by Cheryl Powers
The answer can be found in one thing: predictable future business. In other words, how much each business is likely to grow in the future. We call this, growth potential.
Whether you're negotiating with a lender for working capital, considering a merger or acquisition, funding your buy/sell agreement, or determining the per-share value of your ESOP, understanding the why behind the what of shareholder value creation and how to increase it is one of the most important and least understood aspects of business growth.
A key problem we see when we work with owners is that a lot of successful businesses reach a point where their growth starts to slow as the company matures.
Often, the price of doing a great job of carving out a unique niche is that the specialty that made you successful can start to hold you back. It's the old adage of "what got you here won't get you there" applied to your what instead of your who (but that's a different article.)
If you want to grow you have to define your company's possibilities for growth, what your potential paths are, how much you have to gain by following each possibility, and at what cost. And what is the fastest yet most sustainable path to your definition of successful growth?
For example, if you make the world’s greatest $7,000 pizza oven, you may have a successful, profitable business until you run out of people willing to spend $7,000 to make homemade pizza.
Fully understanding and demonstrating how your business is likely to grow in the future is one of the keys to driving a premium price for your company when it comes time to sell. And even if you don't plan on selling, it's the single best way to know that the hard work you put in and cold cash you personally guaranteed are multiplied and returned to you even while you continue to run your company.
Leveraging growth potential means being able to analyze potential areas of risk and reward as well as the ability to create a strategy and a plan that can be operationalized and executed. Often CEOs and Founders get stuck in groupthink which limits their ability to truly consider growth possibilities available to them.
Everyone is skeptical of running their own 3-minute mile until they create their training plan, build their training team, set their KPIs, and start learning how to run a better mile.
Nothing clears a room of business owners faster than a Corporate Strategic Planning Initiative. Until growth stalls or big opportunities are lost, most business owners are obsessed with "getting it done" and "making it happen" but are often unclear about the future of the "it" part because strategy seems like a fuzzy buzzword.
It's easy to fall for the allure of busy, and the perceived lack of time available to get it all done each day. But don't fool yourself, your competitors are taking time to figure out how to outsell, outperform, and outgrow their potential. And you should too. So trap yourself, strap yourself in, and get some strategy help.
I tell our clients, it doesn't have to be complicated but it does have to be done. So let's start with a framework that helps us assess the risks and rewards of potential growth.
To brainstorm how to grow beyond the niche that got you started, consider the Ansoff Matrix as a first step. It was first published in the Harvard Business Review in 1957 but is still a helpful framework for business owners to begin mapping out a strategic growth initiative.
Sometimes called the Product/Market Expansion Grid, the Ansoff Matrix shows four ways that businesses can grow, and it can help you think through the risks associated with each option.
The four quadrants represent your four growth choices, which include selling:
The choices above are presented from least risky to most risky. In a smaller business, with few dollars to gamble, focusing your attention on the first two options will give you the lowest risk options for growth.
Market penetration focuses on is all about getting more of what you sell into the market you already service.
Focusing on product development means finding or creating new products and services to offer to the market you serve.
Market development means that you are offering your existing products to a new market.
Focusing on diversification means creating new products and services for a new market.
Of the four, market penetration and product development are the least risky to implement. Finding or bundling products and making new offers to existing customers can create breakthrough growth potential with relatively small effort.
Maximizing Your Growth Potential
In the next four articles, we'll look at how to know where to start and what steps you can take today to reignite stalled growth. Ultimately, you will want to get a clear picture of your current situation, an understanding of your leverageable business drivers, and create a roadmap you can operationalize and successfully execute.
Reach out if you'd like to understand how your business scores against your competitors, how to improve your score, and how improving your score will improve your value and put money in your pocket.
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