As some of you may already know, the first business I ever started was a local Tallahassee landscaping company.
In retrospect, while this particular type of business is great for helping a college kid learn and work themselves through college, it’s actually an incredibly difficult business to grow (as is with most local businesses).
With that being said, let’s take a second to look at exactly what my team did and how different growth strategies could impact your business growth plan.
Let’s dig in.
Why and I revealing my business growth plan?
By now you’re probably asking yourself why I’m willing to tell you all of this.
While I’m certainly proud of what my team has been able to accomplish, that’s certainly not the point of this article. …I promise 🙂
In business school you’re typically taught growth strategies using things like the framework above; Porter’s generic strategies. While this is a great starting point for learning purposes, it doesn’t really provide much actionable advice if you’re already in business. It is, well, “generic”.
The reason I’m willing to reveal my business growth plan is because I think that most business owners can take away some very valuable business lessons from this real-life experience.
In other words, I’m about to show you exactly what worked in my business and what didn’t. …not just a generic framework that you’ll never use.
Aren’t you afraid that your competition will steal your business growth plan?
Here’s the thing; in this particular industry, most companies decide to implement a low cost strategy.
A low cost strategy is, essentially, what it sounds like; you try to undercut everyone else’s price and be the low-cost provider. The only problem with local businesses implementing a low cost strategy is that it’s not very realistic; in order for a low cost strategy to work, you need to be able to execute it on a very large scale (example – WalMart).
My company doesn’t execute a low cost strategy, instead it competes on customer service. And when it comes to customer service, no one in our area could even come close to providing the same level of service. So it wouldn’t really matter if the competition implemented the same exact business growth plan because they still would have to outperform us on what matters most to our customers; peace of mind.
Likewise, as with most growth strategies, it will eventually become inappropriate. This is a major reason I’m willing to reveal this particular business growth plan; my local company has out grown this growth strategy and will eventually need to change directions a bit in order to see continued growth.
So how did we do it?
According to the framework I showed above, local businesses can implement either a low cost strategy or a differentiation strategy.
A differentiation strategy, essentially, means that you provide value through something that is different than your competition. In other words, you don’t compete on price. For example, as I mentioned before, my landscaping company doesn’t compete on price but rather customer service.
The only problem with a differentiation strategy is that, in most cases, a differentiation strategy can be very expensive. Think about it; it’s probably going to cost a lot of money to find and develop something that your customers are willing to pay a high price for.
So if a generic differentiation strategy is problematic for small businesses, what’s the answer? …concentric diversification.
Concentric diversification, essentially, means that your diversification strategy “kills two birds with one stone”. In other words, concentric diversification means that you offer another service that can take advantage of your current capabilities and doesn’t require that you spend additional money to get new clients.
For example, consider the snapshot of Stack’s website stats above. As you can see, this particular business is very seasonal and typically peaks around the month of May.
Essentially, what we’ve done for the past couple of years is offered premium design/build projects and then used those profits to organically acquire new maintenance accounts. As I mentioned above, the reason people have been willing to pay us a premium for projects is because we do a really good job and pay close attention to what they are saying. Likewise, because we already offered management services, we didn’t have to buy any new equipment to complete projects and could easily up-sell happy customers on services when we finished their project.
This has allowed us to make a profit AND acquire much needed recurring revenue to carry us through the off season.
Additional ways to take advantage of concentric diversification
As you can see, this particular growth strategy has helped Stack outperform its peer group in nearly every meaningful metric you could measure.
Of course, what Stack has done is actually a very simple example of concentric diversification.
In reality, there are quite a few different growth strategies that are relevant to local businesses. Here are a few additional growth strategies for you to consider:
- Forward Integration – Forward integration is, essentially, where you control the player in front of you. For example, a manufacturer may buy out a retail outlet that sells their merchandise. In the case of my local business, forward integration isn’t as applicable. The only close example of forward integration would if we were to sell “add-on” services such as bed maintenance or roof cleaning.
- Backward Integration – As you can imagine, backward integration is the opposite of forward integration. An example of backward integration would be if Stack would buy out a company who provides us with supplies. If you plan to scale your business to a large scale, it’s often wise to first implement a backward integration strategy to acquire suppliers who could otherwise hurt your efforts to scale. Of course, if you’re just starting out in business, you probably wont’ be able to implement a backward integration strategy.
- Horizontal Expansion – Horizontal expansion is when you buyout another company who is in the same business as you. For example, it would be horizontal expansion if Stack were to buyout other landscaping companies in Tallahassee. In my case, we decided that it would be best to acquire new clients organically rather than implement a horizontal expansion strategy. While that may not be the case with your business, it’s wise to consider all the different variables before executing a horizontal expansion strategy.
As I mentioned before, I’m not telling you this to brag on what my team was able to accomplish.
In reality, what we did wasn’t all that impressive. We simply researched potential growth strategies and implemented one that we thought would give us the best chance to get a leg up on the competition.
In all seriousness, you can do the same with your business. Just take some time to think about what I’ve shown you here and consider how you can implement something similar (or something even better) for your business.
All I ask is that you let me know how it goes. 🙂 And, please, feel free to reach out to me if you think I can help some way.
For those of you who have implemented growth strategies for companies, what are some specifics that have worked in your experience?