Growing your SME by following the right growth path: Do’s and Don’ts
If you are reading this, it is probably because you have an SME which you want to grow further, assuming that you have already done your market research, found your target audience and have made some sales or even experiences rapid growth in the beginning.
This blog is for the entrepreneurs and managers who are scratching their heads, asking themselves, how do I grow my SME and drive the sales further. It’s very common for SME ‘s to get stuck after the first successful period, established SMEs do grow more slowly than the starters as they often experience some rapid growth at first which then slows down.
The important questions which every SME needs to consider are: which capabilities are necessary to create growth? which types of activities or paths lead to growth in SMEs? And to what extent does planning for the future play a role in these processes? This article answers the most important questions towards growing your business further.
Studies have found that there are certain capabilities and behaviors which have a positive effect on achieving growth, but there are several growth paths SMEs can take and finding the right one can be a challenging task. There are four categories for growth paths which companies can choose to take, they are:
Increased number of clients
Growing your company requires a lot of work
Each of these paths are associated with different demographic characteristics and growth ambitions, hence, to find the right growth path, managers need to ask themselves, what are the characteristics of our demographics and what are our main ambitions for growth? Perhaps there is a demographic that your company hasn’t aimed at and is untapped or it could be more feasible to venture into a whole new market.
While there are a few growth paths who are more common than others, each entrepreneur should find their own path and the one they believe will generate growth, not simply following the same steps as others have done successfully. What works for some does not have to work for all.
One study conducted in 2018 found that increasing brand awareness is one of the most lucrative attributes to achieve growth, therefore, increasing brand awareness should be an overarching goal that most firms should try to achieve. There are numerous ways to increase brand awareness such as social media marketing, utilizing SEO, creating valuable content and engaging with consumers. Each company needs to find their own way to raise brand awareness, creating a clear marketing strategy and following it.
While it may sound simple, to find a growth path and stick to it, there are some details on the way which you might struggle with, the road to success is not just a straight line. SMEs often stick to what they know and follow the same growth path, which doesn’t usually lead to growth. There are a few things mistakes entrepreneurs and business owners do when they are trying to achieve growth, most important is to find the growth path you believe you can succeed on and follow that path, make a plan and stick to it and try to remain organized so you don’t feel overwhelmed and end up in reactive mode instead of business mode.
When you have found the growth path you are going to go down you need to set a plan for how to execute it, start by setting an end-goal and then decide on the milestones towards that goal.
In the following section each growth path is explained and how to maximize your chances of success on each path is listed according to previous studies.
One way of expanding your SME and growing your business is to enter a new market in a different geographical site. To do so requires good planning and more market research. One study found that to succeed in geographical growth companies need to realize that they cannot simply transfer all of their existing organizational routines to the new locations and even though they have been successful in one location doesn’t necessarily mean they will automatically succeed in another one. One study found that four out of five managers reported that opening up in a new geographical location was harder than they thought, authors of that same study put forward a model that explains how to effectively grow a small business in a new location. Our suggestions is therefore, do the research before expanding into a new location and be certain that this is the right growth path, follow the suggested steps below when you are planning for growth and then managing growth.
Planning for growth: emphasis on formal planning, use of outside sources for assistance, define the role of the owner, manager in the expanded firm.
Managing growth: Recruitment and selection of qualified staff, ongoing training, networking to establish stakeholder relationship, establishments of controls to attenuate opportunism and provide incentives for performance, delegation of responsibilities and establishing organizational legitimacy.
New product development does not always lead to growth and unfortunately six out of seven new products fail. A common mistake companies do is not having a clearly defined problem or a need, the solution and the target customer. Thus, we suggest that before launching a new product is to have a clearly defined problem and solution and analyze the target group. Many thinks that the key to new products are the technical activities, such as design and manufacturing, however evidence shows that the focus should rather be on investigating and analyzing marketing, customers and competitive issues. Doing the appropriate market research can, for example, eliminate the launch of new products that are not needed.
