Nothing lasts forever in business and arguably today’s commercial world is one of the most changing and competitive; with new technology and software constantly evolving the market – and traditional businesses pushing to offer something unique, such as the well-documented cereal café in Shoreditch or Belfast’s crisp-sandwich eatery, so they can stand out from the crowd.
However, unique and innovative ideas are one thing but you must be able to adapt and grow, and that preparation should start from the very beginning – in your business plan. Including a growth and change strategy within your business plan will help you prepare for unexpected developments that might put your firm at risk, and will help support your start-up’s sustainable future; it also increases your attractiveness to investors and other funding bodies as it proves that you have a realistic mindset for your firm and are prepared for the unexpected.
Here we look at lifecycle strategies; assessing portfolio prospects; and reviewing growth options so you can put a business plan together that will engage with the changes that are likely to occur in your industry, and prepare steps to take to keep your business on a successful road.
Products and services typically go through five distinct stages throughout their life from birth to death – or re-launch if that proves to be a viable marketing strategy.
1. Research and development: This stage is typified by cash outlays only and can last years in the case of medical products or a few months, even weeks, for a simple consumer product.
2. Introduction: Here, the product is brought to market, perhaps just to one initial segment, and it may comprise little more than a test marketing activity. Once again, costs are high; advertising and selling costs have to be borne up front and sales revenues will be minimum.
3. Growth: This stage sees the product sold across the whole range of a company’s market segments, gaining market acceptance and becoming profitable.
4. Maturity and saturation: Sales peak as the limit of customers’ capacity to consume is reached and competitors or substitute products enter the market. Profit starts to tail off as prices drop and advertising is stepped up to beat off competitors.
5. Decline: Sales and profits fall away as competition becomes heavy and better and more competitive, or technologically more advanced products come into the market.
The usefulness of the lifecycle as a marketing tool is as an aid to deciding on the appropriate strategy to incorporate into your business plan. For example, at the introduction stage the goal for advertising and promotion may be to inform and educate; during the growth stage differences need to be stressed to keep competitors at bay; during maturity customers need to be reminded you are still around and it is time to buy again. During decline, it is probable that advertising budgets could be cut and prices lowered. As all major costs associated with the product will have been covered at this point this should still be a profitable stage.
Of course, these are only examples of possible strategies rather than rules to be followed. For example, many products are successfully re-launched during the decline stage by changing an element of the marketing mix or by being positioned into a different marketplace.
Assessing your business portfolio
Developed by the Boston Consulting Group (BCG), the American management consultants, the BCG matrix can be used in conjunction with the lifecycle concept to plan a portfolio of product/service offers. The thinking behind the matrix is that a company’s products and services should be classified according to their cash generating or consumption ability against two dimensions: the market growth rate and the company’s market share. Cash is used as the measure rather than profit, as that is the real resource used to invest in new offers.
The objective then is to use the positive cashflow generated from ‘cash cows’, usually mature products/offers that no longer need heavy marketing support, to invest in ‘stars’, that is, fast growing, usually newer products/offers, positioned in markets in which the company already has a high market share – usually newer markets. ‘Dogs’ should be disinvested and ‘question marks’ limited in number and watched carefully to see if they are more likely to become stars or dogs. You should show the role, relevant experience and resources that your partners will bring to the venture over the period covered by the business plan, together with their share of the ownership.
According to Young Gun and 2013’s Golden Gun Holly Tucker of notonthehighstreet.com, innovating and adapting your portfolio to the market is key, “We recognise the need to adapt our business model in order to meet the demands of our customers, introducing a printed catalogue to run alongside the online version of the service, for instance.”
Reviewing growth options
The classic business planning tool for reviewing growth options is Ansoff’s growth matrix named after the father of strategic planning, Professor Igor Ansoff. Ansoff suggested managers consider growth options as a square matrix divided into four segments. The x-axis is divided into existing and new products, and the y-axis into existing and new markets. Ansoff assigned titles and level of risk to the resulting types of strategies:
- Market penetration: This involves selling more of your existing products and services to existing customers; it is the lowest-risk strategy.
- Product/service development: Involves creating extensions to your existing products, or new products to sell to your existing customer base. This is more risky than market penetration, but less risky than market development.
- Depth of line: This is the situation when a company has many products within a particular category. Washing powders and breakfast cereals are classic examples of businesses that offer scores of products into the same marketplace. The benefits to the company include that the same channels of distribution and buyers are being used. A weakness is that all these products are subject to similar threats and dangers. However ‘deep’ your beers and spirits range, for example, you will always face the threat of higher taxes or the opprobrium of those who think you are damaging people’s health.
- Breadth of line: This is where a company has a variety of products of different types, such as Marlboro with cigarettes and fashion clothing, or 3M with its extensive variety of adhesives and adhesive- related products, such as Post- it® notes.
- Market development: Involves entering new market segments or completely new markets, either in your home country or abroad. You will face new competitors and may not understand the customers as well as you do your current ones.
- Diversification: Is selling new products into new markets: the most risky strategy as both are relative unknowns. Avoid this strategy unless all others have been exhausted. Diversification can be further subdivided into four categories of increasing risk profile:
- Horizontal diversification: Entirely new product into current market.
- Vertical diversification: Move backwards into company’s suppliers or forward into customer’s business.
- Concentric diversification: New product closely related to current products either in terms of technology or marketing presence but in a new market.
- Conglomerate diversification: Completely new product into a new market.
Use Ansoff’s growth matrix to check that your business plan contains a reasonable balance of strategies. Too much emphasis on achieving growth, say through diversification or launching new products, may seem too risky to new sources of finance.