5 Reasons You Need A Growth Strategy Framework
So, you’ve decided to start a business.
As an entrepreneur, you have embarked on one of the most challenging yet rewarding journeys.
Starting a business is hard enough. Growing it into something truly great is even more difficult. This is where a growth strategy framework comes in handy..
In this post, we’ll talk about the importance of having a growth strategy framework and tips on how to create one for your business. By following these simple steps, you can set yourself up for success and take your business to the next level.
Let’s start with an overview of the Growth Strategy Framework.
What is a Growth Strategy Framework
While all entrepreneurs recognize the importance of expanding their businesses, few take the time to develop a strategic plan for doing so. A growth strategy is one such approach—a way of describing how you will increase your company’s revenue and profitability over time.
One of the most important goals of any business is to sustain long-term success. In order to achieve this, you must have a growth strategy framework in place. A growth strategy framework will help you avoid stagnation by providing a roadmap for growth. Following a growth strategy framework will allow you to create value for shareholders while benchmarking your progress and measuring your success.
5 Reasons Your Business Needs A Framework for Growth
Here are five reasons why your business needs a growth strategy framework:
1) To recognize and adapt to new opportunities
A growth strategy framework is essential for identifying and capitalizing on opportunities that will lead to the business’s greatest growth potential. If you have a strategy in place, you will be able to recognize opportunities that your competitors may overlook. For example, if you are in the restaurant business and notice that your customers are ordering more appetizers than entrees, you could capitalize on this trend by offering smaller portion sizes for dinner. This would help you attract new customers who want to try different types of cuisine without spending too much money.
2) To keep up with competition
To keep up with competition, you need to be aware of where your competitors are going, what they are doing and what they think.
They may have new products, new services or some other innovation that represents a threat to your business. Through the help of a growth strategy framework, you could determine the strength of your business and how you can overcome threats and challenges in the industry you’re operating in.
For example, as an entrepreneur, you should recognize the opportunities that exist in your industry and how they relate to your business. Next step is to determine whether these opportunities are available to you and whether they can be capitalized on.
Here are the three elements of the growth strategy framework that you should know when identifying opportunities and threats:
A. A value proposition
This differentiates your company from its competitors.
B. A business model
This delivers the value proposition to customers in a way that makes money.
C. Growth rate
This helps your business to stay relevant in today’s competitive market and gives you an edge over your competitors.
3) To maintain the pace of growth
Maintaining growth momentum is essential for any business. Establishing a growth strategy framework helps the business deliver brand promises in a predictable manner. Having a framework helps align your processes so that you consistently hit the business targets. With a solid growth plan in place, you’ll be able to keep your business growing at a steady pace and avoid stagnation.
4) To establish stakeholder value
One of the key goals for any business is to create value for its stakeholders. To do this, you need to have a plan of action for meeting stakeholder expectations. By outlining a plan of action for growth, you’ll be able to ensure that your business is constantly evolving and expanding. This means increasing revenue, profits, and innovation that will result in value creation for your shareholders, employees, and customers.
For example, your business may need to grow by acquiring new customers. Your growth strategy framework could include tactics for customer acquisition through both organic and paid advertising on Facebook or Google Ads. Your framework then helps align your customer acquisition efforts with your revenue and profitability targets.
5) To manage and reduce possible risk
A growth strategy framework can also be used to manage risk. This means that businesses can use the framework to identify opportunities and threats, and then put in place strategies to proactively mitigate these risks. You can use this as a starting point for development of your Risk Management Framework (RMF):
- Objective – the purpose or goal of your framework
- Scope –which areas are within the scope of what you’re attempting to accomplish with the framework, and how large each area is
- Implementation plan – who will be responsible for different components of implementation, and when they will be implemented
By using the framework, businesses can make sure that they are always aware of the risks they are facing and that they have a plan in place to address them.
Common Growth Strategy Frameworks
There are numerous frameworks for strategy that serve as guidelines in formulating strategies for a business, but they can be overwhelming to someone who is new to the field.
However, you don’t need to worry for we have compiled the most commonly used strategy frameworks for you to use:
Porter’s Five Forces
Porter’s five forces is a powerful framework that assists organizations in understanding the intensity of competition in an industry, strength and weaknesses of a business,as well as its attractiveness and profitability level.
This framework can be used by business managers to make important decisions about strategy, such as whether it is worthwhile entering an industry or whether the best strategy would be to exit the market. This model is composed of five key forces which are useful for evaluating industries with high growth potential or low entry barriers such as technology industries where there are many companies competing for customers and profits are relatively low.
To understand more Porter’s Five Forces, listed below are the key components that assess the market intensity.
Porter’s 5 forces are:
- Competitive rivalry
This refers to the number of competitors in each industry segment, as well as how much they compete with each other on price and quality, whether consumers perceive different brands to be similar or different enough from one another and product-related issues such as packaging or color scheme.
- Threat of substitute products
This refers to the threat of a competing product replacing your current offering. A good example is how Google+ has eroded Facebook’s user base and advertising revenue, or how Instagram may threaten Snapchat’s growth.
- Buyers’ bargaining power
The ability of customers to get substitute products at lower prices. For example, If there
are no substitutes for your product or service, then you have a very strong bargaining position and can charge high prices.
- Threat of new entrants
This refers to the ability of new firms to enter an industry.When entry barriers are high, it is difficult for new players to enter the market. This would result in less competition and higher consumer prices.An example of this might be a monopoly in an industry where barriers include patents or government regulation.
- Bargaining power of suppliers
This refers to how easily suppliers can be replaced, and how much they are willing to discount their products. If you buy from a single supplier, they might have more bargaining power than if you have multiple suppliers.
Porter’s Diamond Model
The diamond model is a tool for evaluating your business in four key areas:
- The competitive environment
This determines which strategy is most effective for your company.
