If you run an existing small business or want to introduce sustainable business growth to your startup, then the subject of growth modeling is especially relevant to you.
In this article, we'll walk through the following essentials:
A growth model is a representation of business metrics that can identify key drivers in your business's growth and help you project key variables for the future of your company.
When built right, a good growth model can map out the user growth and expenses of a startup or small business. It can also provide the opportunity to test your underlying assumptions and contrast different business choices. It's handy for people who run small businesses and for entrepreneurs to effectively build a financial plan that can help to answer questions about financial profitability and sustainability.
Before getting into the importance and usage of available growth models, let's shed a little light on how growth modeling can be applied to bootstrapped businesses versus venture capital-funded businesses. This is not a debate over which business type is better, but is instead an analysis of three important factors that will have a vital effect on business or startup decisions.
As you might expect, bootstrapped businesses need to be more conservative and strategic with their expenditures in order to achieve sustainable growth. However, there is increased pressure on VC-funded companies to demonstrate rapid growth on a strong trajectory in order to earn sufficient funding.
Businesses do not grow by accident. Especially in their early stages of growth, they must implement suitable growth strategies to move in the right direction.
Growth can be defined in a number of ways, but it tends to include top-line revenue growth, the movement of the business into bigger premises, taking on more staff, significant increases in turnover, taking on a new product line or lines, buying another business, and similar landmarks.
It becomes necessary to adopt a growth strategy when your company begins to experience obvious indications of rapid growth. If you do not track or plan your growth, then you will miss out on key opportunities and fail to expand in a way that is sustainable.
Using a combination of multiple growth strategies can be fruitful for companies depending upon factors in their checklist, such as company size, financial situation, target market, resources, company’s age, customer structure, scale of operations, market position, current circumstances, ability, and context.
Three types of growth modeling strategies are explained below.
The main purpose of the scaling strategy is to increase the product's adoption within the company's established area of expertise. This approach targets existing customers and can also attract new customers by using existing production channels.
This strategy requires a lot of investment and a large matrix of people. As a result, VC-funded businesses may be better suited to implement this strategy than bootstrapped businesses. Small businesses can only adopt this method if their existing product is in line with market expectations. This tactic allows businesses to build a relationship with a wider audience and generates useful input for a growth model built on existing infrastructure.
This strategy diversifies your product offering by launching existing models and services into new and different regions. These regions can either be geographical or online. This strategy can be a risky one and should only be adopted if your company is in a strong financial position. Businesses that are still transitioning from survival to growth should not attempt this strategy.
This strategy can be handy for early-stage businesses. Granulating focuses on the aggressive growth of small units, also known as subsidiaries, in fresh and new areas of the market by utilizing existing resources and business information. It should be noted that to achieve this goal, a proper set of previous resources and market knowledge must be regularly maintained to use for granulating further.
Founders can combine these growth strategies to ensure long term competitive advantages for their businesses. As with all experimentation, it's best to attempt new growth strategies in a limited capacity before expanding them across your organization.