PLANNING FOR GROWTH

1. 17 PLANNING FOR GROWTH

2. Learning Objectives • Explore strategic innovation as a growth strategy. • Discuss intensive growth strategies—growing within the current market. • Explain integrative growth strategies—growing within the industry. • Examine diversification growth strategies—growing outside the industry. • Consider growing by going global.

3. To Grow or Not to Grow • Factors affecting growth decision: • Demand for product/service • Size of the market • Leadership success

4. Stages of Growth and Company Focus Figure 17.1

5. Factors That Affect Growth • Market factors: • Size and Characteristics • Competition • Intellectual-property rights • Predictability • Management factors: • Ability to adapt and change the business over time even if the business is successful • Re-evaluation of key metrics

6. Factors That Affect Growth (cont’d) • Problematic leadership tendencies: • Loyalty to the original founding team • Task orientation–Focus • Single-mindedness of vision–Discipline • Working in isolation • Scaling factors: • Inability to understand and respond to the business environment

7. A Framework for Growth Table 17.3 • Framework for growth • Scan and assess the environment • Plan the growth strategy • Hire for growth • Create a growth culture • Build a strategy advisory board

8. Growth Strategies Figure 17.2 • Strategic Innovation strategies: change the game in an industry or market • Intensive growth strategies: exploit opportunity in the current market • Integrative growth strategies: exploit growth within the industry as a whole • Diversification strategies: exploit opportunities outside the current market/industry • Global strategies: exploit opportunities in the international arena

9. Strategic Innovation • New concepts are not generally attractive to established companies in the early stages because: • They break the mold. • The early markets are generally small with low margins. • Large companies typically wait to see how the new model fares in the market and then they either change their model or attempt to acquire the entrepreneur’s company.

10. Growing within the Current Market • Market penetration • Increase sales through effective marketing strategies within the current target market • Gradually expand • Promoting additional uses for products • Attract customers from competitors by advertising advantage over competitor • Go after noncustomers

11. Growing within the Current Market (cont’d) • Market development • Take product or service to a broader geographic area • Franchising • Dealerships • Service franchises • Product franchises

12. Growing within the Current Market (cont’d) • Market development (cont’d) • Licensing- steps for a successful transaction: • Decide exactly what will be licensed • Understand/define the benefits the buyer will receive from the transaction • Conduct thorough market research • Conduct due diligence on potential licensees • Determine the value of the license agreement • Create a license agreement

13. Growing within the Current Market (cont’d) • Product development • Develop new products/services for existing customers or offer new versions of existing products • Breakthrough products may come through unplanned means (i.e. brainstorming, problem-solving, etc.)

14. Growing Within the Industry • Vertical integration strategies • Growing forward/backward within the distribution channel • Horizontal integration strategies • Buying up competitors or starting a competing business • Modular or network strategies • Focus on core competencies and outsource the rest

15. Diversification Growth Strategies • Investing in or acquiring products/businesses which are outside the core competencies and industries • Use when all other growth strategies within the current market/industry have been exhausted • Synergistic strategy • Acquire products/services unrelated to the company’s core products/services • Conglomerate diversification-acquiring businesses that are unrelated to the company’s current business

16. Growing by Going Global • Born global – a company that generates at least 25% of its sales in the first three years from international marketplace and derives competitive advantage from outsourcing and selling in several countries

17. Growing by Going Global (cont’d) • Characteristics of successful globalization: • A global vision from the start • Internationally experienced managers • Strong international business networks • Preemptive technology • A unique intangible asset • Closely linked product/service extensions • A closely coordinated organization on a world-wide basis

18. Finding the Best Global Market • Information sources: • International Trade Statistics yearbook of the United States • International Trade Administration offices in Washington, D.C. and at district levels • Department of Commerce

19. Friendliest Countries for Startups Table 17.4 Source: Based on data collected by World Bank’s Annual “Doing Business” Report 2010.

20. Export Financing • Sources: • Bank financing • Internal cash flow • Venture capital or private investor capital • Prepayment, down payment, or progress payment from foreign client • Assurances: • The Import-Export Bank

21. Export Financing (cont’d) • Foreign agents, distributors, and trading companies • Choosing an intermediary • Due diligence work to assure the right partner • Choosing a freight forwarder • Handles all aspects of delivering the product

22. New Venture Action Plan • Identify market, management, and scale factors that may affect the growth of the business. • Determine which growth strategy is most appropriate for the business. • Indentify potential international markets for the product or service. • Develop a plan for globalization of the company at some point in the future.