- The company’s resources and capabilities
This is the company’s strength and weaknesses in a strategy
- The company’s positioning in the market
This is known as “core competency,” or how it differentiates itself from others
- The dynamics of growth.
This refers to the company’s strategy for achieving competitive advantage.
By understanding these factors, you can assess the strengths and weaknesses of your business, identify opportunities for growth, manage risk and plan effectively.
BCG Matrix Strategy Framework
The BCG Matrix is a strategic planning tool that assists in evaluating the market potential of a business in terms of its relative position, gaining insight into which products business should keep, sell or invest more in and an advantage to get a current preview of how the current products are performing in the market. It is designed to classify businesses based on their market share and growth rate. The four categories it uses are:
- Stars (high market share and high growth)
This category has a rapid growth rate and a dominant market share. They generate a lot of money and require a lot of investment to ensure their position. If they can maintain their high position, they will eventually become ‘cash cows’.
- Question Marks (low market share, high growth)
The future of the products in this category have an uncertain future because they have a low market share in a fast-growing market.However, It has the potential to become a Star by increasing market share, but it also has the potential to become Dogs by failing to gain market share.
- Cash Cows (high market share and low or no growth)
The most profitable products for a business. They are low-cost to operate and generate a significant amount of revenue for the business. The proceeds should be reinvested in Star products to help them grow even further.
- Dogs (low market share, low or no growth).
Products with low market share and slow growth rate. Since they generally generate low or negative returns and depletes resources, investing in them is not worthwhile.
GE-McKinsey Nine-Box Matrix
This strategy tool helps in planning a business portfolio. Multi-business corporations use it to systematically evaluate and prioritize investments among their individual business units.
In the matrix, the y-axis represents the market/ industry attractiveness, and the x-axis represents the business unit strength. The scale is divided into three parts: high, medium, and low. It generates nine industry attractiveness measures and twelve business strengths measures.
The nine industry attractiveness measures are:
- Industry growth rate
- Industry structure
- Market share of competitors
- Competitive rivalry in the industry
- Threats from substitute products or services and new entrants to the industry
- Bargaining power of suppliers and customers
Businesses use the Ansoff matrix to analyze and plan a growth strategy and understand associated risks. According to the matrix, there are two approaches to develop a growth strategy;
- The product market approach
This approach focuses on the existing products and markets to find new opportunities. It involves identifying areas of opportunity based on the gap between existing demand and supply, then developing a new product or service to meet that gap. For example, if your company is selling a protein powder supplement, you could develop an organic version that is more environmentally friendly and has fewer preservatives than other similar products on the market.
- The strategic approach
This approach focuses on identifying the company’s core competencies and then building a strategy around them. For example, if your company has been successful in selling protein powder supplements because it offers high-quality products at an affordable price point, you could use this knowledge to branch out into other areas such as vitamins, minerals or nutritional supplements that are not as well known but could be just as effective.
The Ansoff Matrix is an important strategic planning tool not only in analyzing but is an advantage to evaluate new products or services. It consists of four quadrants:
Market penetration: This strategic option focuses on selling existing products to the company’s current market. It’s the one with the lowest risk as the company already knows its customers and has established a channel to reach them. In this strategy, the company can decrease prices and offer discounts to attract customers.
Product Development: Process by which a company creates new products for its existing market. To make it work, the company must conduct extensive research and provide innovative solutions to customers’ needs.
Market development: Company can market its existing products to a new market. A new market may entail new geographies, different customer segments, new channels, needs, etc. It’s riskier than the other two strategies.
Diversification: This is a process by which a company develops new products for a new market. This is the riskiest strategy of all four, however, the risk can be mitigated through related diversification (a new product that is related to the existing product) and unrelated diversification (a new product that is not related to the existing product).
Scenario planning entails creating and brainstorming potential future scenarios in order to understand how they would affect the company’s objectives.
It assists businesses in developing effective strategies and adapting them when necessary by considering the impact and discussing the responses.For example, if our goal is “to increase sales,” we may decide that one way to do so is “by introducing new products,” in which case we must consider what kind of product or service we want. If there’s no demand for something similar already available elsewhere , then perhaps a better option would be to work with existing clients who could become referrers instead if we provide something unique and not found elsewhere online/offline yet.”
Value Chain Analysis
A company’s value chain is the complete set of activities it performs to create value for its customers. Value Chain Analysis is a powerful tool for understanding a company’s competitive position and for identifying the areas where it can create the most value for its customers. It is also a helpful framework for thinking about growth strategies.
The value chain begins with raw materials and ends with the finished product or service. In between, there are a number of activities that add value to the product or service.
VRIO analysis is a framework used to examine the assets of an organization and analyze which ones provide it with competitive advantage. It identifies those resources that are most difficult for competitors to duplicate. The analysis VRIO stands for the four questions with regard to the resources such as:
Valuable: What value does this offer customers? What are they willing to pay for it?
Risk: How risky is this venture? Can we mitigate the risks through careful planning or do we need more capital than we have available right now?
Innovation: Differentiating the business from the competition by offering new products/services that solve customers’ problems better than existing alternatives or by offering something no one else has thought of yet.
Opportunity: When should we act on it before someone else does?
The four questions above will assist you in analyzing current and future business decisions. If you answered yes to all of these questions, it’s time to take action. Otherwise, conduct additional research or revise your strategy until you have a viable go-to-market strategy.
Achieve Your Desired Business Growth
Achieving success in business is not simple. It requires a solid strategy and lots of hard work. But it can be done with the help of a growth strategy framework. Using this framework, you will be in a better position to determine where you want to go and how fast to get there.
Want to know more how you can maximize this strategy to establish long-term growth for your business? Check out POWERFUL IMPACT’s growth strategy solutions