Business Growth

Updated on March 20, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Business Growth?

Business growth is when the business arrives at a point where owners, employees, suppliers, and customers facilitate the growth or success of a company. Constant change and development of the company show the potential and health of the company. Depending on its nature and operating style, each company has a unique set of systems that facilitate its growth.

Business Growth

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Although there is no universal metric to measure the growth of a business’s development, sales, revenue, profits, and customer base are data points that exhibit the growth. However, they might show a non-linear growth across the metrics. For example, there might be an increase in profits without changing the customer base if the existing customers buy more.

Key Takeaways

  • Business growth refers to the success of an organization owing to an increase in its revenue, profits, or customer base.
  • The growth comes in four major stages, from the start-up to the post-maturity stages.
  • Organizations can choose organic or inorganic business growth strategies depending on their business’s stage and goals.
  • It is important to note that factors external to the organization have an equal impact on the growth of the business. These factors include market sentiment, customer loyalty, government policies, global economic cues, etc.

Business Growth Explained

Business growth is the stage in the life of a business where the strong foundations of the organizational policies and activities start reaping benefits. As a result, the company grows in sales, revenue, and profit, among other factors.

The daily activities and the organizational policies are designed to achieve the primary goal of constant development. Nonetheless, factors outside the organization, like market trends, government policies, and competition, also play an essential role in the success of a business.

Fundamentally, a business’s product or service takes precedence over most factors as the primary objective of the firm acts as the platform that supports the lift-off. For example, suppose the immediate product of the company has flaws or developmental scope. In that case, it is better to channel energies there before concentrating on growth. It is always better to have fewer satisfied customers than a sizeable unsatisfied customer base.

In the larger scheme of things, businesses must keep growing regularly. Otherwise, the competition in the market might eat up their chances of survival and growth. Therefore, to draw a roadmap to the development of the business, it is vital to understand the strategies leading to it, the types of approaches the firm can take, and the factors that influence the growth.

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Strategies

Based on the nature of the business and the operating style, the tactics used might differ. However, below are a few of the most followed strategies to aid a business growth plan:

  • Market Segmentation: Businesses concentrate on a particular industry section and apply growth strategies relevant to that segment. Especially for small businesses, this strategy might be valuable as big companies dominate the market share.
  • Product Development: Creating new products or innovative additions to existing products can attract more customers. In addition, this growth strategy gives potential customers the idea that the business is constantly improving its product base, enabling them to take notice of the business’ actions.
  • Market Penetration: This growth strategy concentrates on expanding opportunities within the existing market. Firms can attain business growth by lowering prices, investing in marketing, or raising brand awareness among customers, both current and potential ones.
  • Vertical Integration: Businesses that adopt vertical integration take another part of the distribution or manufacturing process. They might start producing an item purchased from a supplier in the past—for example, packaging materials.
  • Market Expansion: Companies wanting to expand their customer base usually tap into untapped areas or sections of society. Usually, expansion is understood as geographic growth. However, it can also be an expansion in terms of demographics. It intends to attract customers from a section that has yet to be concentrated.

Stages

The very nature of business is to cross hurdles or find solutions, both inside the organization and for its customers. As a result, companies strive to make changes that foster growth in different metrics at different points in the business’s lifespan. Let us discuss the various stages of development through the topics below:

  • Start-up Stage: The first goal for any organization that has just begun operations is survival. The process starts with the owner or owners finding employees for different roles with a business growth mindset. In this stage, the company strives to deliver the product on a tight budget and concentrates on brand recognition.
  • Growth Stage: After crossing the first few hurdles and surviving in the market, the company has a set business model and operating style. At this stage, it is ideal for channeling the energy towards increasing the customer base and retaining initial customers, which shall result in increased revenue, profits, and overall growth.
  • Maturity Stage: Once the processes are set, and the workforce is accustomed to the process, sometimes, for years, the business attains a certain level of stability. Therefore, the owner does not have to spend time and energy on the daily output. Instead, a nationwide or global expansion and product expansion are on the cards. However, this stage requires a lot of cash flow to address the expansion projects.
  • Renewal Stage: Once the company reaches a stage where its brand is recognized, and the customer base keeps growing organically, it is easy to become complacent and stop looking for opportunities to improve or grow. This negligence can lead to the start of the end of the company’s future.

Types

Depending on the growth stage and nature of the business, the type of growth strategy the company might apply might differ. Let us discuss a few of the most followed types of systems through the points below:

#1 – Organic Growth

Organic growth is considered one of the simplest yet significantly effective types of business growth. It fits perfectly well for companies that have just begun operations. This tactic implies that the business carries out physical expansions such as producing more goods, new storefronts, product lines, etc. This way, companies can cater to the demand and tend to more customers. However, this tactic might be less effective for businesses that are established in the market.

