The Key to PROFITABLE growth is establishing a strong core business and forming successive bands around it, much like what you see when a large tree trunk is sliced horizontally. As more “meristems” at branch tips develop, the tree develops successive bands of growth outward around the trunk as well. Each successive layer uses resources that are already established to support the core, increasing ROI and establishing superior productivity versus competitors. The areas of intense activity are the “meristems” at the tip of the company’s current market “reach”.
There is a sequence for doing it. Here’s how to grow from the core:
- Make your business as scalable as possible. Automate everything possible so as you grow, the computers do the work and you don't have to add people in back room functions or as many people in front room sales functions.
- Maximize Core Customer Retention: Don't lose the growth you already got. It's like paying too much in taxes
- Get More Business from Core Customers: Widen your product mix and raise the average gross profit per order.
- Take Share from Competitors Customers
- Create Demand by marketing problems first before solutions
- Get High Early Share of The Fastest Growing Segments
- Expand into Adjacent Markets
- New Customer Types
- New Product Lines
- New Services
- New Store Formats
- New Channels of Distribution
- Different Value Chain Position
- Geographic Expansion
- New Technologies
- Redefine the Core, Redefine Opportunities
Notice that I don’t have acquisitions or startups listed. That’s because they are choices within each strategic option. You choose to expand because a market is adjacent to the one you’re in. You might even choose to parachute into a non-adjacent geographic market if you think you can grow from a new core there or fill in later. But that's a little more advanced and shouldn't be attempted before executing other strategies on the list. Why? you are making a much larger bet and you have a weaker tie or no tie to your current core. In other words, you are having to duplicate resources vs use resources from your core business. And, the new business may dilute your management focus because it is different.
I also urge you to work on this while simultaneously maximizing productivity. You need to automate operations so as you grow, you don’t need to add people, which are variable cost additions. If you automate before you grow, you have fewer growing pains, fewer mistakes, more responsive customer service, and more satisfied customers. The bottom line is that your variable cost curve is more flat compared to a gross margin curve that rises at the same rate. Hence, more revenue returns to the bottom line as profit.