Female business owner opening her second bakery
Growing a business

Types of Business Growth

Markets are constantly changing, and meeting consumer demands is becoming increasingly difficult. Although your business may currently be in good shape, you need to stay flexible to keep up with trends and stay competitive. 

Business growth will help you increase revenue and ensure that you hold and grow your market share. 

Impacts such as consumer trends, market opportunities, regional and global events and company leadership decisions can affect your business's growth. Therefore, learning about the different strategies is crucial to deciding how to best implement your growth strategy.  

What is Business Growth?

Business growth is the stage of development where a business expands its operations to generate more profit, broaden its customer base, and/or increase market share. Expanding operations can mean: 

  • Hiring more staff
  • Opening new locations
  • Producing more products and services 
  • Implementing a marketing strategy 
  • Altering production methods to make them more efficient
  • Changing your products or services to make improvements 
  • Implementing new technology 
  • Combining two or more businesses 

One indicator to tell if your business is experiencing growth is if you're selling more of what you built to an expanding customer base at an increasing rate. 

An essential factor in implementing a small business growth strategy is to use key performance indicators (KPIs) to measure your success. The first step in doing this is figuring out what specific goals you want to achieve, then breaking those down into actionable steps you can take. The KPIs will tell you how much your business is growing and how close you are to your goals. 

Why is the Growth Stage of a Business Important?

You may be successful where you are, but that doesn't mean consistent growth shouldn't be part of your plan. Staying stagnant with your business operations will allow your competition to take hold of the market. Consumers are always looking for the next best thing, and by ensuring business growth, you stay competitive with changing demands. 

If you do not implement a business growth strategy, you will miss out on opportunities such as: 

  • Increased revenue 
  • Expanding customer base or expanding into a new market 
  • Getting ahead of the competition
  • Creating more efficient procedures 
  • Taking advantage of new opportunities 
  • Attracting top talent 
  • The ability to handle market fluctuations 

The growth stage of a business is important because it will give you a better reputation for being innovative, sustainable and reliable.

Main Types of Growth for Businesses

Your unique circumstance will determine which type of business growth strategies you choose to implement. Therefore, it is important to familiarize yourself with the different growth opportunities to decide which one will best suit your needs.

Organic business growth 

Organic business growth is when a business grows by its own processes and operations. It is an internal method where businesses grow by introducing new products, market expansion or taking advantage of new technology. 

Internal business growth can be implemented through innovation and research to introduce new products. Small businesses usually start with one product or a limited range of products. Once you see that your product is successful, you can begin to grow by diversifying your product range, so your customers have more options. Widening your range of products will mean that it's more likely that a customer will find something that will meet their needs and, in turn, will increase your business's revenue. 

An important aspect of making this type of growth successful is engaging in research and development to ensure these new products fit the needs of your existing customer base or target market. Instead of creating many new products all at once, start with one or two. This will help you gauge the consumer's response to see what works and what doesn't. 

Another method for organic growth is selling to new markets. One way this can be done is by selling overseas – which can open you up to a whole new range of customers. However, this method can be risky due to differences in languages, laws and cultures, so it's important to look at marketing strategy to compensate for the differences. For example, McDonald's uses different ethnicities in their marketing material to match the country they are advertising to.  

You may also need to make slight adjustments to your products. Another example from McDonald's is that they change the menu to fit different preferences in varying parts of the world, such as: using curly fries in Germany, spicy shrimp burgers in Japan, and congee in China. And to meet religious beliefs, instead of selling pork breakfast patties, they have halal chicken in the United Arab Emirates.

At the same time, businesses can also leverage new technology to target new market segments and grow organically. For example, companies can use e-commerce to enable customers to buy products online – opening the business up to customers who do not live near a store. 

New technology, such as social media advertising, has also allowed businesses to target users based on information stored on these social media sites. 

Entering new markets may be risky and expensive, as knowledge of these markets can be limited, and money needs to be spent on establishing the business's name in these markets. However, if done well, it can open the business to substantial organic growth, as they are opening the business to more significant sources of revenue. 

Inorganic business growth  

Inorganic business growth is achieved through mergers and takeovers. This method typically sees growth results quicker than organic business growth methods. 

