Only about two-thirds of businesses with employees survive two years, and only 56% survive five years, based on figures from the Small Business Administration. The causes run the gamut: from poor financing to lack of market research. Ultimately, these reasons boil down to one underlying problem: the lack of a solid growth strategy.
Don’t let these statistics scare you. Instead, let them be a cautionary tale. Without the proper planning, investment, and understanding of your business and its market conditions, your bold new idea may end up by the wayside like so many other would-be innovations.
This week, we want to share a guide full of resources and information that will ensure your business grows sustainably.
Growing a business
Prioritize your research
Far too often, entrepreneurs have started ventures without any inkling of a plan. It’s a myth we’ve propagated for years— lacking any experience or financial security, a brazen college student sets out and turns his dorm room idea into a million-dollar business.
Except the reality is much messier. In fact, the lack of proper research is the number one cause for most failed startups. They either didn’t understand the competitive landscape or the customer enough to impact the market. Before reaching out to investors for funding, even before hiring your first employee, you need to do your homework.
There are two kinds of research: primary and secondary. Primary research involves gathering data first-hand, while secondary research involves using data found by a third-party.
Here are a few examples of primary research sources:
– SWOT and PEST analysis
– MVPs (minimum viable product) and prototype designs
– Focus groups
– One-on-one interviews
– Social media data
Here are examples of secondary research sources:
– Industry data and reports
– News articles
– Press releases
– Sales figures
– Third-party studies and surveys
Each method has its advantages and disadvantages, but some experts do stress the importance of primary research for startups or businesses looking to innovate, as it can yield more relevant data.
An early prototype of Facebook, back when it was called Thefacebook and only served college students.
As entrepreneur and author Eric Ries puts it, “an experiment is more than just a theoretical inquiry; it is also a ‘first product.’ What percentage of people in the target market actually perform the behavior you expect of them? The extrapolation won’t be perfect, but it will establish a baseline behavior that will be far more accurate than market research.”
Your market research should help to answer four important questions:
- Who are your customers?
- What do they buy now?
- Why do they buy?
- What will make them buy from you?
Hone in on your value proposition
After making progress in learning about your customers, you need to be able to properly describe and demonstrate the value you can provide to them. Note, this isn’t the same as being able to describe your product or service. Value proposition (also known as USP or Unique Selling Proposition) is about answering “what do customers get out of it?”
The value proposition begins with value creation. It’s not enough to say you make the best guitars in the industry; you have to demonstrate it—through craftsmanship, design, sound, and customer service. How does your business solve a customer problem in a way that other competitors don’t address?
Here’s how you can craft a killer value proposition:
1. Clear – Write in plain language for anybody to understand. The proposition is about communication, not extravagance.
2. Convincing – Think deeply about what makes your products unique and valuable. Is it a different way of doing things in the industry? Is it a new standard of quality? Whatever it is, you have to believe it yourself, if you want customers to, as well.
3. Concise – Value propositions are no longer than a sentence or two. This helps keep the focus on the actual value, not on the details.
Examples of successful value propositions:
– Lyft – “Rides in Minutes”
– Apple Macbook – “Light. Years Ahead.”
– DuckDuckGo – “The search engine that doesn’t track you.”
– Pinterest – “A few (million) of your favorite things.”
– Skype – “Skype makes it easy to stay in touch.”
– Spotify – “Soundtrack your life.”
So while writing a value proposition is essential, it acts as a guiding principle, not a slogan in which to brand all your products. Your value proposition should inform your tasks and your highest priorities within your business.
Set your success metrics
Startups are like science, and every experiment has to be measured empirically. Otherwise, how could you know if your actions are making a positive impact on your business?
Unfortunately, so many people rely on “vanity metrics” — numbers that seem to indicate progress but, in reality, only create the illusion of progress. For example, a restaurant with thousands of followers on social media may still struggle with gaining foot traffic.
Observe your business’s sales funnel from start to finish. How can you more accurately measure the success of your business’s efforts? Taking the restaurant example once more, it may look like this:
1. Awareness stage – Grabbing attention with press releases, social media posts, direct mail, or online advertising. Metrics may include views, page visits, likes.
2. Consideration stage – Pushing customers to learn more, by visiting a website, social media account, or physically in-store. Metrics may include direct messages, calls, or even incomplete online orders.
3. Decision stage – Encouraging the customer to make a transaction with the business. Metrics may include online orders, in-store dining, pick-ups, drive-throughs.
