Thursday, July 19, 2012

Growth - What To Do When It Flat Lines

Growth is a key value driver for most businesses.  A good growth story with plans for future growth is very appealing to potential purchasers.  Many successful businesses, however, reach a point where their growth starts to slow as the company matures.

Demonstrating how a business is likely to grow in the future is one of the keys to driving a premium price for the company when it comes time to sell.  Showing a potential purchaser that the business has achieved past growth plans will increase the credibility of a current growth plan.

The Ansoff Matrix is one tool business owners can use to develop a growth plan.  The following four growth strategies are considered:
  1. Sell existing products to existing customers (market penetration) 
  2. Sell new products to existing customers (product development) 
  3. Sell existing products to new markets (market development) 
  4. Sell new products to new markets (diversification) 
Figuring out how to sell existing and new products/services to existing customers (i.e. the first two options) often provides the lowest risk options for growth.  The best customers are the ones who know and like the business the most and are often pleased to find out that the business is offering something they need.

Existing Products to Existing Customers (Market Penetration)

Consider a hardware store with a key cutter hidden off in the corner.  Despite the huge mark-up on cutting keys, sales are very low because nobody can see the key cutter.  By moving the key cutter up front behind the cash register customers begin to see the cutter and realize that the hardware store cuts keys.  Not surprisingly, many more keys are sold to existing customers, which increases the overall revenue per customer.

To figure out how to sell existing products to existing customers, a list with the existing customers’ names down one side of the paper and the products and/or services across the top should be prepared.  Cross-referencing the customer list with the product/service list will help identify opportunities to sell existing customers more of the existing products.

New Products to Existing Customers (Product Development)

Consider a BMW dealership whose typical client is an affluent family man in his forties.  After saturating the market for wealthy forty-something men, the dealership decided to think of the customer as the financially successful family rather than only the patriarch.

Instead of trying to sell more BMWs into a market of diminishing returns, the owner bought a Chrysler dealership so he could sell minivans to the spouses of his BMW buyers – a new product to the existing customer.

Existing and loyal customers trust and respect the business and its representatives. Identifying and meeting a separate or supplemental need for those customers will result in sales growth and value enhancement, provided the products/services can be delivered profitably.  If they cannot be provided profitably it may be more beneficial to consider investing in market development (existing products to new markets) rather than product development.

If you are building a business to sell one day and are curious to see how your growth stacks up, take the 13 minute Sellability Score questionnaire:

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