The idealized path to grow a business looks something like this:
During the start-up phase, growth is slow.
You’re planning and putting resources in place.
Perhaps you’re beta testing or trying to acquire your first customers.
Chances are, you’re still working at your day job.
During initial growth, you’ve got your business going and you’re making sales, but you’re still not making much money and most of your time is spent planning for future growth.
You’ll still need outside sources of income, but you might be starting to scale back on your other work and/or planning an exit from your current job.
It’s unlikely that you’ll be able to lead your organization through the next phase without devoting your full attention to it.
At some point, if you’re successful, you’ll have grown the business organically as far as you can, and you’ll need outside resources to get you through high growth.
This might mean
- raising money,
- hiring new employees,
- bringing on professional consultants and managers, etc.
This inflection point is known as the “knee of the curve.”
The infusion of such resources to a startup with a solid foundation can lead to rapid, explosive growth.
This is the phase in which you make the transition from a startup to a fully functioning business, which brings about a whole new set of challenges that are beyond the scope of this article.
Eventually, the explosive growth levels off and you reach maturity.
Will the growth path of my new venture look exactly like this?
Answer: Absolutely not.
- individual story,
- funding availability,
- professional network,
- and skills
…in short, your entrepreneurial thumbprint—will play a major role in shaping the growth path of your venture.
Grow a Business – How to set up your company for more growth
Initially, you grow your business simply by making more sales.
However, the time will come when you have to think about growth from a strategic perspective.
There are four overarching categories of factors that must be taken into consideration when thinking about the growth of your venture:
- the general environment in which businesses operate,
- the industry in which your business operates,
- your target market,
- and, finally, your own organization.
Factors from each of these categories can help or hinder the growth of your business, and their collective impact means the difference between achieving growth goals and struggling to develop and grow your business.
In this context, the environment isn’t the natural environment, but…
- and technological
…trends that shape the environment in which not only your venture but all firms do business.
Individually, you have no control over these factors, but they have the potential to exert a high degree of control over the future of your business.
This means that it is important to monitor trends and developments in the environment that have the potential to have an impact on your success.
Keep the following in mind:
- Environmental changes can be positive or negative
Just because an event is outside your control doesn’t mean that the impact it has on you will be negative.
Technological developments that reduce…
- legislation or regulatory relief,
- and shifting societal attitudes
…can contribute positively to the success of your venture.
Tracking these developments will put you in the best possible position to capitalize on them—or brace for impact should they change course.
- Don’t ignore environmental trends just because you can’t control them
It is true that you can’t control…
- national trends,
- federal or state-level legislation,
- or the direction society is heading in,
…but that doesn’t mean you should turn your back on these developments.
The closer you watch emerging large-scale trends, the better prepared you can be to capitalize or run for cover.
Those elements describe the pressures that are exerted on a firm by competing firms and the nature of the industry itself in the form of
- barriers to entry,
- the power of suppliers,
- and the power of customers.
When thinking strategically about the growth of your venture in the context of the industry in which you operate, keep these aspects in mind.
How intense is the competition?
A firm that is reacting to competitive pressures does not have room to maneuver.
It is difficult to take proactive steps to grow your business when your focus and resources are devoted to responding to developments from
- competing firms,
- the threat of new substitute products,
- and the power exerted by customers and suppliers.
What is the industry’s pace of innovation?
An industry that is marked by a fast pace of innovation rewards firms that can keep up and punishes those that can’t.
If the bulk of your resources are committed to innovation, how much is left over for growth activities?
How is intellectual property distributed within the industry?
When restrictive intellectual property rights are wielded by entrenched firms, they can be used as tools to stifle competition and limit the growth of smaller industry players. Is that a factor in your industry?
How volatile is the industry?
A volatile industry is one that is difficult to predict with any degree of certainty.
If the growth of your venture hinges on conditions remaining constant, then things could quickly become derailed in a volatile industry.
Additionally, the resources required to insulate your business from industrial volatility may starve growth activities of resources as well.
Whether your customers are consumers or other businesses, they are people, and people change.
Or it may still be a good match for the people who are already your customers, but you are unable to reach a broader segment.
Whatever the case may be, correctly leveraging your market is essential to the growth of your venture.
Is your target market large enough?
Your product or service may be a perfect fit for your target market, but if that market segment isn’t growing—or worse, is shrinking—it will be difficult, if not impossible, to grow your venture as is.
If this is the case, the path to growth lies in reaching other customers in other segments, either through
- new product offerings
- or through retooling of your current offerings.
Are you (still) solving a problem for your customers?
Customer needs change, new products are released, tastes and preferences come and go—are you still solving a problem for your customers?
If not, then it might be time to go back to the drawing board if you want to give your venture a chance to grow.
Additionally, if you failed to correctly identify your target market, you may never have been truly solving a problem for your customers to begin with.
If that’s the case, you have some work to do uncovering exactly who has the problem that your product or service solves.
Remember, don’t be a product in search of a problem.
Is demand what you expected?
Low demand can cause a whole host of operational issues, but the big picture is that your venture will struggle to grow if you incorrectly determined demand or if demand is declining.
- Is your marketing plan successfully reaching your customers? A large part of building a winning marketing strategy comes from trial and error.
- Is demand truly low, or is your marketing plan not reaching enough customers in your target market?
- Are you still solving a problem for your customers, or are your salespeople not getting through? A good marketing plan will not only reach the people it needs to and convey the needed message, but also scale with your venture as you grow.