4. Retention stage – Inviting the customer back for repeat business. Metrics may include reviews, surveys, repeat visits, or referrals.
As you can see, each stage carries a unique objective and accompanying metric for success. Instead of focusing solely on ROI, you can judge the success of each effort in the funnel by breaking it up. Note that other funnels have even more stages, depending on which model you choose.
Pivot or persevere
There comes a major point in every entrepreneur’s journey where they have to evaluate their progress and choose between pivoting to a new idea or persevering.
Netflix has one of the most famous examples of a pivot. Originally a movie rental service delivered via mail, Netflix gradually transitioned to online streaming. In 2019, Netflix had 60 million online subscribers, but only 2.7 million mail-delivery subscribers.
In contrast, Facebook is an excellent example of a company that persevered during its toughest times. Early on, Facebook refused to do advertising while it built its initial audience. Despite the ire of investors, the social media company continued to grow exponentially and has almost 2.45 billion users today. While it has explored video, location marketing, live streaming, and other new features, networking through private and public messages continues to be its main draw.
Should a company choose to pivot, they must pick a path that has been proven potentially successful in their primary research experiments. But if a company must persevere, then it must find ways to better utilize its business resources and partnerships to deliver a more enticing product.
Types of growth strategies
Entrepreneurs understand that growth comes in a multitude of ways. So how can one know which growth strategy is right for their business?
One reliable tool is known as the Ansoff Matrix, sometimes referred to as the product market expansion grid. Developed 1957 by H. Igor Ansoff, the Ansoff Matrix offers a simple yet intuitive visual for depicting the risks involved with growth.
Let’s dive into each strategy to better understand them:
Market penetration strategy
Out of the four strategies, market penetration is considered the safest because it involves focusing on your existing customers and existing offerings. There’s no need for additional market research or R&D of new products. Common market penetration strategies include new retargeting campaigns, loyalty/rewards programs, sales promotions, or product updates.
E.g. Apple releasing a new iPhone, Nike releasing new sneakers
Market development strategy
With a market development strategy, the goal is to sell your existing products to new markets or new segments of your existing market. Companies using this strategy must invest their time and resources into better understanding their new market, and adapting existing products based on their findings. Common market development strategies include launches in different countries, the use of alternative channels (online, direct mail, cold-calling), and targeting specific segments in your audience (such as by age or location).
E.g. McDonald’s adapting its ads to the Japanese market, international movies with localized subtitles/dubs
Product development strategy
Conversely, a product development strategy is about offering a new or different product to your existing market. Product development strategies include bundling, developing complementary products and services, or improving the customer experience.
E.g. Instagram adding its live streaming feature, Popeyes introducing its chicken sandwich
Finally, diversification represents the riskiest strategy because of the unknowns involved with a new market and a new product. Previous experience and research will not be as useful. Common diversification strategies include new product lines or pivoting to a new business model.
E.g. Apple’s iPod announcement, Uber’s introduction of Uber Eats.
The first iPod commercial. Up until 2001, Apple was known for its computers.
No one strategy is superior to the rest. It is generally recommended to begin with a market penetration strategy. From there, companies can more closely analyze opportunities to grow without alienating their core audience.
Developing a customer-centric culture
“The customer is always right,” entrepreneurs and managers love to say. Except when it actually comes down to providing a customer-centric experience, businesses continually fall short. PwC reported that only 38% of U.S. consumers believe that the employees they interact with understand their needs.
No matter your growth strategy, your business will invariably count on its experiences with real customers. At the end of the day, all market research and competitive analyses are incomparable to the lessons learned from one-on-one interactions with customers. Customer-centric cultures like Apple and Disney have found ways to grow based on listening to their customer feedback.
Here are a few essential ingredients for building a customer-centric culture.
Before any major initiative or overarching plan, empathy must be at the root of every interaction. Companies must understand that customers are just like them; they are human. They have basic needs and wants. By listening to their main pain points and their aspirations, companies can pivot from products they think customers want, to products that customers genuinely desire.
A great example of a company putting this in action is Facebook and its Empathy Lab. Whenever the company releases a new product or adds a new feature, the Empathy Lab works with blind, deaf, and disabled users to get their feedback. The goal is to learn about how to make services more accessible to everyone, regardless of the differences in their experiences.
Once empathy is instilled in the psyche of a company, employees must be trained in customer orientation. This is the process of understanding and catering to a customer’s long term wants and needs. Not merely leadership lip-service, this is a business-wide initiative involving everyone from the bottom to the top.
