppliers and customers to refer you to their contacts. You could even return the favour and recommend their services to the rest of your network. If you brainstorm and work together, this could be a win-win situation for everyone. 
  6. Understand organic growth. The best customers are people who have been referred through existing clients. The hard work has already been done – the existing customer has already discussed the positive aspects of your company and ‘sold’ your value proposition to the new prospect. All you have to do is close the deal. Ask happy customers for referrals. It will make them feel special, and bring new feet through the door.
  7. Use social media. Social media is here to stay - particularly in the business world. Facebook, Twitter, LinkedIn and other social media platforms are not only easily-accessible, but they are proven ways to profile your company, create conversations with existing and potential customers and keep your brand top of mind. Don’t ignore the power of being online.
  8. Offer incentives. People love free stuff and discounts. Don’t be shy to use this fact to attract new customers. If you offer a service, give away an introductory free class or consultation. Give people the chance to test-drive your service at no cost. For products you can offer discounts or specials – just entice feet through the door.
  9. Step outside your box. To differentiate yourself from your competitors and find new potential customers it may be necessary to step outside your comfort zone. You want to demonstrate how flexible, open and innovative you are. You want people to sit up and take notice of what you’re offering. The key is to show your flexibility, openness and innovation so that potential customers will be drawn to your company.
  10. Showcase your expertise. You want people to recognise your name as an industry expert. Start a blog that discusses relevant industry topics. Offer a free online e-book via your company website. Participate as a featured speaker at conferences. Basically, get in front of people who are already engaged, and prove to them that you not only understand your industry, but your expertise (and business) can add real value to their lives and businesses.

Growth Strategy 7: Mergers and acquisitions

Growth Strategy -Mergers And AqusitionsOnce your business has grown as much as it can with its existing customers, product and service offerings, market share and strategic partners, it might be time to consider merging with or acquiring another business.

It might mean merging with a business operating in a market you wish to access, or whose offering complements your own. Or perhaps you could acquire a business that is for sale, and whose customers or technology you would like access to.

There are four key areas where this can benefit your business:

  • Customer retention. You will suddenly have access to a whole new, existing customer base.
  • Staff retention. You will have access to great new talent.
  • Technologies. You will have access to technologies that should complement your own. Integrate the best of both businesses.
  • Focus. How does the merger or acquisition allow you to redirect your focus and attention?

Mergers

A new business entity is created when two or more businesses merge, bringing the two separate operations together, and creating one new business. The two previously separate operations combine into one, as do customer bases, management teams and employees. It’s important to assess and sort everyone into a combined workforce that’s smaller and more efficient than the sum of the old businesses.

The benefits of a merger

In terms of mergers, the benefit of combining one business with another is the opportunity to grow each business’ sales immediately based on the addition of the other business.

The new ‘combination business’ should also have the potential to become more profitable than the two businesses were operating independently, based on an increase in sales and the opportunity to reduce total costs by combining operational functions and creating operational efficiencies.

Selecting the right business is key to the success of a merger. The right business should combine well with yours. Each business should possess unique strengths that enhance the performance of the overall bottom line. Products and services should also be complementary and have the potential to increase total market share by:

Selling one business’s products and services to the other’s customer base and vice versa

Reducing total costs by implementing a combined effort. This could be in the form of using one set of marketing efforts to target the same market, sharing ‘best practices’, and using combined operational efforts to increase efficiencies.

Acquisitions

In a business acquisition, one business buys and owns the other through a formal sale.  Through this sale, the acquired business becomes a subsidiary of the other business, giving it total control over both the profits and operations of the acquired business.

The decision to combine must make financial sense for both businesses, and the new entity must be greater than the sum of the old businesses were separately.

Growth Strategy 8: International expansion

Growth Strategy -Expanding A Business GloballyYou don’t need to acquire another business to expand globally. You do need to prime your offering for an international market, and this requires understanding that market: what is currently on offer, how are you different, who are your consumers and why would they buy from you?

International growth by becoming an importer-exporter offers large growth opportunities.  Some of the specific advantages include:

  • Finding new markets extends the sales life of your existing products and services
  • Reduces your dependence on your current market
  • Tapping markets with different demand cycles can even-out your sales.
  • Exploit corporate technology and know-how in different regions
  • Learn how to compete against foreign companies
  • Improve your potential for growth and expansion.

Getting started

Before you begin, ask yourself these key questions:

  1. Will the product sell in the targeted country or culture? Market research is critical. What does the culture you are targeting care about? What are no-go areas? Will they accept or even embrace your offering?
  2. Is your target market familiar with your service or product? If not, you’ll need to invest a lot of time and money educating your potential consumers. But, on a positive note, you’re the first one introducing a new and exciting concept.
  3. Do you feel comfortable in the country in question? Do you have a working knowledge of the language and culture?
  4. Do you understand local business conditions? It’s not just about understanding local consumers – you need to know how local business works too, including local legislation.
  5. What’s the infrastructure like? How good are the roads? Can you get Western-style accommodations and support? Are your supplies guaranteed?

Evaluate your answers. If they aren’t the ones you were looking for, don’t give up on global expansion – just adjust where you will expand to first.

Going global

Here are the six basic steps to going global:

  1. Start your campaign by preparing an international business plan. Evaluate your needs and set your goals. Before you get started, assess your readiness and commitment to grow internationally.
  2. Identify international markets and conduct foreign market research.
  3. Evaluate methods of distributing your product globally. Choose from a variety of options: open company-owned foreign subsidiaries, work with agents, representatives and distributors or set up joint ventures.
  4. Learn how to negotiate deals, set prices and navigate the legal knot of exporting. Social, cultural, economic and legal differences make exporting a challenge.
  5. Figure out ways to make sure you get paid. Financing is always an issue, but there are a number of local incentives for exporting - government interests in boosting exporting means there are a number of support systems available to you.
  6. Package and label your goods in accordance with regulations in the international market you are selling to.

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