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How Winning Startups Tackle Tough Growth Constraints

 

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There is nothing wrong with growing your business by selling more of your solution to more people in more cities, states and countries. That’s called organic growth, and everybody does it. But in my experience as a startup advisor, too many entrepreneurs get stuck there, and always find excuses for failing to explore mergers, acquisitions, partnerships and alliance alternatives.

Excuses for not thinking outside the box usually include limited personal bandwidth, not enough cash, and fear of the unknown. All of these are real, but the best entrepreneurs find these no more daunting than the challenges they face every day, and find time to work on the business, as well as working in the business. Here are the key steps I recommend to keep you growing:

  1. Identify the single biggest current constraint on growth. For example, at any given moment in your business, you may be limited by development, marketing, or sales. The organic solution is to hire more people, spend more money, and ramp up your focus. But finding money and hiring more people always takes longer than expected—meaning slow growth.
  2. Evaluate outsourcing as a quick solution to break the constraint. These days, there are many companies around the world with the skills and equipment you need, ready to assist with development resources, marketing programs or call centers immediately. Of course, they all prefer cash, but some may work for future revenue or startup equity.
  3. Investigate strategic alliance alternatives. An example of a good strategic alliance was Barnes & Noble bringing Starbucks into their bookstores. It was a win-win deal, with new customers and better service for both. Startups can use alliances just as well to get to new customer segments, block competitors and gain credibility from the logo of others.
  4. Acquire or merge with another company. Acquiring another startup with a strong development team may be far faster and cheaper than building your own, and can be an equity exchange rather than cash. Mergers and acquisitions can also be win-win, if you have customers they need for a product complimentary to yours. Think outside the box.
  5. Negotiate a “co-opetition” deal with a competitor. Win-win deals with competitors are always possible, for example, to reduce costs of a common component, to penetrate new markets, set industry standards, or share a sales channel. Just keep your customer’s best interest as your first priority, and resist the urge to kill every competitor.

Smart entrepreneurs make these five steps an iterative process and a way of life, attacking one growth constraint after another. Of course, it’s important to maintain a balance of organic growth versus the more creative approaches. Total reliance on partners and acquisitions may de-motivate internal teams, or increase your vulnerability to conflicts of interest or partner control.

The smart approach is to nurture a pipeline of growth alternatives and relationships, similar to your customer acquisition pipeline. This requires that you maintain at least a minimum business development focus and skillset inside your own organization to keep these options on the table. Business development must maintain the balance between internal and external growth options.

I always recommend organic growth options first for things that represent your core competency, since it allows you to better protect intellectual property and retain and motivate key team members. Organic growth also has the advantage of driving your product and process innovation, which is important for differentiation and long-term competitive advantage.

The advantages of non-organic growth, in addition to speed and potential cost savings, include the development of new management skills and access to market segments, which will ultimately be required for survival as a mature multi-billion dollar company or an attractive public company looking to satisfy stockholders with an extended record of high growth.

If you want your business to be seen as a premium startup by professional investors, able to command unicorn valuation multipliers, you need to at the very least double your revenue every year. That’s not likely to happen from organic growth alone, so it’s time to get familiar with the growth steps outlined here. How many of these alternatives are already part of your growth plan?

 


 

Reprinted by permission.

Image Credit: CC by John

About the author: Martin Zwilling

Martin is the CEO & Founder of Startup Professionals, Inc., a consultancy focused on assisting entrepreneurs with mentoring, business strategy and planning, and networking.

Martin for years has provided entrepreneurs with first-hand advice, mentoring and business plan assistance as a startup consultant. He has a unique combination of business and high-tech experience, and executive mentoring and connecting startups with potential investors, board members, and service providers.

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