Eddie Bauer demonstrates customer orientation with its lifetime guarantee and returns policy. If you buy clothing or footwear from the company and it doesn’t function as designed, you can send it back for a free replacement. Few companies take on the risk of a lifetime guarantee, but Eddie Bauer makes it a core aspect of their product offerings and service.
Every business decision must be based on actionable data, ideally from customer interactions. Any other strategy may as well be a shot in the dark. Today, businesses are finding more creative and nuanced manners of uncovering the intent behind customer behavior. From social media engagement to AI-powered analysis, there is an option for every business, small or large.
Streaming services like Hulu analyze each viewer’s behavior to create a personalized list of recommendations. Everything from watch history to time spent watching, have influenced how users discover new content, and how the company produces new shows. Insights can lead to an unprecedented level of personalization.
Companies tend to have expectations of what customers like but are blindsided by how customers behave in reality. That’s why both employees and leaders must test their assumptions by engaging with real customers— through interviews, focus groups, or other forms of direct communication. Feedback is vital for improvement, and the tighter the feedback loops, the quicker you can respond.
Even today, the world runs on online shopping and delivery, but companies continue to provide in-person demos. Take a stroll through a local Best Buy or Sprint store, and you’ll see employees enthused to greet you. They’ll answer technical questions you may have, or demonstrate the latest product. These direct, physical interactions are something that simply can’t be replaced by a website.
Last but by no means least, companies must deliver exceptional customer service from the first touchpoint to the last. This involves observing and checking in on the customer at every stage to ensure their expectations are met, if not surpassed. Customer service is what can transform a first-time buyer into a long-term customer.
Perhaps no better example exists than that of the hotel industry, specifically Ritz-Carlton. In one story, customer experience expert and author John DiJulius shared his experience at a Ritz-Carlton hotel, where he ended up leaving his laptop charger. Not only did the hotel ship it to him the next day, but they also left this note with the package: “Mr. DiJulius, I wanted to make sure we got this to you right away. I am sure you need it, and, just in case, I sent you an extra charger for your laptop.” By going the extra mile, Ritz-Carlton not only helped someone but secured a lifetime customer.
Customer retention strategies
Harvard Business Review believes that acquiring a new customer is anywhere between 5 to 25 times more expensive than retaining an existing one. If you want your company to grow, you have to prioritize your existing customers over potential customers. When done right, your most loyal patrons will spread the word of your customer-centric reputation.
But even customer retention must be measured using the proper success metrics, or Customer Success KPIs. These include:
– Churn rate – the rate at which customers stop subscribing or purchasing from a company.
– NPS (Net Promoter Score) – the likelihood of a customer to recommend the product to a friend or relative.
– Activity level – the frequency a customer uses a service or product. It can also reveal signs of bottlenecks or poor design choices.
– Product utilization – a measure of how often a customer uses certain features. It can also refer to the number of product features a customer uses.
With that in mind, let’s explore some of the common ways a company can continue to engage their customers past the initial sale:
You may have seen this with credit cards, cafes, and restaurants before: the more times you return to a particular store, the more points you earn, which can then be redeemed for free meals, discounted service, and other rewards. It’s a simple concept but one that encourages repeat orders.
Get your customers involved in your brand’s community. Set up hashtag challenges, ask people to send in photos with their product, or simply respond to feedback and criticism. Companies can learn a lot from observing and interacting with customers on social media.
Far too many businesses use a single spreadsheet to store all their customer information, or worse, they keep it in their heads. Any larger business will tell you that CRM can determine the difference between a lead and a loyal customer. Not only will they keep track of who’s who, but they’ll also allow you to analyze their entire experience, so you can better tailor your communications to them.
Salesforce, one of the most popular CRM applications available.
Blogs and newsletters
Content is still king in 2020. Blogs and newsletters offer your company an outlet to demonstrate expertise, share important information, and connect with audiences across the world. The key is to provide something valuable and relevant, something your customers will seek out.
Customer-focused growth strategies are dense topics, something we can write books about. Even the resources here are mere starting points for a lifetime’s journey of discovery. The most important takeaway is that for your business to grow, you must continually learn about your customer’s actual behavior. That requires time, investments, and patience to observe their habits and ask honest questions. In some cases, it may involve admitting shortcomings and pivoting to something new. But after all is said and done, no one can tell you more about your business than your customer.