Business Growth Potential impacts what a Business is Worth
Two companies in the same industry with the same
financial performance may command vastly different values – Why? Growth potential!
As successful companies mature, many reach a point where growth slows. In fact, successfully carving out a unique niche may actually start to hold you back.
For example, if you make the world’s best $5,000 wine fridge, you may have a profitable business until you run out of people willing to spend $5,000 to keep their wine cool.
Demonstrating the potential for business growth in the future is one of the keys to driving a premium price for your company when you want to sell.
To grow beyond your original niche, consider the Ansoff Matrix.
First published in the Harvard Business Review in 1957, it remains a helpful framework for business owners today. Sometimes called the Product/Market Expansion Grid, the matrix shows four options for businesses growth and helps you consider the risks associated with each option.
Your business growth choices are divided into four quadrants, which include selling…
A-Existing products to existing customers
B-New products to existing customers
C-Existing products to new markets
D-New products to new markets
In a smaller business with few dollars to gamble, focusing your attention on the first two options are the lowest risk options for growth.
A- Existing products to existing customers
Your best customers are usually the ones who know and like you and are often pleased to find out that you (someone they trust) are offering something they need.
Greg, a hardware store owner, learned about the Ansoff Matrix. Greg earns a 150% mark up on cutting keys but his cutter was hidden in a corner of the store; as a result, he didn’t cut many keys. Greg moved the key cutter to directly behind the cash register so everyone could see the machine. Customers suddenly realized that Greg cut keys! Not surprisingly, Greg started selling a lot more keys to his loyal customers. The key cutter didn’t woo many new customers, but it did increase his overall revenue per customer.
To sell more of your existing products to your current customers, draw up a simple chart of your products and services. Don’t be afraid to dust off those old products that you haven’t paid much attention to lately. List your best customers’ names down one side of the paper and your products across the top, then cross-reference to identify opportunities to sell.
B- New Products to Existing Customers
Another business growth approach is selling new products to existing customers. For example, a Midwestern BMW dealership owner’s typical customer is a family patriarch in his forties. When the owner had saturated the market for well-heeled forty-something men in his area, he questioned what other products he could sell his existing customers. But instead of defining his customer as the forty-something man, he thought of his customer as the financially successful family and his market as their driveway. He bought a Chrysler dealership to offer minivans to the spouses of his BMW buyers. Then, realizing that a lot of his customers had teenage kids, he bought a Kia dealership to sell the families a third, inexpensive car.
Growth and value are key!
Once your business becomes successful, it can be tempting to sit back and enjoy.
But to drive the value of your business, you need to demonstrate how you can grow…the least risky strategy is to determine what else you could sell to your existing customers.