Of the growth factors mentioned so far, the only one you truly have control over is your own venture.
Sustained growth is a near impossibility if your venture’s founding and management team are not in a position to steer the venture down the right path.
Are you able to execute your business plan?
Your business plan represents a road map for your business.
- Considering the other factors that impact growth, do you have the resources to carry out your business plan?
- What needs to change before you are able to do so?
Here, the value of your business plan as a communication tool cannot be overstated.
Members of the founding and management teams, and even suppliers or other strategic partners and stakeholders, must all be on the same page if you are going to execute your plan.
Are you maintaining enough organizational agility?
- Considering the range of factors that put up barriers to growth, is your venture ready to adapt?
- How easy is it for you to change course?
This agility isn’t just used to avoid negative outcomes, but also to capitalize on opportunities that arise as well.
Outsourcing as much as possible is an effective way to prepare your organization to change gears as needed.
Are you motivating your team effectively?
If the people who are going to get the work done aren’t there for you, then growth is a challenge.
This is true whether your team consists of two people or ten—everyone needs to be able to understand the goal and the method and to believe in the results.
Planning Your Business for Change
If you’re not making mistakes, you’re not taking risks, and that means you’re not going anywhere. The key is to make mistakes faster than the competition, so you have more chances to learn and win.JOHN W. HOLT JR.
If the above quote doesn’t summarize the “fail fast” mentality, I don’t know what does.
Here are some facts about change:
- Change is constant.
- Change is inevitable.
- Change is good.
If you don’t agree with the above, entrepreneurship might be not for you.
There simply is no such thing as a static, unchanging startup.
Startups by their very nature are in a constant state of flux.
You must accept—and embrace—the ever-shifting nature of a new venture or you will not only fail, but you’ll also drive yourself crazy in the process.
I’d be remiss if I didn’t also discuss what to do when things don’t go as planned (hint: they won’t).
There are a variety of factors that can make your plans go awry.
Some of them are internal (poor planning, poor execution), and some are external (unexpected competition, changing consumer tastes, or political/economic conditions).
Even though these things are unexpected, that doesn’t mean you can’t plan for them.
Here are some things to consider:
Practice Sound Risk Management
Have contingency plans with several potential scenarios—planning only for your ideal outcome is shortsighted and risky.
Always have several different directions in mind, along with a clear vision of what a pivot would require if necessary.
Think about the key assumptions you’re making about your business, and outline what you would do if they don’t work out as planned.
- Higher-than-anticipated costs,
- faltering demand,
- or strategic partnerships falling through
…can all derail even the most robust plans.
Additionally, your financial plan should contain a sensitivity analysis that takes these risk management aspects into account.
As discussed in this article outsource and contract as much as possible.
Staying lean and flexible will allow your venture to survive negative environments and adapt quickly to change.
One of the worst things an entrepreneur can do is respond to some initial success by hiring a bunch of staff, renting office space, etc.
On the surface, those changes may feel like expansions that signify growth, but the reality is that those “investments” become fixed costs that still need to be paid even if the money’s not coming in as planned.
Specifically, liability and key man insurance.
The importance of liability insurance should go without saying, but many startups ignore the value of key man insurance.
This type of coverage pays out in the event that a key member of the team dies or becomes disabled.
Your founding team has been carefully selected to be a perfect fit; could your venture survive without them?
It may be uncomfortable to discuss, but a basic package of business insurance shouldn’t be that expensive and can save your business if the worst should happen.
Don’t Cut Corners
Take care to address quality and safety at the product development level—whatever that may entail for your product or service.
Damage to property, injuries, and loss of life means lawsuits, bad press, and negative social media campaigns, not to mention the mental anguish that stems from being responsible for hurting others.
The effects of cutting corners can sink your business before you really even get going.
Have the foresight pay attention to the details and to steer clear of avoidable negativity.
It is important to remember that no matter how burdensome the planning process may seem right now, it is always favorable to being reactive in the face of catastrophe.
As you develop contingency plans and prepare for the future, build in plans to review your plans and adjust as necessary.
Don’t wait for a crisis to drive change.
Play Chess, Not Checkers
Think about your next move in all that you do.
Here’s a fun exercise:
Google “chess vs. checkers quote” and see just how many people claim that they were the ones to come up with it.
The point is that most people are competing in a simple, linear way (playing a game of checkers) while the smart ones are thinking many moves ahead in a fluid and multidimensional game (playing a game of chess).
Make sure you’re one of the ones playing chess!
The growth of a venture follows a general path, but the specifics of your circumstances will do more to dictate how the growth of your venture takes shape.
There are four overarching categories of factors that impact growth:
- environment, industry, market, and venture.
Of the four, you have the highest level of control over your venture.
- The environment describes super-trends and events that take place on the national or societal stage.
- Industrial factors reflect industrial volatility, the rate of innovation, and the intensity of competition within your industry.
- Market factors reflect your customers, the size and characteristics of your target market, and the ways you do or don’t solve their problems.
- Venture-level factors include your ability to execute your business plan, the ability of your firm to respond to changing circumstances (both positive and negative), and your ability to keep your team motivated.
Change is not only inevitable but healthy.
Prepare for the potential downsides of change by
- considering risk management in everything you do,
- outsourcing as much as possible,
- staying proactive,
- and taking the long view by “playing chess, not checkers.”