Business Growth

Business Growth

What is business growth?

Simply put, business growth involves expanding brand presence and increasing sales revenue.

So how does a business expand brand presence and increase sales revenue?

The Ansoff expansion grid illustrates four methods of business expansion:

• market penetration - increasing sales in an existing market,
• product development - offering new products or services in your existing market,
• market development - selling products or services to new markets,
• diversification - offering a completely new product to a new market.

What are the most effective methods for growing my business?

The business expansion method that you use will depend on a number of factors including access to capital, timelines, human resources and competition.

Practically, business growth can be achieved using any of the following business expansion methods:

• Franchising - allowing others to operate under your brand name and business model in exchange for franchise fees and ongoing royalties.
• Licensing - granting the rights to use your intellectual property, such as trademarks, patents or technology, to other businesses in exchange for royalties.
• Opening New Locations - establishing additional physical locations in new markets or regions to reach a broader customer base.
• Merger and Acquisition - acquiring or merging with other businesses to gain access to their customer base, talent, technology or market share.
• Distribution Partnerships - establishing agreements with distributors to reach new markets or territories.
• Joint Ventures - forming partnerships with other businesses to pursue specific projects or ventures to expand market reach.

Franchising

Franchising is an effective business growth strategy for market development and market penetration, because it allows you to quickly expand your business without requiring the capital investment of some other business growth models.

Simply, franchising involves the franchisee funding the set up of the location and being responsible for the day to day operation of the outlet. In return the franchisee retains the profits from the outlet and pays the brand owner (the franchisor) an ongoing royalty.

The most well know example of franchising is McDonalds. In 2023 McDonald's operated and franchised approximately 41.8 thousand restaurants worldwide (Statista).

Franchising is heavily regulated in Australia, and is principally governed by the Franchising Code of Conduct.

 

 

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Licensing

Licensing is another proven method for business growth through market penetration and market development, which allows you to quickly expand your brand.

Licensing involves you permitting another business to use your brand, patent or intellectual property (in return for a royalty).

Generally (but not always), licensing differs to franchising in that the licensee does not use the business model of the brand owner (licensor).

A well known brand that uses licensing as an effective business growth strategy is Disney. Disney grants licences to other businesses to use its characters (for example Mickey Mouse), on a variety of products. 

Licensing is much less regulated than franchising, however licensing does not allow you to have as much control over your brand. Going back to our example of Disney, Disney characters are used on a variety of products from high end luxury bags to cheap t-shirts.

You also have to be careful not to franchise by accident. The Franchising Code of Conduct regulates the type of business arrangement that is deemed to be a "franchise". Consequently, while a business expansion method may be called a "licence", it may actually be a franchise.

 

 

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Opening New Locations

Opening new locations is also an effective business growth strategy and offers a sustainable way to expand your business. Opening new locations allows a business to continue to grow organically by entering new markets. Organic growth can also facilitate business expansion through ongoing product development.

Apple is an example of a company that has expanded through organic growth (although Apple has additionally used other business growth methods, such as reseller distribution agreements). Apple stores are company owned stores, they aren't franchised or licensed.

Unlike licensing or franchising, opening new locations requires the business owner to finance the expansion of the business. 

There are a number of business growth funding options:

• Traditional Loans - Traditional loans require collateral, have repayment terms and require an additional payment of interest.
• Investors - Investors usually receive equity ownership in the company and may provide strategic guidance.
• Grants and incentives - Various government agencies offer financial support for expanding businesses through government grants or low interest loans to support business growth, particularly in specific industries or for projects with social or environmental benefits.

While opening new locations provides the business owner with the advantage of retaining full control over the business and its expansion (including retaining all of the profits in the business), the business owner also takes all of the risk of expansion under this option. 

Merger and Acquisition

Merger and acquisition is another popular business growth strategy which can be used to facilitate product development and market development and which can also be used to diversify. There are three main categories of merger and acquisition:

• Horizontal - generally undertaken to seize new markets (possibly geographically) and increase market share, a horizontal merger or acquisition involves a merger or acquisition between two companies who operate in the same industry.
• Vertical - generally undertaken to improve operational efficiency, a vertical merger or acquisition involves a merger or acquisition between two businesses in the same supply chain.
• Conglomerate - generally undertaken to achieve diversified business growth, a conglomerate merger or acquisition involves a merger or acquisition between two unrelated businesses.

Disney is also an example of  effective business growth through merger and acquisition. In 2006, Disney acquired Pixar animation which gave Disney access to Pixar's technology. Disney then went on to acquire Marvel Entertainment in 2009. Both acquisitions are examples of horizontal merger and acquisition.

Another example of successful business growth through merger and acquisition is the  merger between eBay and PayPal. This merger is an example of vertical merger and acquisition, eBay selling the products and PayPal facilitating payment for the products.

 

Distribution Partnership

Distribution partnership as a business growth strategy focuses on accessing new markets and customer segments, through partnering with other businesses who can distribute your product.

This is particularly beneficial if your current market is saturated or if you want to diversify your customer base.

Like licensing, distribution is much less regulated than franchising, however you do not have as much control over your brand.

Apple is also an example of using distribution as an effective business growth strategy. In addition to selling directly to customers online and from its company stores, Apple authorises other retailers to "resell" or distribute Apple products through distribution agreements. This means that Apple products are available in stores that are not Apple branded stores (such as large retail chains).

 

Joint Ventures

Like mergers and acquisitions, joint ventures can be used to facilitate successful business expansion through product development, market development and diversification.

A joint venture, often abbreviated as JV, represents a strategic alliance where two or more parties come together in a collaborative effort to pool their unique resources, strengths, and capabilities.

The essence of a joint venture lies in its ability to leverage the combined resources of the participating entities to explore new markets, develop innovative products, or even tackle complex projects that require a multifaceted skill set.

Within the framework of a joint venture, each participant retains their autonomy while committing to the shared goals of the venture. This relationship means that each party is equally vested in the success of the project, with responsibilities for profits, losses, and costs being shared in a manner that is proportional to their contribution or as agreed upon in the joint venture agreement.

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