Trust your instincts. The economy really is stalled and you may need to revisit your strategy for business growth.
This is one area where the economic data lines up with anecdotal evidence: the world really is stuck in a period of low to non-existent economic growth. Check out at all the stormy cloud cover in the infographic below (courtesy of the International Monetary Fund). North America, South America, Europe, Russia and large chunks of Africa are dominated by 0-3% growth and even some negative growth in the national GDP.
Although the IMF expects the US to average a 2.3% growth rate overall, the latest data from the US Bureau of Economic Analysis (BEA) shows a real GDP of 0.7% for 2017.
While the market is in this non-expansive mood, your have limited options on where to find growth. Many businesses are counting on disruption to save them, but chaotic upheavals bring unpredictable results.
Here’s some advice from company leaders who made their own luck when customers were scarce.
3 Business Growth StrategiesThat Worked
Many market analysts have pointed out how similar current conditions are to the US recession of the early 1970s. Paul Farris and Robert Buzzell wrote in the Marketing Science Institute that too many companies seem to ignore the health of the greater economy and pursue business growth strategies that seem logical but can’t perform in a stagnant market.
Specifically, companies with dwindling sales tend to see this as a marketing problem, so they pour more money into advertising.
But keeping production constant in the hope of future growth has its own costs. Rising expenses in the form of a deeper inventory investment eats into profitability. Their research suggested that heavy advertising to drive sales brings the greatest benefits only during the introductory growth phase.
They concluded that the following three strategies can help companies grow in situations like these:
- Identify or create your own niche growth segments;
- Center your business communications around quality and innovation;
- Drive down costs by finding greater efficiencies in the production/distribution chain.
1. Niche growth segments and localization
The World Economic Forum’s Global Entrepreneurship and the Successful business growth strategies of Early-Stage Companies is a compendium of research on new ventures, featuring case studies, cautionary tales and success stories for global startups under all kinds of market conditions.
One of the most effective strategies when growth comes to a standstill in one area is a cross-pollination of ideas and ventures from other parts of the world. They wrote, “Many successful idea transplant ventures engage in substantive adaptation of the idea developed in a different geography as part of their growth strategy. This new strategy framework adds more structure to the seemingly large amount of diversity in the stream of new ventures that start in many countries.”
Taking a business from a stagnant market to a new geographic region opens the possibility of suddenly moving from the middle of the pack to a first mover or first scaler. For truly innovative ventures, the originators normally lack the financial strength to go everywhere, leaving plenty of new markets for a fast company. The WEF showed how this has proven especially valuable for innovations that involve network effects like social networks, where the value proposition balloons in step with the number of users.
The risk posed by this strategy was best outlined by Kai-Fu Lee, former head of Google China and founder of Innovation Works, “A lot of Chinese companies started being inspired by ideas from the US and elsewhere, but suffered from the over eagerness of some to make quick money at the expense of long-term company building. There is not always a built to last mindset or a readiness to build a strong company culture.”
You don’t even have to go overseas to apply this principle. Small, local businesses that have no plans to go global can localize their business to grow by reaching out to underserved populations within their own neighborhoods. Remember that “niche” doesn’t mean small, it means specific. Niche markets can be enormous. Find or create niche market locally by segmenting the population in more creatively. Inc. Magazine suggested using holiday celebrations to identify niche groups by traditions or shared interests. For example, outreach and special offers related to the Purim holiday period can start building new relationships and positioning your company to grow in original directions.
2. Post-sale investment on quality and innovation
Whether or not you have a clear way to create growth in a niche segment, your company can grow in walletshare with existing customers. That’s a matter of shifting investment from acquiring new customers to growing through referrals and larger order sizes. The best way to accomplish that is through a consistent corporate culture devoted to quality and innovation. Oracle famously announced that 81% of customers are willing to pay more for a great customer experience, and 44% will pay more than 5%. They concluded, “In addition to driving new revenue growth, a good customer experience is also essential to protecting existing revenue channels.” Reduction in churn also reduces the cost of new customer acquisition, which can doubling the effectiveness of the investment.
A five year study from Forrester backs this up, showing that leaders in customer experience grew revenue almost 6X faster than laggards in the field. They dissected the data in several different ways looking for correlations, and customer experience was a reliable differentiator in higher growth companies.
3. Efficiencies and the dangers in cutting
Steady sales at lower costs should equal higher profitability, but the equation is not that clean in the real world. Business owners should definitely look into business growth strategies based on trimming operating costs. However, this often leads to unintended consequences, so it needs to be done carefully and in pieces. Think of cutting costs as operating on yourself. If you haven’t made the right preparations, things can go bad quickly. McKinsey reported on a telecom that tried to cut its way to profitability by reducing the cost of sales. They had the right idea, but their execution was nearly fatal. They kept sales fully funded but cut funding for back office staff. Without adequate automation and support in place, though, sales reps ended up doing the work of admin at lower efficiency rates and a higher manhour cost.
The takeaway was that businesses, especially smaller ones with less margin for error, need to think all the way through the cuts to what the other side should look like, then make changes slowly and measure frequently.
If you’re in search of more ideas on getting better productivity without incurring higher costs, we’ve put together a Productivity Hacker’s Guide for you. It’s free and you can get it at the link below. Growth is out there but finding it may require some new types of thinking.