A good analogy for this is Babe Ruth’s success on the field, even though he hit 714 home runs they accounted for only 15% of all of his hits, but when he hit on base not trying to hit a home run his success rate was 50%, showing us that his overall success rate was much better when he was not trying to hit a home run. Similarly, for businesses who should focus on the ‘basics’, making sure the product is the ‘right’ one than by going for the home run.
To improve the chances of success there are three areas businesses should look into: the type of new product, the companies ‘readiness’ and the presence of and adherence to effective business practices. For more detailed information on these areas we recommend reading the book Marketing strategy for Small and medium sized manufacturers by Charles E. France.
To sum up, don’t try to hit a home run, do the research necessary and know your target audience.
“It is just as critical to identify potential failures early via effective evaluation criteria and terminate them, as it is to hit the ball out of the park.”
Increased number of clients
A common way of growing your business is simply attracting more customers, which doesn’t require as much development as launching a new product or entering a new market. However, it can be quite difficult to reach new customers and it can sometimes be similar to entering a new location as you as a manager need to convince a new group of people to buy your product. The most obvious solution is marketing, trying to get the attention of new customers by advertising, today there are simple and affordable ways to advertise using social media. Marketing has now become digital marketing as every marketing effort should be digitized. If your company is not suitable for new product development or entering a new demographic location this is probably the way to go growth wise. Try to list the characters of your target audience to know how to efficiently interact with them before creating a marketing plan. If you are certain that you have tapped out your target audience and need to sell to others, you need to create a strategy that fits them and your messages and the location of them probably need to be different than before. This growth path depends largely on what kind of product category you are in and what kind of goals you have. This section requires a whole new blog so stay tuned for more details on this subject.
If none of the three paths above seem fitted for your company growth there might be other ways, which could be, for example, taking over other firms or enhancing brand awareness. For now, this category will not be reviewed in detail as there are many ways that could fit under other.
Dive in and maintain your ambition
Dive in and take some action, even if you are afraid of something and feel like you might be in over your head. You might have wondered about entering a new market for some time or to take some extra steps to create brand awareness, or even launch a new product but haven’t had the guts to do it yet. Sometimes you just have to do it, that is the most effective way to learn something and to actually achieve something.
One of the most important things to have in order to achieve growth is ambition, ambition often follows growth and growing entrepreneurs are the ones with the most ambition. Even if you as an entrepreneur are experiencing some decline in sales or a bump in the road, hold on to your ambition. Find an appropriate growth path and follow it, remember the road can be bumpy and the growth is not a straight line, stick to your plan and keep an eye on your goals without trying to hit a home run in your first try to achieve growth.
Barringer, B. R., & Greening, D. W. (1998). Small business growth through geographic expansion: A comparative case study. Journal of Business Venturing, 13(6), 467–492. https://doi.org/10.1016/S0883-9026(97)00038-4
Choi, Y. R., & Phan, P. H. (2014). Exploration, Exploitation, and Growth Through New Product Development: The Moderating Effects of Firm Age and Environmental Adversity. IEEE Transactions on Engineering Management, 61(3), 428–437. https://doi.org/10.1109/TEM.2014.2310633
Forth, J., & Bryson, A. (2018). The Impact of Management Practices on SME Performance. SME Performance, 38.
France, C. E. (2013). Marketing Strategy for Small- to Medium-Sized Manufacturers: A Practical Guide for Generating Growth, Profit, and Sales. Retrieved from http://ebookcentral.proquest.com/lib/sub/detail.action?docID=1192391
Hansen, B., & Hamilton, R. T. (2011). Factors distinguishing small firm growers and non-growers. International Small Business Journal: Researching Entrepreneurship, 29(3), 278–294. https://doi.org/10.1177/0266242610381846
Wakkee, I., Van Der Veen, M., & Eurlings, W. (2015). Effective Growth Paths for SMEs. The Journal of Entrepreneurship, 24(2), 169–185. https://doi.org/10.1177/0971355715586894