Mergers are when two or more companies come together to form a new company. The two companies no longer exist as single businesses. Instead of being separately owned and operated, they join forces to move forward as a single new entity. Mergers bring growth to the businesses involved because they can combine their assets to become more prominent, efficient, and competitive in the market. 

Takeovers are when one business decides to purchase and own another business. With this purchase, they now own land, buildings, technology, and intellectual property – generally meaning that the business that took over will take control of all the other business's assets. 

The critical difference is that there is no new company being formed. One business is taking the assets of another – usually a smaller business. An example of this is when Facebook bought Instagram for $1 billion. Facebook now has Instagram in its portfolio and controls its assets such as the name and technology.  

Different methods exist for a business to merge with or take over another. These include: 

Backward vertical integration

This occurs when a business takes control of another business earlier in the supply chain. In other words, backward vertical integration is achieved when a business controls some aspects of the supply chain. This means that the business will not only distribute the products it sells but it can also be involved in the creation and development of that product before it reaches the consumer. 

An example of this is Michelin Tires completing a takeover over a rubber producer that could be used to manufacture Michelin's tires. This would benefit Michelin because they now have more control back in their supply chain, which should, in turn, reduce unit costs and improve their access to the rubber used in manufacturing. 

Forward vertical integration

This occurs when one business takes control of another company that operates at a later stage in the supply chain – closer to the end consumer. One example is Amazon's takeover of WholeFoods. Amazon was a minor player in the grocery business. Still, after acquiring 460 retail outlets in the seizure of WholeFoods, they can now sell groceries directly to the customer face-to-face. It is moving them one step further to where most people do their food shopping. 

Horizontal integration

This is when businesses come together through a merger or takeover and operate in the same industry in the same stage of the supply chain. Before the merger or takeover, these two businesses were likely competitors. 

Kraft and Heinz are good examples of this, as they were two competitors in the same industry and were at the same stage in the supply chain. They no longer compete for attention from the same target market but are working together as one new entity.  

What Factors Impact Business Growth?

This business structure will directly impact the company's ability to grow, as each structure is tailored to fit the unique needs of individual businesses. Choosing a structure that doesn't match your demands can slow down efficiency, halting any growth. Some examples of business structures include functional, divisional, matrix, and flat. 

Customer loyalty is another big player in impacting business growth. By gaining repeat customers, you will be able to learn where your business is succeeding and then start expanding on those methods to entice new customers. 

Unfortunately, external factors will also influence your business's growth potential, including the economic, political, and cultural conditions of the business's location. At the same time, these factors can also refer to markets on a global scale. 

While businesses can not directly control these external factors, they can try to mitigate their impact and damage on operations. To do so, business owners can regularly monitor their environment and market developments as they progress. Consider how these factors will affect the business currently, in the future, and over multiple years, if not decades.

Tips for Handling Business Growth

Always communicate your vision to the trustworthy people in your business – don't hold back! You need other people's help to bring your business growth to fruition, and you may be surprised by the ideas your colleagues come up with. 

Stay focused on your vision, and be prepared to make sacrifices. Create a list of priorities on where you spend your time and money, as this will help gauge where sacrifices can and can not be made. Expanding your business may mean you can't attend certain social functions or can't afford to buy the new car you wanted – but this is all part of the process of making your business into what you wanted it to be. 

Know and understand the length and breadth of your target market by performing quantitative and qualitative research. Doing this before you expand will help you avoid any mistakes down the road in meeting consumers' expectations and needs. While completing the research, you can look out for buying patterns and how the consumer spends on day-to-day life. Seeing how consumers spend their time will allow you to gain critical insights and help you better relate to them. 

Never underestimate the competition. Performing in-depth research analysis on direct and indirect competitors will help you learn from their mistakes and allow you to differentiate yourself from them. Look for what your competitors are missing in meeting consumers' needs, and try to fill those needs with your products or services. 

Lastly, stay organized by keeping detailed records. Doing this will allow you to have a better understanding of where your business stands financially and will be able to see any roadblocks that might halt growth down the line. Keeping this information in mind will help you plan for the future and create strategies to combat any issues that may arise.

You can use many tools to ensure rapid growth for your business. Accounting software like QuickBooks Online makes tracking revenue generation and expenses easy and keeps a detailed eye on where your finances are going. Additionally, you will have access to automated financial reports that will give you insights into your business, so you make better decisions and focus on growth. 

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