#2 – Internal Growth

Once the infrastructure or the physical expansion stage is set, the organization can concentrate on using its resources efficiently to get better results. For example, they can implement marketing automation systems or lean systems.

#3 – Strategic Growth

The strategic growth tactic works effectively for an organization with long-term goals, provided they have undergone a period of adopting an organic growth strategy. The profits derived from the period of expansion within the organization are pledged towards marketing campaigns and other promotional activities. Therefore, it is considered an inorganic business growth strategy, as the developments are made outside the organization to facilitate progress.

#4 – Partnership Growth

As the name explains, this tactic implies a collaboration or cooperation with other company or companies for mutual benefits. For example, such associations help businesses produce more goods, launch a new product together, and enjoy both companies’ customer loyalty.

Factors

Factors affecting the business growth plan can be internal or external. Irrespective of the origination of the element, they play a vital role in preponing or delaying the business’s success. A few of those factors are as mentioned below:

  • Employee training
  • Customer loyalty
  • Leadership
  • Government policies
  • Competition
  • Adopting the latest technology
  • Research and development

How To Measure?

Let us discuss different factors briefly through the points below:

  • Profits: One of the ultimate factors that satisfy the owners and the actual growth level is the profits the business generates. However, it is crucial to keep track of the number of customers onboarded or potential leads for future growth.
  • Revenue: An organization’s revenue refers to the money it brings in totality, including sales, royalties or franchisee fees, etc.
  • Sales: An increase in sales indicates that the business is growing and on track with the organizational plan. However, it is essential to note if the rise in sales is fuelled by a sale or discount, as these numbers might be deceiving.
  • Customer Base: An increase in the number of customers purchasing from the company shows the impact of brand recognition. However, if the cost of acquiring customers is higher than their average purchase, it might be wise to reconsider strategies.

Examples

Let us understand the concept with the help of the examples below:

Example #1

David and Simone started a toy manufacturing company specializing in toys that helped parents teach their kids colors, shapes, and other fundamental things. They were aware of the high competition from existing players in the market who had established their products exceptionally well in the preceding years. Since David and Simone’s company was at a start-up stage, they wanted to adopt the organic growth strategy instead of the inorganic business growth tactic.

As they had already set minimal margins, slashing the prices of the toys further would ensure losses for them. Therefore, they decided to adopt vertical integration and produce the packaging material independently instead of outsourcing it. They manufactured reusable packaging material that parents could use to store their kids’ toys and other essentials.

Example #2

SourceFuse, a cloud-native, bespoke services and solutions company, announced its business growth rates for 2022. Since their goal was to retain clients and ensure they renewed their contracts, the metrics they had set for themselves were revenue and renewed business deals. They saw a 60% growth in revenue and a 90% growth in renewed business compared to the previous financial year.

Advantages And Disadvantages

Let us discuss the advantages and disadvantages of a business owner possessing a business growth mindset:

Advantages

  • Reduction in external risks such as competition or market changes.
  • Ability to influence market price within the domain.
  • Geographical expansion.
  • Increased resources and inventory.
  • Reduced costs as purchasing in bulk attract discounts.

Disadvantages

  • Loss of control.
  • Shortage of cash.
  • High capital requirements.
  • Compromised quality.
  • High risk.

Difference Between Business Growth And Business Development

Although growth and development are interchangeably used to refer to the success of an organization, there are fundamental differences in both terminologies. Let us discuss them through the comparison below:

BasisBusiness GrowthBusiness Development
NatureGrowth concentrates on the quantitative growth of the organization.Development focuses on internal and qualitative aspects of things within the organization.
Focus PointsRevenue, sales, customer base.Improvement in processes, learnings, and overall development.
Developmental ViewpointsInfrastructure- manufacturing plants, storefronts, etc.Training and motivation programs, process modification, etc.
MeasurabilitySince growth is focused on physical changes, the change is easily measurable.As development follows a qualitative approach, it is not easily measurable.

Frequently Asked Questions (FAQs)

1. How to increase business growth?

Although there is no specific or universal guide to increasing business growth, there are common factors to keep in mind. Such as extensive market research, focusing on customer retention, hiring employees with a similar mindset, hedging risks, and adapting to the changing environments in the market.

2. What is organic business growth?

Organic business growth refers to the physical developments an organization chooses to incorporate to facilitate the success of its business. These include opening a new storefront, extending manufacturing plants, etc.

3. How technology helps business growth?

In the modern era, technology not only simplifies the process but also cuts costs owing to its efficiency. In addition, it helps in tracking, streamlining, and processing information that aids in procuring data points that companies can formulate to plan for future actions.

4. How to manage business growth?

The growth phase can be a challenging period for any businessperson. However, if they keep the debt in control, forecast cash flow requirements, ensure the sustainability of growth and control their costs, it gets simpler to manage the transition.

This has been a guide to what is Business Growth. We explain its strategies, stages, types, factors, and comparison with business development. You can learn more about financing from the following articles –

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