Why does your company need to grow or expand?

The idea that every entrepreneur wants to grow their business is deeply ingrained in our culture. After all, why start a business at all if not to make it a success? But the definition of success is a deeply personal one, with many possible routes.

Growth too can be defined in many ways according to what, in fact, is growing. There is no single metric used to measure growth – with revenue, sales volume, company value, profits, employees and customers all possible growth targets. However, for most businesses growth is not necessarily a choice – it’s a necessity.

Kapil Davda explains the key drivers behind the need to grow and how it can benefit your business in the long term and help you reach your goals.

Growth vs. lifestyle businesses

We often see two main goals for entrepreneurs when starting a business – while both involve growth, the attitude and approach are distinct.

Growth businesses

Also known as high-growth, equity or scalable businesses, these aim for growth above all else. They will likely be in a market with potential for rapid and robust expansion, with ambitious targets and all processes focused towards acquiring and scaling new business. This could be via:

• Product innovation
• Efficient sales processes
• Marketing investment
• Acquisitions

These businesses often operate at a loss during their growth phase.

Lifestyle businesses

These will still have a certain focus on growth, but not as the sole goal of the company. As the name indicates, these are intended to support an entrepreneur’s lifestyle, achieving ‘enough’ growth and scale to enable the owner to have the life they wish. These can still be highly successful businesses, turning over large revenues and employing large teams, but the focus will be on steady, incremental growth, with a keen eye on profitability.

Why businesses need to grow

While not every business will choose to follow the hyper-growth playbook, growth does bring a range of benefits. In many cases, growth will be essential in order for the business to survive and thrive in their markets.

Competition

Even if you’re not focused solely on growth, it may well be that your competitors are. Depending on the size and nature of your market, you may have a number of other businesses offering similar services that want to acquire your customers, or even acquire you, in order to expand their market share.

In order to have enough income to sustain yourself and your goals, your company will need to not only acquire a certain number of customers and level of scale, but also retain them over the lifecycle of your business. Meanwhile, your competitors might be very happy to take your customers off your hands, with new services, offers and incentives so you need to be able to offer consistent value to retain them.

Profitability

Starting a business can involve significant costs – premises, stock, equipment, and people – which can leave entrepreneurs investing a lot of money even before their business has generated revenue. Moving into profit, in the first instance, requires generating enough income to cover these fixed costs, which means growth.

In the long term, growth can act as a driver for profitability through empowering your business with certain advantages:

• Economies of scale: Larger businesses have more purchasing power, with the power to negotiate prices with suppliers and customers. Meanwhile, producing larger volumes of goods can reduce per unit production costs, creating goods more efficiently.

• Equipment and systems: Implementing more sophisticated systems and equipment, including automation, to reduce cost-to-serve or production costs, increasing margin.

• Workforce development: Investing in your workforce, through training or hiring, can help you raise productivity or prices in line with the skills of your team, helping you grow your revenue and margin.       

Business development

While many entrepreneurs will start out with a big dream, it’s usually unlikely that they can reach that point when they first get started. If your plan is to create a revolutionary product or service, it might require thousands of hours of research and product development , market testing and revisions.

This not only needs capital - it needs a certain amount of customer exposure to find product-market fit and tailor it to the real world needs of your target audience. This means that entrepreneurs will need to grow their business to a certain size at least in order to reach their original plans.

Meanwhile, if your growth plan requires investment, your business will need to show a record of successful growth in order to raise additional funds from institutions.

Customer selection

Depending on your market, your business may need to reach a particular size in order to be able to service your target customers. Larger customers offer higher revenues, more stability and prestige for your company, but when working with enterprise businesses, these customers will look for a certain level of scale in order to reduce risk. Small businesses are not only more likely to fail, but the complex needs of enterprise-level customers need a certain scale of operations to service.

Growing the right way

Growth is a continuous journey, and every business’s expansion path is different. Your approach to growth should depend on your own personal goals for the business. At Haines Watts, we tailor our services to you and your needs, based on years of experience.

We’ve helped thousands of businesses grow, by helping them create the right business plans, including preparing financial budgets and forecasts to help with raising finance, systems and processes to help you understand what’s going on, claim government funding such as research and development tax credits and grants to help fund future growth, find opportunities and stay compliant and on track.

Get in touch with us to discuss your plans for business growth.