Globally, despite the current stock market turbulence, projections for economic growth are still strong, with the UK among those predicted to have the fastest growth this year. Against this backdrop an increasing number of small businesses across the UK are targeting expansion in 2016. This is good news for the development of the economy as a whole, Octopus last year revealed that if the number of small businesses in the UK were to grow by 25% across all regions by 2020, an additional 170,000 new jobs and £22.5bn turnover would be created. With such impressive statistics there is no doubt that small business development should be encouraged, but the question for many small and medium-sized enterprises (SMEs) remains how they can take advantage of this positive outlook to expand their business?
SMEs often face hard choices when considering how to scale their business and two approaches that create much debate are whether it’s best to partner with larger corporates to grow your business or build scale from the bottom up. With each route having value, Mike Carter, CEO of leading fintech company BizEquity, discusses these different growth strategies and their respective merits.
Reassess your product/service
Critical before embarking on any major growth path is to reassess your product or service and making sure it’s right either for the areas in your domestic market you are looking to expand in or for the overseas markets you are targeting. Even big companies can stumble here. Take Walmart, after opening 85 stores over the course of eight years, the company abandoned the German market in 2006 at a significant cost. Walmart's domestic success is built on streamlined distribution channels, high-volumes sales and low prices — but none of which fit into German culture or its regulatory regime. Another example is Home Depot, the DIY giant entered the Chinese market in 2006 and opened a network of stores before they realized that most Chinese people don't like DIY. Home Depot closed its last seven big box stores in China in 2012.
Collaborating with larger partners
Partnering with larger corporates can produce a range of dividends for growth companies and allow them to build scale quickly, but the engagement needs to be managed carefully to extract the maximum benefits from the relationship. Issues around shared decision making and loss of IP control are two areas that need to be addressed and resolved. While smaller companies have long proven themselves to be very adept at anticipating market trends, capitalizing on new technologies can offer mature partners access to new customers, innovative products and management practices, they are often limited by issues that can be more easily addressed by big firms.
Typically the marketing and distribution channels of growth companies are inadequate for getting their innovative products and services to all the areas of their market, and in particular to international markets. Also, management of growth businesses are often distracted by the need to continually raise finance instead of focusing on developing markets and distribution systems, so though the innovations they have maybe what the market needs, they are hampered in supplying it.
Increasingly SMEs are teaming up with larger companies in whole product strategic partnerships. Take Unidesk, a virtual desktop management provider in the US. Unidesk has fast-tracked its growth partly because of a partnership with computer giant Dell. Why is Dell interested? Because of the innovation benefits that Unidesk brings, which help to drive Dell’s growth and strengthen its brand profile.
At BizEquity we’ve partnered with over 150 financial institutions globally, including Metro Bank in the US and one of the UK’s leading wealth management firms, which are white labelling our online business valuation tool to enhance their service offering and prospect better. These collaboration are key to growth strategy, and have helped us scale up much faster into different markets, reach large numbers of prospective clients whilst simultaneously raising our profile.
Building scale from the bottom up
This approach, of course, gives management much more control of the pace and direction of their growth ambitions. The two most common ways small businesses increase their market share from the bottom up is by either attracting new customers or winning them over from competitors. Both require a good understanding of your target market, and their need for your products. Surveying your current customer base and closely studying that of your rivals are good ways of enhancing this understanding. This exercise can help broaden your market share by shedding light on relevant groups previously untouched by your marketing efforts and enable you to win business from even the most well-established brands.
Diversification is another popular route, focusing on developing new, related products to target existing customers or tailoring existing products for new sectors. At BizEquity we realised that demand for our online private business valuations and performance big data service was coming from different sectors across the financial industry. So, although we initially launched, ‘Advisor Office’, enabling wealth and insurance advisors to better service their clients by providing them with the most up to date company valuation data on their business, we very quickly also decided to launch Banker Office and Accountant Office, tailored versions of the service for those sectors.
Bottom line is that neither strategy is exclusive, so combing both probably yields the results – as we have discovered.
By Mike Carter, CEO of BizEquity