Last week I attended a peer mentoring session with some new start businesses. Two themes emerged:
- Fear that a too rapid growth spurt would result in a struggle with cash flow and resources; and,
- Confusion as to whether to provide a tightly defined product or whether to provide a wide range.
The first issue came from a brand new company which was receiving interest in its product from several large companies. The business feared that if they took on one of the contract offers they had received they would have to either expand very rapidly into larger premises; employing more staff; or they would have to work for only one customer rejecting business from other customers. They feared that working for one customer would limit their market and when the contract ended, they would have put off others by their previous rejection of work offers.
One tool the trader could use to define an appropriate growth strategy is a TOWS matrix. Note that TOWS is SWOT backwards.
Most funding organisations who support new state businesses ask applicants to conduct a SWOT analysis. This lists the Strengths and Weaknesses present within a business and the Opportunities and Threats exterior to the business.
So for the above mentioned business the following could apply:
A TOWS matrix takes these factors and uses them to develop appropriate strategies. Four strategy choices are available:
- A Maxi-Maxi Strategy – Using strengths to maximise opportunities
- A Maxi- Mini Strategy – Using strengths to minimise weaknesses
- A Mini-Maxi Strategy – Minimising weaknesses by taking up opportunities
- A Mini-Mini Strategy – Minimising weaknesses and avoiding threats
Using this TOWS matrix we were able to offer several options to the business which fit these four categories and help to structure the business owner’s thoughts as to how to progress.
By carrying out the TOWS analysis, options for the future growth of the business were put down in a structured way which left the business with clear options and several strong ideas as to how to take the business forward with a steady and sustainable growth plan.
The second issue came from a firm looking to operate in three areas, commercial credit checks, credit control and debt recovery.
Credit control offered a steady income. Debt recovery offered potentially larger returns but with increased complexity and risk. So should the business focus in on one of these services or try to satisfy all service options.
Marketing theory provides several tools to examine product mixes and directional policy. Several directional policy matrices have been developed over the years. Some of the more prominent examples are the Shell directional policy framework, the General Electric Matrix and the McDonald/Wilson Directional Policy Matrix.
All these models compare the attractiveness of a particular market with the business strengths within a business.
In our credit control example, the debt recovery work is highly attractive but risky. Returns may be high but they are not assured. The business was a sole trader at the initiation stage of the businesses lifespan. In such circumstances ‘cash is king’. The business had significant experience in credit control work (the management of invoices once issued) and that business provided lower returns which were steady in nature.
By placing these factors in one of the directional policy matrices strategic options can be developed.
For example, the GE matrix offers four strategic options:
- Invest for growth
- Manage selectively for earnings
- Harvest for cash
- Withdraw from Market.
Where the market is attractive and business strengths are strong, you invest in that market. Where there is only medium attractiveness and medium business strengths, you manage the sector selectively for earnings. Where business strengths are low or attractiveness weak, you either harvest that sector for cash or you divest.
In the case of the credit business, a suitable solution would be to concentrate on the credit control work as this provided the best mix of attractiveness and business strength whilst managing debt recovery work for earnings as and when it arose.
Obviously a full analysis using these marketing tools requires significant levels of data and time to decide on the correct strategies. The above solutions are snapshots based on an afternoon’s brainstorming.
Philmus Consulting can help your business to develop structured strategic options which you can use to drive growth in your business.