Business expert Simon James talks business growth through a difficult environment.
With trading conditions remaining challenging, and a number of highprofile insolvencies in the fashion industry recently, it’s understandable that many businesses prefer to keep their head down and focus on survival rather than growth.
However businesses need to accept that the current conditions are the ‘new normal’.
Conditions are likely to remain subdued for several years to come, and business will need to do more than just continue operating in the same old way if they hope to beat the competition.
We have seen some businesses use desperate measures to improve sales and increase market share – the most obvious of which is continual sales and slashing prices.
While these may have a short-term positive impact, in the long term they can be dangerous for a business, and also have a negative impact on others in the marketplace, not least by setting customer expectations on price.
We’ve seen this in the fashion retail industry recently, where consumers have become noticeably more price sensitive and, in some cases, believe that if something is not in a sale, it is not worth buying!
Nonetheless, it’s not all doom and gloom.
For business owners with an appetite for risk and a willingness to take some chances, as well as a business that is in a financially strong position, opportunities remain to grow market share.
The best option for growth is often driven by the market environment in which the business operates.
Domestic growth
When looking to grow in the domestic market, there are three main options.
They are: organic growth; partnering with another business; and acquiring another business.
Organic growth
This approach has risk, as it will increase the fixed cost base of the business by taking on more income-generating staff and perhaps opening new premises in different states or locations.
But through such steps, the customers of major competitors can be targeted. Businesses can also target the key sales team of competitors as part of any growth program.
It is relatively easy to find such staff by using LinkedIn or other social media.
Enticing top income earners from competitors is a very efficient way of achieving growth in market share, as they know the industry and have existing relationships.
Wholesalers are acutely aware of this practice.
Partnering
Finding another business that has complementary services which can be offered to clients can be a good way of growing.
In return, the other business can offer your services to their clients. It needs to be a win/ win situation, but can be a low risk way to achieve growth as it has a minimal cash outlay.
This approach can include the use of distributors or retail partners in other geographical areas.
Acquisitions
The quickest way to grow is to buy revenue by taking out a competitor.
Find someone with complementary products and a different client base then identify synergies to reduce the operating costs of the expanded business.
If the right price is paid, a larger and more profitable operation should result.
Due diligence to reduce the risk exposure must be undertaken as a fundamental part of this approach.
International growth
Seeking growth by expanding into international markets is another option for business.
Expansion overseas means the risks are substantially higher and the costs much greater; however, the opportunities are considerable.
Most overseas markets are much larger that the Australian market, thus offering greater opportunities for volume sales. Nonetheless, there are pitfalls with expanding overseas. These can include:
Not knowing the customer and how they buy. For example, the Asian market is very much relationship-driven and can take some time to penetrate.
Travel and accommodation costs. These can be substantial when setting up in a foreign country.
Finding the right people. Identifying people you can trust, and finding the right staff, can be difficult as well as expensive. In addition, training and mentoring from a distance is an ongoing challenge. Understanding the culture of different countries, and often the problems of language.
Time differences and service arrangements. Again, these can add significant cost at a local level if service time horizons are increased. Foreign exchange and currency movements.
Unless a business is sophisticated in financial markets, poor management of foreign exchange risk can play havoc with margins and pricing models.
The above issues mean that the safest option for most overseas expansion is to start off with a local partner/distributor, which is less risky but is also slower.
Despite the generally slower conditions prevailing at the moment, it is a good time to grow a business with some investment, if there is cash to do it. For example, with many businesses failing, there is the opportunity to pick up new operations very cheaply.