Four ways to grow a business

A long time ago, I heard a very simple but effective message: there are only 4 ways a business can grow.  Those ways are:

1. increase the number of customers you want to do business with;
2. increase the number of times your customers do business with you;
3. increase the average sale value per transaction; and/or
4. systematise your business

I view the above as “generic strategies” for achieving profitable growth.  There is no great revelation here and the beauty of it is in its simplicity.

Some businesses, particularly those that sell products to a mass market, lend themselves to easily adopting all four generic strategies whereas many others might only realistically be able to focus and control only one.  I’ll briefly elaborate on each of the four ways to grow a business below:

Increase the number of customers you want to do business with

Growing the number of your customers per se does not automatically result in profit growth.  The trick is to grow the number of customers you actually want to do business with.

Businesses which are in start-up mode are not in same luxurious position as more established businesses whereby they can afford to knock back business.  However it is important for all businesses to profile their customers and identify the ideal buying characteristics which make some customers better than others so they can better direct their efforts in identifying and targeting the types of customers they really want to do business with.

Increase the number of times your customers do business with you

This one seems pretty obvious in terms of the potential impact on your bottom line and does not require explanation.

It is worth reminding ourselves though that it usually takes less effort (and possibly cost) to sell to your existing customers than finding new ones so it makes sense to look after your existing customers.

Unfortunately, some particular industries seem to focus more effort on winning new business from competitors by offering incentives which may not necessarily be available to their existing (and in some cases very loyal) customers.  If your existing customers become aware of this, your efforts in seeking new customers will be counter-productive so it is important to make sure that your business strategies do not conflict.

Increase the average sales value per transaction

Retailers, in particular are renown for this – at one stage of another, most consumers have been tempted by extended warranties, complementary products with their new purchase, upgrades from small to large of the same product and many more.

The key message here is to recognise that consumers are savy and are aware of blatant attempts by sales people to up-sell and/or cross-sell to maximise the sale value at the point of closing the sale.  Rather, the challenge for businesses is to continually identify the customer’s needs for your goods or services and demonstrate the value you can deliver when pursuing this strategy.  Sometimes it may be better to focus on the potential life-time value of a customer rather than the short-term sale value.

Systematise your business

Businesses which have transferred from a traditional ‘shop-front’ model to an ‘internet-based’ appear to have caught onto this strategy well.

I have previously heard the expression “systematise” all the routine business tasks so you can “humanise” the delivery of your products and services.  The idea is that the delivery of products and services to customers should be personalised but done in a consistent or uniform fashion by adopting best-practice standard processes and ensuring that everyone within the business is trained to follow them.  In theory, the business model should be able to be replicated into franchises.

This might be a difficult strategy for those businesses offering highly specialised services which vary dramatically from customer to customer however there is usually always some part of the business which can be streamlined.  The challenge is to identify those parts.

Summary

Business owners tend to have an excellent technical and in-depth background regarding the products and services they sell as well as the industry they operate in.  They are typically a master of the operational side of their business because that is where their expertise lies.

Unless the same business owners possess a strong entrepreneurial flair or a background in sales and marketing, it can be challenging to come up with innovative action plans to grow the business profits using one or more of the four generic strategies.  As a business advisor and forensic accountant, it is always fascinating to hear from and share with business owners specific growth strategies that have worked well and not so well for other businesses.